<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
RF MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 3674 56-1733461
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>
7625 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
(910) 664-1233
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Office)
---------------------
DAVID A. NORBURY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RF MICRO DEVICES, INC.
7625 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
(910) 664-1233
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES TO:
<TABLE>
<C> <C>
JEFFREY C. HOWLAND MARK G. BORDEN
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC DAVID SYLVESTER
1600 BB&T FINANCIAL CENTER HALE AND DORR LLP
200 WEST SECOND STREET 1455 PENNSYLVANIA AVENUE, N.W.
WINSTON-SALEM, NC 27101 WASHINGTON, D.C. 20004
(910) 721-3516 (202) 942-8400
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------
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, 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 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 number 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
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<CAPTION>
=================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock................. 2,917,550 shares $13.00 $37,928,150 $11,494
=================================================================================================================
</TABLE>
(1) Includes 380,550 shares of Common Stock which the Underwriters have the
option to purchase from the Company solely to cover over-allotments, if
any. See "Underwriting."
(2) Estimated solely for purposes of calculation of the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 28, 1997
2,537,000 SHARES
(RF MICRO DEVICES LOGO)
COMMON STOCK
Of the shares of Common Stock offered hereby, 2,500,000 shares are being
sold by RF Micro Devices, Inc. ("RFMD" or the "Company") and 37,000 shares are
being sold by the Selling Shareholders. The Company will not receive any portion
of the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have its Common Stock approved for
quotation on the Nasdaq National Market under the symbol "RFMD."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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===================================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......................... $ $ $ $
Total(3)........................... $ $ $ $
===================================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses estimated at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
380,550 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
------------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
, 1997
<PAGE> 3
DESCRIPTION OF FOLDOUT FACING FRONT COVER PAGE
The background of this graphic consists of a photograph of the earth taken
from space, surrounded by darkness. Superimposed across the globe is the logo of
the Company, which consists of the letters "RF" in large capitals and a
stylized depiction of a radio signal being emitted immediately to the right,
with the words "MICRO DEVICES" in smaller type stretching across the length of
the logo at the bottom. The words "A WORLD OF TECHNOLOGY" appear in two lines
in white lettering across the top of the graphic. The bottom third of the
graphic contains three inset photographs. The photograph to the left shows a
black oblong communications device component, viewed from above, resting on a
piece of rock. The component bears the lettering "RFMD RF2103" in white.
Above the component is the tip of a scientific instrument. Immediately below
this picture are the words "Power Amplifier - GaAs HBT Technology." The middle
photograph shows two communications device components against a multi-colored
grid pattern. One of the components bears the lettering "RFMD RF9901," and the
other "RFMD RF9902." Beneath this picture are the words "FSK Transmitter -
Silicon Technology" and "FSK Receiver - Silicon Technology." The photograph to
the right shows a communications device component against a colored background
and bearing the letters "RFMD RF2423." Beneath this picture are the words
Transmitter [GaAs] MESFET Technology."
<PAGE> 4
DESCRIPTION OF INSIDE FRONT COVER PAGE FOLDOUT
The inside front cover page foldout consists of a single large photograph
with a number of smaller inset photographs. The large photograph shows a
portion of the earth as seen from space, with darkness above it. Across the
top in white lettering are the words "A WORLD OF PRODUCTS." At the left, in
smaller type, are the words "WIRELESS SECURITY SYSTEMS," below which is a
picture of four components typically found in security systems, including a
motion detector and a control panel. A smaller photograph inset at the upper
left corner of this photograph shows a black oblong communications device
component against an orange grid background and bearing white letters reading
"RFMD RF9902." Immediately above are the words "FSK Receiver". A similar small
photograph appears at the lower right corner; the device in this case bears the
letters "RFMD RF9901" and the wording above it reads "FSK Transmitter." In the
middle of the large photograph is an inset photograph of a cordless telephone
and its base unit. To the right are the words "SPREAD SPECTRUM CORDLESS
PHONES." At the upper right corner of this photograph is a smaller inset
photograph showing a communications device component with the lettering "RFMD
RF9904." To the immediate left are the words "LNA Power Amplifier & T/R
Switch." In the lower right corner of the large photograph is a photograph of
three different models of wireless communications devices. Immediately above
are the words "INDUSTRIAL RADIOS." In the lower left corner of this photograph
is a smaller inset photograph of a communications device component bearing the
letters "RFMD RF2103." Immediately above are the words "Power Amplifier."
<PAGE> 5
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
RF Micro Devices(R), the RF Micro Devices logo and Optimum Technology
Matching(R) are registered trademarks of the Company. This Prospectus may
contain certain other trademarks and service marks of other parties.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
(i) reflects the automatic conversion of all outstanding shares of Preferred
Stock of the Company and a convertible note (the "TRW Convertible Note") held by
TRW Inc. ("TRW") into an aggregate of 9,065,431 shares of Common Stock upon the
consummation of this offering, (ii) gives effect to an amendment to the
Company's articles of incorporation to be adopted prior to the consummation of
this offering pursuant to which the Company will be authorized to issue
50,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock and
(iii) assumes no exercise of the Underwriters' over-allotment option. See
"Description of Capital Stock" and "Underwriting."
THE COMPANY
The Company designs, develops and markets proprietary radio frequency
integrated circuits ("RFICs") for wireless communications applications such as
cellular and PCS, cordless telephony, wireless LANs, wireless local loop,
industrial radios, wireless security and remote meter reading. The Company
offers a broad array of products including amplifiers, mixers and
modulators/demodulators, that represent a substantial majority of the RFICs
required in wireless subscriber equipment. The Company designs products using
three distinct process technologies: GaAs HBT, GaAs MESFET and silicon bipolar
transistor. The Company believes that for certain applications, GaAs HBT devices
offer advantages in terms of linearity, efficiency, reduced system complexity
and size.
The wireless communications industry has grown rapidly over the past decade
as cellular, PCS, paging and other wireless communications services have become
widely available and increasingly affordable. As wireless usage grows, wireless
service providers continue to improve the quality and functionality of the
services they offer and seek to offer greater bandwidth for increased capacity.
Capacity and functionality are being addressed by the allocation of less
congested frequency bands and by the wireless industry's movement from analog to
digital signal modulation standards. These digital standards place a premium on
linear power amplification, which can translate into higher quality signals.
The wireless markets are characterized by a proliferation of analog and
digital signal modulation standards including AMPS, TACS, TDMA, CDMA and hybrid
standards. The equipment designed for each standard generally requires unique RF
and baseband integrated circuit solutions which must be designed to meet the
demands of subscriber equipment users for greater functionality, smaller and
lighter equipment, longer battery life and better security, all at reduced
costs. As a result, many OEMs rely increasingly on third party, value-added
technology providers that have the component and systems level expertise to
design, and the production capacity to supply, these solutions. This trend is
particularly evident in the RF segment due to the scarcity of RFIC engineers and
the design complexity of RF technology.
TRW is currently manufacturing all of the Company's GaAs HBT products and
has granted the Company a license to use its GaAs HBT process to design products
for commercial wireless applications. Through its relationship with TRW, the
Company has become a leading commercial supplier of GaAs HBT RFICs. The
Company's GaAs HBT power amplifiers and small signal devices have been designed
into advanced subscriber equipment manufactured by leading OEMs such as
QUALCOMM, Nokia, Hyundai, Nortel and LG. The Company also offers GaAs MESFET and
silicon components through a delivery strategy called Optimum Technology
Matching(R) to complement its GaAs HBT products. Optimum Technology Matching(R)
allows the Company to offer RFIC solutions, on a component by component basis,
that best fulfill OEMs' performance, cost and time-to-market requirements.
The Company's strategy is to focus on wireless markets by offering a broad
range of standard and custom-designed RFICs in order to position itself as a
"one-stop" solution for its customers' RFIC needs. To meet demand for the
Company's GaAs HBT products, TRW is expanding its GaAs manufacturing facility
and the Company is constructing an approximately 50,000 square foot fabrication
facility. The Company believes that operating its own GaAs HBT wafer fabrication
facility will improve its ability to respond to customer demand for GaAs HBT
products and will provide it with greater opportunities to enhance product and
process quality and reliability.
The Company was incorporated as a North Carolina corporation in 1991. The
Company's principal executive offices are located at 7625 Thorndike Road,
Greensboro, North Carolina, 27409-9421, and its telephone number is (910)
664-1233.
3
<PAGE> 7
THE OFFERING
Common Stock offered by the Company............. 2,500,000 shares
Common Stock offered by the Selling
Shareholders.................................... 37,000 shares
Common Stock to be outstanding after the
offering........................................ 14,834,361 shares(1)
Use of proceeds................................. To finance the construction
of a new wafer fabrication
facility, to repay certain
indebtedness and for working
capital and other general
corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.......... RFMD
SUMMARY FINANCIAL DATA(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------- ---------------------
1994 1995 1996 1995 1996
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 986 $ 1,688 $ 9,515 $ 5,819 $19,654
Income (loss) from operations............. (2,824) (4,163) (5,244) (3,083) 754
Net income (loss)......................... (2,846) (4,122) (5,188) (3,031) 788
Pro forma net income (loss) per
share(3)................................ (0.43) 0.06
Pro forma weighted average shares
outstanding(3).......................... 12,166 13,379
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ 3,321 $ 3,321 $14,928
Working capital...................................... 7,092 7,092 19,234
Cash restricted for capital additions................ 14,932 14,932 29,932
Total assets......................................... 35,195 35,195 61,802
Long-term debt....................................... 10,809 657 499
Shareholders' (deficiency) equity.................... (10,357) 28,052 55,352
</TABLE>
- ---------------
(1) Excludes (a) 1,044,856 shares of Common Stock issuable upon exercise of
options outstanding at February 28, 1997 exercisable at a weighted average
price of $2.03 per share, (b) 1,000,000 shares of Common Stock issuable upon
exercise of an outstanding warrant held by TRW exercisable at a price of
$10.00 per share if certain conditions are met (the "TRW Warrant") and (c)
149,591 shares of Common Stock reserved for issuance pursuant to outstanding
warrants that have been or may be issued by the Company in connection with
certain financing transactions, which warrants are or will be exercisable at
a weighted average price of approximately $6.48 per share (the "Lender
Warrants"). See "Dilution," "Management -- Stock Option Plans," "Certain
Transactions -- TRW" and "Description of Capital Stock -- Warrants."
(2) The Company uses a 52 or 53 week fiscal year ending on the Saturday closest
to March 31 of each year. Each of the fiscal years ended April 2, 1994,
April 1, 1995 and March 30, 1996 was a 52 week year. The Company's other
fiscal quarters end on the Saturday closest to June 30, September 30 and
December 31 of each year. For purposes of this Prospectus (including the
Financial Statements and Notes thereto), each fiscal year is described as
having ended on March 31 and each of the first three quarters of each fiscal
year is described as having ended on June 30, September 30 and December 31.
(3) Pro forma per share and balance sheet data give effect to the automatic
conversion of outstanding shares of Preferred Stock and the TRW Convertible
Note upon the consummation of this offering.
(4) Pro forma as adjusted to give effect to the automatic conversion of
outstanding shares of Preferred Stock and the TRW Convertible Note upon
consummation of this offering and the sale by the Company of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share, after deducting the underwriting discount and
estimated offering expenses payable by the Company and the application of
net proceeds therefrom. See "Use of Proceeds."
4
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
VARIABILITY OF OPERATING RESULTS; DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS;
GAAS HBT CAPACITY CONSTRAINTS
The Company has experienced and expects to continue to experience
significant variability of its operating results. Future variability of
operating results may be caused by a variety of factors, including, but not
limited to: the demand for wireless subscriber equipment; the rate at which the
Company's GaAs HBT and other products are adopted by customers; the ability of
the Company to commence commercial production at its planned fabrication
facility; the ability of the Company eventually to manufacture and deliver
products in a timely and cost-effective manner at acceptable yields and in
volumes sufficient to satisfy customer demands; the timing of significant
orders; the mix of products sold; changes in pricing by the Company and its
competitors, customers or suppliers; the length of sales cycles for the
Company's products; variations in manufacturing, assembly and test yields;
market acceptance of customers' products; the pattern of end-user or customer
purchasing cycles; the introduction of new products, processes and technologies
by the Company and its competitors; and general industry and global economic
conditions.
A substantial portion of the Company's revenues is attributable to
custom-designed products that are designed and manufactured for specific
customers. Custom products are often manufactured on an exclusive basis for the
originating customer for a negotiated period of time. In late calendar 1995 and
early calendar 1996, the Company's operating results fluctuated substantially
due to high material scrap caused by low production test yields related to the
Company's development of a Code Division Multiple Access ("CDMA") chipset for
QUALCOMM. There can be no assurance that the Company will not experience similar
problems while developing future products.
A relatively limited number of customers have historically accounted for a
significant portion of the Company's revenues, and the identity of those
customers has varied significantly from period to period. For the nine months
ended December 31, 1996, sales to QUALCOMM and Samsung Electronics Co., Ltd.
("Samsung") accounted for 38.9% and 20.3%, respectively, of the Company's
revenues, and sales to the Company's five most significant customers in the
aggregate accounted for 76.2% of revenues. In fiscal 1996, sales to QUALCOMM and
Cincinnati Microwave, Inc. ("Cincinnati Microwave") accounted for 31.3% and
11.9%, respectively, of the Company's revenues, and sales to the Company's five
most significant customers in the aggregate accounted for 61.7% of revenues. The
Company expects that sales of its products to a limited number of customers will
continue to account for a high percentage of its revenues in future periods. The
Company also expects that some of its key customers in future periods may be
different from its key customers in prior periods and there can be no assurance
that the Company will be able in future periods to replace revenues generated by
former key customers in prior periods with revenues generated from existing or
new customers. Due primarily to the Company's inability to meet requested
delivery times and quantity requirements, QUALCOMM has determined to produce
internally certain components and to look to other sources for other components
to replace all products currently purchased from the Company. Accordingly, the
Company expects sales to QUALCOMM to cease in May 1997. Although the Company's
GaAs HBT supplier is in the process of expanding its manufacturing capacity and
the Company is constructing its own GaAs HBT wafer fabrication facility, the
Company remains and will remain subject to capacity constraints with respect to
GaAs HBT products. As a result, there can be no assurance that other customers
will not seek alternate sources for certain high volume requirements. The
Company is attempting to replace the sales
5
<PAGE> 9
previously made to QUALCOMM with sales to other customers. A failure to replace
sales previously made to QUALCOMM would have a material adverse effect on the
Company's business, financial conditions and results of operations.
The Company has significantly increased its expense levels to support its
recent growth and intends to continue to make significant investments in
research and development, capital equipment and customer service and support
capabilities worldwide, especially as it constructs and begins to operate its
own wafer fabrication facility. These investments will make it difficult for the
Company to reduce its operating expenses in a particular period if the Company's
revenue goals for that period are not met. There can be no assurance that the
Company will achieve a rate of growth or level of sales in any future period
commensurate with its increased level of operating expenses and the failure to
do so would have a material adverse effect on the Company's business, financial
conditions and results of operations.
Due to the foregoing factors, as well as other unanticipated factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts or investors. In such event, the
price of the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON TRW
The Company believes TRW is one of only two suppliers of commercial
quantities of GaAs HBT wafers. The Company's GaAs HBT products are fabricated
solely by TRW using TRW's proprietary technologies. For the nine months ended
December 31, 1996, sales of GaAs HBT products constituted approximately 86% of
the Company's revenues. The Company has entered into a supply contract with TRW
pursuant to which TRW is required to deliver to the Company certain minimum
quantities of GaAs HBT wafers until December 31, 2000. However, the Company
currently purchases from TRW, and expects to purchase in future periods, a
quantity of wafers in excess of the minimum quantity of wafers required to be
supplied by TRW under such contract. Although TRW has to date allocated to the
Company a substantial portion of TRW's commercial GaAs HBT wafer production, the
Company nevertheless has experienced significant difficulty obtaining sufficient
production capacity to meet demand for certain of its GaAs HBT products.
Further, although the Company plans to begin fabricating its own GaAs HBT wafers
in commercial quantities in the second half of 1998 using technologies licensed
from TRW, the Company expects to remain dependent upon TRW to satisfy the
Company's GaAs HBT production requirements in the future. The fabrication of
GaAs wafers involves highly complex and unique processes, and a failure by TRW
to manufacture and deliver wafers on a timely basis, to maintain acceptable
manufacturing yields or to continue to allocate to the Company a substantial
portion of TRW's commercial wafer production would have a material adverse
effect on the Company's business, financial condition and results of operations.
TRW currently is in the process of expanding its fabrication facility to
increase its capacity to fabricate GaAs HBT wafers. Technological, personnel and
manufacturing changes and new equipment purchases associated with TRW's
expansion, among other factors, may delay the increase in the number of GaAs HBT
wafers manufactured for the Company by TRW. Accordingly, there can be no
assurance that TRW will be able successfully to expand its capacity in a manner
that achieves acceptable manufacturing yields, cost and quality. Further, the
expansion of TRW's fabrication facility is subject to a determination by TRW to
postpone, downsize or terminate such expansion plans. A decision by TRW to
postpone, downsize or terminate its expansion plans, a delay in such expansion
for any reason or a failure to achieve acceptable manufacturing yields would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Pursuant to a license agreement between TRW and the Company, TRW has
granted to the Company certain licenses to TRW's GaAs HBT and molecular beam
epitaxial ("MBE") processes used to produce certain GaAs HBT products for
commercial wireless communications applications that operate on signals having a
frequency of less than 10 GHz. The Company plans to construct a fabrication
facility and begin manufacturing its own GaAs HBT products in commercial
quantities in the second half of 1998 using processes covered by such licenses.
Such licenses may be terminated by TRW if the Company's facility is not
6
<PAGE> 10
operational, based on certain specified parameters, by December 31, 1998.
Further, certain exclusive licenses for GaAs HBT processes that may be used to
produce products for wireless communications applications may be made entirely
non-exclusive by TRW if the Company fails to meet certain revenue goals. A
decision by TRW to terminate such license agreement or to make the rights
granted therein non-exclusive would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Strategic Relationship with TRW" and "Certain Transactions -- TRW."
CONSTRUCTION AND OPERATION OF FABRICATION FACILITY
The Company currently is in the process of constructing an approximately
50,000 square foot wafer fabrication facility at which the Company intends to
fabricate four-inch GaAs HBT wafers using technologies licensed from TRW. See
"Business -- Facilities." To date, the Company has never fabricated any
semiconductor wafers of any kind. Replicating at the Company's planned wafer
fabrication facility the precise manufacturing processes used by TRW at its GaAs
HBT facility will be labor intensive, technically challenging, time consuming
and logistically complex. It will require significant investments of labor and
capital by both the Company and TRW. The transfer process is scheduled to occur
over a two-year period and the major steps will include facility design,
equipment and material specifications and sourcing, clean room certification,
equipment installation and the hiring and training of skilled production
personnel. Once the clean room is operational, the Company must transfer TRW's
manufacturing process and run test wafers until the manufacturing process is
adjusted to the point where commercial production is feasible. Before production
can commence, wafers must be qualified by individual customers on a
component-by-component basis, even for products previously qualified by TRW at
its facility. While many of the technology transfer steps must occur
concurrently, other steps must occur after the achievement of certain milestones
and thus the delay in one or more steps could materially delay the entire
technology transfer process. As a result, there can be no assurance that the
Company will be able to transfer TRW's GaAs HBT processes successfully or in a
timely manner or that the Company will be able successfully to produce GaAs HBT
wafers in a manner that achieves acceptable manufacturing yields or allows the
Company to offer its GaAs HBT products at competitive prices. The failure or any
delay by the Company to adapt successfully the technologies employed by TRW or
to fabricate GaAs HBT wafers at acceptable manufacturing yields, costs and
quality and in volumes sufficient to satisfy customer demands would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although TRW has agreed to provide the Company with technical assistance,
training and instruction to facilitate this technology transfer, the ability of
the Company to complete a successful technology transfer from TRW will be
subject to numerous risks. In particular, TRW fabricates three-inch MBE wafer
starting material and three-inch GaAs HBT wafers at its facility, while the
Company will fabricate four-inch wafers at its facility. Accordingly, in
addition to replicating TRW's complex proprietary manufacturing processes, the
Company must be able to adapt such processes from three-inch wafers to four-inch
wafers, which involves a number of technical hurdles including the development
of new back-side wafer thinning processes for the larger wafers. These processes
have not yet been developed and no assurance can be given that such development
will be successful. The Company currently believes its fabrication facility will
be operating at commercial levels in the second half of 1998. Until such time,
the Company will purchase its GaAs HBT products exclusively from TRW, which
currently is allocating to the Company a substantial portion of TRW's
manufacturing capacity. The Company believes the risk of losing orders for GaAs
HBT products, particularly from large OEMs who may require significant volumes
of certain products for their wireless devices, will increase significantly
during the second half of 1998 until its fabrication facility has begun
operating at commercial levels. The construction of such facility is subject to
various risks, including inclement weather conditions, unforeseen hazards or
conditions that hinder, delay or increase the cost of development,
unavailability of building materials, unavailability of manufacturing equipment,
construction delays and other conditions beyond the control of the Company.
Accordingly, there can be no assurance that the Company will be able to complete
such construction by the time indicated above. A delay in the completion of such
fabrication facility would have a material adverse effect on the Company's
business, financial condition and results of operations. In this regard, TRW has
the right to terminate the licenses granted to the Company if such facility is
not operational by December 31, 1998. See "-- Dependence on TRW."
7
<PAGE> 11
The fabrication of GaAs wafers involves precise processes that are highly
complex and unique, that require advanced and costly equipment and that are
being modified continually in an effort to improve yields and product
performance. The Company expects that its customers will continue to establish
demanding specifications for quality, performance and reliability that must be
met by the Company's products. Defects in masks, minute impurities in materials
used, contamination of the manufacturing environment, equipment failure and
small imperfections in the fabrication process can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer to be
nonfunctional. In addition, the more brittle nature of GaAs wafers can result in
higher processing losses relative to traditional silicon-based semiconductor
processes. Moreover, the operation of a wafer fabrication facility requires
significant fixed costs, consisting primarily of occupancy costs, investments in
manufacturing equipment, repair, maintenance and depreciation costs related to
such equipment and labor costs related to manufacturing and process engineering.
There can be no assurance that the Company will have revenue to offset such cost
increases.
ADOPTION OF GAAS HBT COMPONENTS
Commercial applications of GaAs HBT technologies are relatively new, and
certain current and potential customers of the Company may be reluctant to
design wireless systems that incorporate GaAs HBT products because of perceived
risks relating to GaAs HBT technology generally. Such perceived risks include
product reliability, the unfamiliarity of designing systems with GaAs HBT
components as compared with silicon or GaAs MESFET components, novel design
requirements, unfamiliar manufacturing processes and uncertainties about the
relative cost effectiveness of GaAs HBT products compared to high performance
silicon-based or GaAs MESFET integrated circuits. Further, there currently are
only two suppliers of commercial quantities of GaAs HBT wafers. Certain
customers may be reluctant to rely on a small company such as RFMD as a sole
supplier of large quantities of critical GaAs HBT components. For the nine
months ended December 31, 1996, approximately 86% of the Company's revenues was
attributable to the sale of GaAs HBT products, and the Company may remain
dependent upon GaAs HBT products to generate a substantial portion of future
revenues. There can be no assurance that additional OEMs will design the
Company's GaAs HBT products into their respective systems, that the companies
that have utilized the Company's GaAs HBT products will continue to do so in the
future or that GaAs HBT integrated circuit technology will achieve widespread
market acceptance. Failure of GaAs HBT to become widely adopted would have a
material adverse effect on the Company's business, financial condition and
results of operations.
MANAGEMENT OF GROWTH
The Company currently is experiencing a period of significant growth that
has placed and will continue to place a significant strain on the Company's
resources. The Company has grown from 67 employees on March 31, 1996 to 112
employees on January 31, 1997. The Company's ability to manage its growth
effectively will require it to implement and improve operational and financial
systems and to expand, train and manage its employee base. In particular, the
Company's prospects depend upon its ability to attract qualified persons with
experience in RF engineering, integrated circuit design, wireless systems and
technical marketing and support. Competition for such persons is intense, and
the number of persons with such experience is limited. The Company also will be
required to manage multiple relationships with various customers, business
partners and other third parties, such as its foundry and assembly partners.
Moreover, the Company will incur significant expenses associated with its rapid
growth and may incur additional unexpected costs relating to its anticipated
expansion, particularly related to its current plan to build its own wafer
fabrication facility. The Company's systems, procedures or controls may not be
adequate to support the Company's operations and Company management may not be
able to achieve the rapid expansion necessary to exploit potential market
opportunities for the Company's products. The Company's future operating results
will also depend on its ability to expand its sales and marketing and research
and development organizations, and expand its administrative support
organization. If the Company is unable to attract qualified persons or manage
growth effectively, the Company's business, financial condition and results of
operations would be materially adversely affected.
8
<PAGE> 12
RELATIONSHIP WITH NOKIA
The Company, TRW and Nokia have entered into an arrangement pursuant to
which the parties have agreed in principle to cooperate to develop and supply
Nokia with RFICs that are manufactured using TRW's GaAs HBT process. The
arrangement contemplates that the Company and Nokia will negotiate separate
agreements to address the development and supply of each product. Pursuant to
the arrangement, the Company has agreed to provide Nokia with access to certain
RFIC technologies and to the Company's GaAs HBT foundry if and when such
facility becomes operational, and Nokia has agreed to provide the Company with
rights to bid for and supply Nokia's requirements for certain RFICs. The
arrangement can be terminated without penalty by TRW, the Company or Nokia for
any reason. The arrangement does not obligate Nokia to purchase any products
from the Company, and there can be no assurance that Nokia will become or
subsequently remain a significant customer or that the Company's relationship
with Nokia will continue. A termination by Nokia or TRW of this relationship
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Customers."
LIMITED OPERATING HISTORY AND OPERATING LOSSES
The Company was incorporated in 1991 and was in the development stage prior
to the year ended March 31, 1995. The Company had net losses totalling
approximately $14.4 million from the period of inception to March 31, 1996. As
of December 31, 1996, the Company had an accumulated deficit of approximately
$13.6 million. The Company expects to incur substantial additional costs to
construct a fabrication facility and expand its operations and to design and
develop new products. Although the Company was profitable for the nine months
ended December 31, 1996, there can be no assurance, due to the Company's history
of annual and quarterly operating losses, its planned substantial expansion in
manufacturing capacity, its dependence on third parties and the difficulty of
predicting the demand for its products, among other factors, that the Company
will be able to sustain such profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON THIRD PARTIES
All of the Company's products currently are manufactured by independent
third parties, and the Company expects to continue to rely heavily on
independent third parties in the future. The Company purchases all of its GaAs
HBT products from TRW, which the Company believes is currently one of only two
suppliers of commercial quantities of GaAs HBT wafers. In addition, the Company
uses two independent foundries to manufacture its silicon-based products and two
independent foundries to manufacture its GaAs MESFET products. The foundries
that supply the Company's GaAs MESFET requirements are owned and operated by ITT
Industries, Inc. and TriQuint Semiconductor, Inc. ("TriQuint"), which are
competitors of the Company. Foundry capacity for GaAs products has been
difficult to obtain at times in the past and the Company is and will remain
dependent on a small number of independent foundries to manufacture and deliver
its products on a timely basis, to achieve acceptable manufacturing yields and
to offer competitive pricing to the Company. Accordingly, the failure of such
independent foundries to manufacture and deliver the Company's products on a
timely basis, to allocate to the Company sufficient capacity to meet the
Company's requirements, to achieve acceptable manufacturing yields or to offer
competitive pricing to the Company would have a material adverse effect on the
Company's business, financial condition and results of operations. Further, no
assurance can be given that the Company would be able to locate other foundries
to fabricate its products in the event of a loss of any current source of
supply.
The Company uses independent vendors to package all of its integrated
circuits. The Company has encountered packaging quality problems with certain of
such vendors, particularly with regard to GaAs products. There can be no
assurance that the Company will not experience packaging problems in the future.
A delay or reduction in product shipment or reduced assembly yields would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- International Sales and Operations."
9
<PAGE> 13
COMPETITION
Competition in the markets for the Company's products is intense. The
Company faces competition from several companies primarily engaged in the
business of designing, manufacturing and selling silicon and GaAs MESFET RFICs,
as well as suppliers of discrete products such as transistors, capacitors and
resistors. The Company also faces competition from companies that have or may
develop GaAs HBT or other new fabrication processes. In addition, many of the
Company's existing and potential OEM customers manufacture or assemble wireless
communications devices and have substantial in-house technological capabilities.
Such OEMs currently may be developing, or may develop in the future, products
that compete directly with the Company's products. A decision by one or more
large OEM customers of the Company to design and manufacture integrated circuits
internally would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company expects competition
in the future to increase. Increased competition could result in decreased
prices for the Company's products, reduced demand for the Company's products and
a reduction in the Company's ability to recover development engineering costs.
Any of these developments would have a material adverse effect on the Company's
business, financial condition and results of operations.
Many of the Company's current and potential customers have entrenched
market positions, substantial internal manufacturing capacity, established
patents, copyrights, trade names, trademarks and intellectual property rights
and substantial technological capabilities. Most of the Company's current and
potential competitors, including ANADIGICS, Inc. ("ANADIGICS"), Motorola Inc.
("Motorola"), NEC Corp. ("NEC"), Philips N.V. ("Philips"), Rockwell
International Corp. ("Rockwell") and TriQuint, have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
There can be no assurance that the Company will be able to compete successfully
with its existing or new competitors. See "Business -- Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON DEVELOPMENT AND GROWTH OF WIRELESS
MARKETS
The Company's prospects depend upon continued development and growth of
markets for wireless communications products and services, including cellular
telephony, PCS handsets, wireless LANs, wireless security systems and other
wireless applications. No assurance can be given regarding the rate at which the
markets for such products will develop or the Company's ability to produce
competitive products for such markets as they develop.
The Company supplies RFICs almost exclusively for wireless applications.
The wireless markets currently are characterized by frequent introduction of new
products and services in response to evolving product and process technologies
and consumer demand for greater functionality, lower costs, smaller products and
better performance. Consequently, the Company has experienced a degree of
product design obsolescence. Because the demand of OEMs for improvements in
product performance is expected to increase, the Company believes that its
future success will depend in part upon its ability to continue to improve its
product designs and to develop new products based on emerging wafer fabrication
technologies. If a competing process technology emerges that permits the
fabrication of integrated circuits that are superior to the RFICs fabricated
under the existing processes available to the Company, and if the Company is
unable to design successfully products under such technology or to develop
competitive or alternative products that are economically viable and that can be
delivered in sufficient product quantity to OEMs at acceptable yields, the
Company's business, financial condition and results of operations would be
materially and adversely affected. Competition among the Company's target
customers is intense and thus many OEMs may be reluctant to implement new
technologies. Further, in each of the markets in which the Company competes,
prices of established products tend to decline significantly over time.
Developing these enhancements, new designs and technologies requires significant
investments by the Company in research and development efforts, and there can be
no assurance that funds for such investments will be available when needed on
acceptable terms or that such efforts will be successful.
10
<PAGE> 14
NEED FOR ADDITIONAL CAPITAL
The Company will require substantial capital to construct its wafer
fabrication facility and to fund its operations and growth. The Company's wafer
fabrication facility is scheduled to be developed in two phases, the first of
which has a budgeted cost of $40 million and the second of which involves an
expansion of production capacity at a budgeted cost of $30 million. The
Company's future capital requirements will depend on many factors, including the
actual cost of constructing the new fabrication facility, whether demand for the
Company's products justifies the phased expansion of its facility, the timing
and extent of spending to support product development efforts and expansion of
sales and marketing, the timing of introductions of new products and market
acceptance of the Company's products. The Company expects that it may need to
raise additional equity or debt financing during 1998 to finance a portion of
the cost of constructing the second phase of the fabrication facility. However,
there can be no assurance that additional financing will not be required prior
to such time. There can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends in part upon retaining the services of
certain technical, marketing, sales and management personnel. None of the
Company's employees has an employment agreement with the Company. The loss of
any key personnel would have a material adverse effect on the Company's
business, financial condition and results of operations. Further, the Company's
prospects depend upon its ability to attract qualified personnel for its
operations. The competition for qualified personnel is intense, and the number
of persons with experience, particularly in RF engineering, integrated circuit
design, wireless systems and technical marketing and support, is limited. There
can be no assurance that the Company will be able to attract, assimilate or
retain other skilled personnel in the future. Any inability on the part of the
Company to attract or retain additional key employees or the loss of one or more
of its current key employees would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
INTERNATIONAL SALES AND OPERATIONS
Sales to customers located outside the United States accounted for
approximately 44%, 27%, 24% and 36% of total revenues for fiscal 1994, 1995 and
1996 and the nine months ended December 31, 1996, respectively. The Company
expects that revenues derived from international sales will continue to
represent a significant portion of its total revenues. International sales are
subject to a variety of risks, including those arising from currency
fluctuations and restrictions, tariffs, trade barriers, taxes and export license
requirements. Because all of the Company's foreign sales are currently
denominated in U.S. dollars, the Company's products become less price
competitive in countries with currencies that are low or are declining in value
against the U.S. dollar. In addition, there can be no assurance that the
Company's international customers will continue to accept orders denominated in
U.S. dollars. If such customers do not continue to accept orders denominated in
U.S. dollars, the Company's reported revenues and earnings would become more
directly subject to foreign exchange fluctuations.
All of the packaging materials used to assemble the Company's integrated
circuits are supplied by, and all of the Company's products are assembled by,
independent circuit assembly vendors, most of which are located in Asia. Due to
its reliance on such foreign suppliers and assemblers, the Company is subject to
the risks of conducting business outside of the United States. These risks
include unexpected changes in, or impositions of, legislative or regulatory
requirements, delays resulting from difficulty in obtaining export licenses,
tariffs and other trade barriers and restrictions, and the burdens of complying
with a variety of foreign laws and other factors beyond the Company's control.
The Company also is subject to general geopolitical risks in connection with its
international operations, such as political, social and economic instability,
potential hostilities and changes in diplomatic and trade or business
relationships. Although the Company has not to date experienced any material
adverse effect on its operations as a result of such regulatory, geopolitical
and other factors, there can be no assurance that such factors will not
adversely affect the Company's operations in the future or
11
<PAGE> 15
require the Company to modify its current business practices. The Company
currently transacts business with its foreign assemblers in U.S. dollars and
consequently the cost of the Company's packaging components, as well as assembly
costs, would increase in countries with currencies that are increasing in value
against the U.S. dollar. In addition, there can be no assurance that the
Company's international assemblers will continue to accept orders denominated in
U.S. dollars. If such assemblers do not continue to accept orders denominated in
U.S. dollars, the Company's costs would become more directly subject to foreign
exchange fluctuations.
INTELLECTUAL PROPERTY CLAIMS
The Company's success depends in part on its ability to obtain patents,
trademarks and copyrights, maintain trade secret protection and operate its
business without infringing on the proprietary rights of third parties.
The Company may be notified in the future that it is infringing patent or
other intellectual property rights of others, although there are no such pending
lawsuits against the Company or notices that the Company is infringing
intellectual property rights of others. No assurance can be given that in the
event of such infringement, licenses could be obtained on commercially
reasonably terms or that litigation will not occur. The failure to obtain
necessary license or other rights or the occurrence of litigation arising out of
such claims would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition to patent and copyright protection, the Company also relies on
trade secrets, technical know-how and other unpatented proprietary information
relating to its product development and manufacturing activities which it seeks
to protect, in part, by confidentiality agreements with its employees and third
parties. There can be no assurance that these agreements will not be breached,
that the Company would have adequate remedies for any breach or that the
Company's trade secrets and proprietary know-how will not otherwise become known
or independently discovered by others. See "Business -- Intellectual Property."
GOVERNMENT REGULATION OF COMMUNICATIONS INDUSTRY
The sale of products by customers who purchase the Company's products may
be materially and adversely affected by governmental regulatory policies, the
imposition of common carrier tariffs or taxation of telecommunications services.
Further, national governments control the allocation and use of radio
frequencies and may implement regulations or take other action that directly or
indirectly has a material adverse effect on the Company's business, financial
condition or results of operations.
CONCENTRATION OF STOCK OWNERSHIP
Upon consummation of this offering, directors and executive officers of the
Company and their affiliates collectively will beneficially own approximately
54.1% of the Common Stock (52.6% if the Underwriters' over-allotment option is
exercised in full), and TRW, the Company's largest shareholder, will
beneficially own approximately 31.2% of the Common Stock (30.4% if the
Underwriters' over-allotment option is exercised in full). As a result, these
shareholders will be able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. TRW has granted David A. Norbury,
President and Chief Executive Officer of the Company, an irrevocable proxy to
vote 2,683,930 of the 4,621,487 shares of Common Stock beneficially owned by
TRW. Such proxy will expire if and when the Company's fabrication facility
becomes operational. See "Certain Transactions -- TRW -- Restricted Stock
Agreement" and "Principal and Selling Shareholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; SUBSTANTIAL DILUTION
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering. The initial
public offering price will be determined by negotiation between the Company, the
Selling Shareholders and the representatives of the Underwriters. See
"Underwriting."
12
<PAGE> 16
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results, changes
in financial estimates by securities analysts, announcements of technological
innovations or new products by the Company or its competitors, or other events
or factors. In addition, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market prices for many
high technology companies. These broad market fluctuations may materially and
adversely affect the market price of the Company's Common Stock.
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of approximately $8.70 per share in the net tangible book
value per share of the Common Stock from the initial public offering price. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Company's Common Stock in the public market after this
offering could adversely affect the market price of the Company's Common Stock.
Following this offering, there will be 14,834,361 shares of Common Stock
outstanding, of which the 2,537,000 shares offered hereby will be freely
tradeable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except for shares acquired in this offering by "affiliates"
of the Company, as that term is defined in Rule 144 under the Securities Act.
Upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, approximately 9,613,431 additional shares of Common Stock will
become eligible for sale in the public market, subject to the provisions of Rule
144 or Rule 701. Such lock-up agreements are subject to release at the
discretion of the representatives of the Underwriters. Moreover, the Company
intends to file registration statements under the Securities Act covering shares
of Common Stock reserved for issuance under stock option and stock purchase
plans, including up to 463,567 shares of Common Stock that may be issued upon
the exercise of stock options during 1997. Certain of the Company's shareholders
have the right to cause the Company to register their shares under the
Securities Act and to include their shares in any future registration of
securities effected by the Company under the Securities Act. See "Shares
Eligible For Future Sale" and "Description of Capital Stock -- Registration
Rights."
ANTI-TAKEOVER AND CERTAIN OTHER PROVISIONS
Certain provisions of the Company's articles of incorporation and bylaws
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of the
Company. These provisions include the ability of the Board of Directors to
designate the rights and preferences of Preferred Stock and issue such shares
without shareholder approval and the requirement of supermajority shareholder
approval of certain transactions with parties affiliated with the Company. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of the Company's Common Stock. See "Description of
Capital Stock."
Pursuant to an agreement among the Company, TRW and certain other
shareholders of the Company, TRW has agreed to refrain from taking certain
actions affecting the control of the Company for five years following this
offering. This agreement further provides, however, that in the event of an
offer by a third party to acquire all of the outstanding shares of the Company,
TRW will have a 30-day period in which to make a counterproposal on the same or
better terms and to have such proposal submitted to the Company's shareholders.
This right could have the effect of discouraging a third party from offering to
acquire all of the outstanding shares of the Company. See "Certain
Transactions -- TRW -- Standstill Agreement." In addition, under the terms of
its credit facility with Silicon Valley Bank, the Company is prohibited from
entering into mergers or acquisitions, undergoing a material change in ownership
or making dispositions of assets other than in the ordinary course of business.
13
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by it hereby are estimated to be approximately $27.3
million assuming an initial public offering price of $12.00 per share and after
deducting underwriting discount and estimated offering expenses (approximately
$31.5 million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders.
The Company intends to use approximately $15 million of the net proceeds to
the Company to finance a portion of the cost of constructing a new GaAs HBT
wafer fabrication facility that will be located adjacent to the Company's
existing facility in Greensboro, North Carolina. The Company intends to use
approximately $700,000 of the net proceeds to the Company to repay all
outstanding indebtedness under its credit facility with Silicon Valley Bank,
which indebtedness consists of approximately $350,000 outstanding at February
28, 1997 under a revolving line of credit that bears interest at prime plus
0.75% and matures in December 1997 and approximately $350,000 outstanding at
February 28, 1997 for separate term loans made under an equipment line of credit
that bear interest at prime plus 1.5% and mature 36 months from the date of each
loan.
The remaining net proceeds will be used for working capital and general
corporate purposes, which may include expansion of the Company's facilities.
Pending application of net proceeds as set forth above, the Company intends to
invest the net proceeds in short-term, investment grade debt securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company intends to retain its future earnings, if any, to fund the
development and growth of its business. Any future decision concerning the
payment of dividends on the Common Stock will depend upon the earnings,
financial condition and capital requirements of the Company, as well as such
other factors deemed relevant by the Board of Directors, in its sole discretion.
Under the terms of its credit facility with Silicon Valley Bank, the Company is
prohibited from paying any dividends or making any other distributions or
payments on account, or in redemption, retirement or purchase, of any of its
capital stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
14
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual, pro forma and pro forma as adjusted basis. The
pro forma capitalization gives effect to the automatic conversion of outstanding
shares of Preferred Stock and the TRW Convertible Note into an aggregate of
9,065,431 shares of Common Stock and the pro forma as adjusted capitalization
gives effect to such conversion and the sale of 2,500,000 shares of Common Stock
by the Company in this offering and the application of the estimated net
proceeds therefrom, after deducting the underwriting discount and estimated
offering expenses. See "Use of Proceeds." This information should be read in
conjunction with the Company's Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt(1)......................................... $ 10,809 $ 657 $ 499
Redeemable convertible preferred stock(2)................. 28,257 -- --
Shareholders' (deficiency) equity:
Preferred Stock, no par value; 1,200,000 shares
authorized and none issued and outstanding; 5,000,000
shares authorized and none issued and outstanding,
pro forma and pro forma as adjusted.................. -- -- --
Common Stock, no par value; 15,000,000 shares
authorized, 3,268,930 shares issued and outstanding
and 12,334,361 shares issued and outstanding, pro
forma; 50,000,000 shares authorized and 14,834,361
shares issued and outstanding, pro forma as
adjusted............................................. 2,960 41,217 68,517
Additional paid-in capital................................ 550 702 702
Deferred compensation(3).................................. (290) (290) (290)
Accumulated deficit....................................... (13,577) (13,577) (13,577)
-------- -------- -------
Total shareholders' (deficiency) equity(4)........... (10,357) 28,052 55,352
-------- -------- -------
Total capitalization............................ $ 28,709 $ 28,709 $55,352
======== ======== =======
</TABLE>
- ---------------
(1) Includes the TRW Convertible Note in the principal amount of $10 million and
$152,000 of accrued interest that will be forfeited upon the automatic
conversion of the TRW Convertible Note into 1,111,111 shares of Common
Stock upon consummation of this offering.
(2) Consists of 7,954,320 shares of Preferred Stock that will automatically
convert into 7,954,320 shares of Common Stock upon the consummation of this
offering.
(3) For financial reporting purposes, the Company records deferred compensation
expense with respect to stock options granted at exercise prices below the
deemed fair market value of the underlying Common Stock in an amount equal
to the difference between the exercise price of such options and the deemed
fair market value of the underlying Common Stock at the time of grant.
Deferred compensation expense is amortized ratably over the vesting period
of the related options. See Notes 2 and 10 of Notes to Financial
Statements.
(4) Excludes (i) 1,044,856 shares of Common Stock issuable upon exercise of
options outstanding at February 28, 1997 exercisable at a weighted average
price of approximately $2.03 per share, (ii) 1,000,000 shares of Common
Stock issuable upon the exercise of the TRW Warrant exercisable at a price
of $10.00 per share and (iii) 149,591 shares of Common Stock issuable upon
the exercise of the Lender Warrants exercisable at a weighted average price
of approximately $6.48 per share. See "Management -- Stock Option Plans"
and "Certain Transactions."
15
<PAGE> 19
DILUTION
At December 31, 1996, the pro forma net tangible book value of the Company
was approximately $21.6 million or $1.76 per share. "Pro forma net tangible book
value" is equal to the Company's total tangible assets (before the offering)
less total liabilities divided by the total number of shares of Common Stock
outstanding on a pro forma basis, giving effect to the conversion of all
outstanding shares of Preferred Stock and the TRW Convertible Note. After giving
effect to the sale of the 2,500,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per share
and after deducting the underwriting discount and estimated offering expenses,
the pro forma net tangible book value of the Company at December 31, 1996 would
have been $48.9 million or $3.30 per share. This represents an immediate
increase in the pro forma net tangible book value of $1.54 per share to existing
shareholders and an immediate dilution of $8.70 per share to purchasers in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $12.00
Pro forma tangible book value per share as of December 31,
1996................................................... $1.76
Increase per share attributable to new investors.......... 1.54
Pro forma net tangible book value per share after this
offering.................................................. 3.30
------
Dilution per share to new investors......................... $ 8.70
======
</TABLE>
The following table summarizes, as of December 31, 1996, after giving
effect to this offering and the conversion of all outstanding shares of
Preferred Stock and the TRW Convertible Note, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by the existing shareholders and by the new
investors purchasing shares of Common Stock in this offering based on an assumed
initial public offering price of $12.00 per share, but before deducting the
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 12,334,361 83% $41,217,000 58% $ 3.34
New investors.................. 2,500,000 17 30,000,000 42 12.00
---------- --- ----------- ---
Total................ 14,834,361 100% $71,217,000 100%
========== === =========== ===
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option or outstanding stock options or warrants to purchase Common Stock. There
are (i) 1,044,856 shares of Common Stock issuable upon exercise of options
outstanding at February 28, 1997 exercisable at a weighted average price of
approximately $2.03 share, (ii) 1,000,000 shares of Common Stock issuable upon
exercise of the TRW Warrant exercisable at a price of $10.00 per share and (iii)
149,591 shares of Common Stock issuable upon exercise of the Lender Warrants
exercisable at a weighted average price of approximately $6.48 per share. To the
extent that any of these options or warrants are exercised in the future, there
will be substantial further dilution to new investors. See "Management -- Stock
Option Plans."
16
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and Notes thereto included
elsewhere in this Prospectus. The statement of operations data for the years
ended March 31, 1994, 1995 and 1996 and the nine months ended December 31, 1995
and 1996, and the selected balance sheet data as of March 31, 1994, March 31,
1995, March 31, 1996 and December 31, 1996, are derived from, and are qualified
by reference to, the Financial Statements and Notes thereto included elsewhere
in this Prospectus. The statement of operations data for the period of inception
to March 31, 1992 and the year ended March 31, 1993, and the selected balance
sheet data as of December 31, 1991 and March 31, 1993, are derived from the
historical financial statements of the Company, which are not included herein.
Operating results for the nine months ended December 31, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal year
ended March 31, 1997.
<TABLE>
<CAPTION>
PERIOD OF
INCEPTION
(FEBRUARY 27,
1991) NINE MONTHS
TO YEAR ENDED MARCH 31,(1) ENDED DECEMBER 31,
MARCH 31, -------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------------- ------- ------- ------- -------- ----------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales..................... $ -- $ -- $ 574 $ 1,254 $ 8,212 $ 5,061 $19,081
Engineering revenue............... 44 256 412 434 1,303 758 573
----- ------- ------- ------- -------- ------- -------
Total revenues............. 44 256 986 1,688 9,515 5,819 19,654
Cost and expenses:
Cost of goods sold................ 30 59 724 1,215 7,471 4,159 10,973
Research and development.......... 64 1,216 1,553 2,836 4,245 2,825 4,379
Marketing and selling............. 67 400 808 1,180 1,817 1,278 2,588
General and administrative........ 180 498 725 620 1,226 640 960
----- ------- ------- ------- -------- ------- -------
Total costs and expenses... 341 2,173 3,810 5,851 14,759 8,902 18,900
----- ------- ------- ------- -------- ------- -------
Income (loss) from operations....... (297) (1,917) (2,824) (4,163) (5,244) (3,083) 754
Interest expense.................... (12) (11) (62) (27) (81) (54) (234)
Other income........................ 12 16 40 68 137 106 343
----- ------- ------- ------- -------- ------- -------
Income (loss) before income taxes... (297) (1,912) (2,846) (4,122) (5,188) (3,031) 863
Income tax expense.................. -- -- -- -- -- -- 75
----- ------- ------- ------- -------- ------- -------
Net income (loss)................... $(297) $(1,912) $(2,846) $(4,122) $ (5,188) $(3,031) $ 788
===== ======= ======= ======= ======== ======= =======
Pro forma net income (loss) per
share(2).......................... $(.43) $.06
Pro forma weighted average shares
outstanding(2).................... 12,166 13,379
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -----------------------------------
1991(3) 1993 1994 1995 1996 DECEMBER 31, 1996
------------ ------ ------ ------ ------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................. $ 14 $1,110 $3,341 $2,223 $ 6,638 $ 3,321
Working capital................... (195) 838 3,443 2,686 7,912 7,092
Cash restricted for capital
additions....................... -- -- -- -- -- 14,932
Total assets...................... 92 1,643 4,519 4,343 13,192 35,195
Long-term debt.................... -- -- -- 59 153 10,809
Shareholders' (deficiency)
equity.......................... (117) 1,049 (5,047) (9,169) (14,357) (10,357)
</TABLE>
- ---------------
(1) The fiscal year ended March 31, 1993 was a 53 week year, and each of the
fiscal years ended March 31, 1994, March 31, 1995 and March 31, 1996 was a
52 week year.
(2) Pro forma data give effect to the automatic conversion of outstanding shares
of Preferred Stock and the TRW Convertible Note upon the consummation of
this offering.
(3) The Company changed its fiscal year-end from December 31 to a 52 or 53 week
fiscal year ending on the Saturday closest to March 31 of each year,
effective for the year ended March 31, 1993.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
herein.
OVERVIEW
The Company designs, develops and markets RFICs for wireless communications
applications. These applications include cellular and cordless telephony, PCS,
wireless LANs, WLL, wireless security and remote meter reading. To date, a
significant portion of the Company's revenues has been attributable to the sale
of RFICs used in cellular telephones and PCS handsets. The Company offers
products fabricated under three distinct process technologies: silicon bipolar
transistor, GaAs MESFET and GaAs HBT. For fiscal 1996 and the nine months ended
December 31, 1996, approximately 58% and 86%, respectively, of the Company's
revenues were derived from the sale of GaAs HBT products. The Company expects to
continue to rely heavily on sales of GaAs HBT products in future periods.
Prior to fiscal 1995, the Company was in the development stage. Since that
time, the Company has experienced a significant increase in product revenues. In
February 1995, the Company and QUALCOMM entered into a development contract for
certain RFICs to be used by QUALCOMM in its CDMA handsets. During fiscal 1996,
the Company began shipping products developed under that contract in commercial
quantities, and revenues increased significantly. Due primarily to the Company's
inability to meet requested delivery times and quantity requirements, QUALCOMM
has determined to produce internally certain components and to look to other
sources for certain other components to replace all products currently purchased
from the Company. Accordingly, the Company expects sales to QUALCOMM to cease in
May 1997. Although the Company is attempting to replace the sales previously
made to QUALCOMM with sales to other customers, no assurance can be given that
it will be able to do so. Further, the Company's ability to supply GaAs HBT
components remains subject to capacity constraints, and the relatively lengthy
design cycle for custom RFICs makes it difficult to quickly commence high volume
sales to new customers. As a result, the Company currently does not expect
growth in revenues, if any, to be significant over the next two fiscal quarters.
Product revenue is recognized when shipped, and all product sales are
denominated in U.S. dollars. The Company derives its revenues from the sale of
standard and custom-designed products. Custom-designed products are usually
developed for volume production orders from large OEMs and normally are
manufactured on an exclusive basis for the originating customer for a negotiated
period of time. Once exclusivity periods expire, the Company attempts to migrate
custom products rapidly into the standard product category in order to broaden
its customer base and leverage its design and product development expenditures.
The Company currently derives a majority of its revenues from the sale of
custom-designed products. However, the Company's strategy is to maintain a
balanced product mix between standard and custom-designed products so as to
reduce the Company's reliance on individual customers and product orders.
A relatively limited number of customers historically have accounted for a
significant portion of the Company's revenues, and the composition of the
Company's most significant customers has varied significantly from period to
period. For the nine months ended December 31, 1996, sales to QUALCOMM and
Samsung accounted for 38.9% and 20.3%, respectively, of revenues, and sales to
the Company's five most significant customers in the aggregate accounted for
76.2% of revenues. In fiscal 1996, sales to QUALCOMM and Cincinnati Microwave
accounted for 31.3% and 11.9% of revenues, respectively, and sales to the
Company's five most significant customers in the aggregate accounted for 55% of
revenues. Further, only two
18
<PAGE> 22
of the Company's five most significant customers for fiscal 1996 were among the
Company's five most significant customers for the nine months ended December 31,
1996. Because the markets for wireless devices are characterized by the presence
of a relatively small number of large OEMs that place high-volume orders, the
Company expects that sales of its products to a limited number of customers will
continue to account for a high percentage of its revenues in the future and that
the composition of the Company's most significant customers will continue to
change significantly from period to period.
The Company currently uses independent foundries to manufacture and
assemble all of its RFICs. The Company generally contracts for the fabrication
of wafers and the assembly and packaging of circuits at negotiated prices
pursuant to purchase orders or short-term contracts. Substantially all of the
Company's integrated circuits are assembled by vendors located in Asia, and all
assembly contracts are denominated in U.S. dollars. All of the Company's final
products are tested in the Company's facilities in Greensboro, North Carolina.
The Company historically has experienced significant fluctuations in gross
profit margins. For the fiscal years ended March 31, 1995 and March 31, 1996 and
for the nine months ended December 31, 1996, the Company's gross profit margins
were approximately 28.0%, 21.5% and 44.2%, respectively. The Company believes
that its gross profit margins have been significantly affected by manufacturing,
assembly and test yields. In particular, in fiscal 1996, the Company experienced
poor manufacturing, assembly and test yields during the initial stage of
developing products for QUALCOMM, which was the first large OEM to order from
the Company significant volumes of RFICs. There can be no assurance that future
operating results will not be affected by low manufacturing, assembly and test
yields. Further, the Company sells products in intensely competitive markets,
and the Company believes that downward pressure on average selling prices will
occur in the future.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- ---------------
1994 1995 1996 1995 1996
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold.................. 73.4 72.0 78.5 71.5 55.8
Research and development............ 157.5 168.0 44.6 48.5 22.3
Marketing and selling............... 82.0 69.9 19.1 22.0 13.2
General and administrative.......... 73.5 36.7 12.9 11.0 4.9
------ ------ ----- ------ -----
Total operating costs and
expenses.................. 386.3 346.7 155.1 153.0 96.2
Income (loss) from operations......... (286.3) (246.7) (55.1) (53.0) 3.8
Other income (expense), net........... (2.2) 2.4 0.6 0.9 1.3
------ ------ ----- ------ -----
Income (loss) before income taxes..... (288.5) (244.2) (54.5) (52.1) 4.4
Income tax expense.................... 0.0 0.0 0.0 0.0 (0.4)
------ ------ ----- ------ -----
Net income (loss)..................... (288.5)% (244.2)% (54.5)% (52.1)% 4.0%
====== ====== ===== ====== =====
</TABLE>
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995
Revenues. Revenues increased 238% from $5.8 million for the nine months
ended December 31, 1995 to $19.7 million for the nine months ended December 31,
1996. The increase primarily reflected an overall increase in the volume of
products shipped to existing and new customers, primarily in the cellular and
PCS handset markets, as well as an increase in average selling prices. The
Company sells products in intensely competitive markets, and the Company
believes that downward pressure on average selling prices will occur in
19
<PAGE> 23
the future. For the nine months ended December 31, 1995 and December 31, 1996, a
significant portion of the Company's revenues was attributable to sales of RFICs
used in cellular and PCS handsets, and the Company expects this trend to
continue in the future. In addition, for the nine months ended December 31,
1996, approximately 86% of the Company's revenues was attributable to the sale
of GaAs HBT products, and the Company may remain dependent upon GaAs HBT
products to generate a substantial portion of its future revenues. Engineering
revenues accounted for 13.0% of revenues for the nine months ended December 31,
1995 compared to 2.9% of revenues for the nine months ended December 31, 1996.
For the nine months ended December 31, 1996, sales to QUALCOMM and Samsung
accounted for 38.9% and 20.3%, respectively, of revenues. Due primarily to the
Company's inability to meet QUALCOMM's requested delivery times and quantity
requirements, QUALCOMM has determined to produce internally certain components
and to look to other sources for other components to replace all products
currently purchased from the Company. Accordingly, the Company expects sales to
QUALCOMM to cease in May 1997.
Gross profit. Gross profit margin increased from 28.5% for the nine months
ended December 31, 1995 to 44.2% for the nine months ended December 31, 1996.
The increase was primarily attributable to an increase in production volumes and
manufacturing yields during the nine months ended December 31, 1996, a reduction
in average wafer costs primarily attributable to quantity discounts and
improvements in manufacturing, assembly and test yields, which reduced scrap and
lowered the per unit cost of goods sold. The Company also experienced favorable
product sales mix and pricing for the nine months ended December 31, 1996.
Research and development. Research and development expenses increased
57.1% from $2.8 million for the nine months ended December 31, 1995 to $4.4
million for the nine months ended December 31, 1996. The increase was primarily
attributable to increased salaries and benefits related to increased headcount
and spending on development mask sets, wafers and prototype assembly. As a
result of revenue growth, research and development expenses as a percentage of
revenues decreased from 48.5% for the nine months ended December 31, 1995 to
22.3% for the nine months ended December 31, 1996.
General and administrative. General and administrative expenses increased
50.3% from $640,000 for the nine months ended December 31, 1995 to $962,000 for
the nine months ended December 31, 1996. The increase was attributable primarily
to increased salaries and benefits related to headcount increases. General and
administrative expenses as a percentage of revenues decreased from 11.0% for the
nine months ended December 31, 1995 to 4.9% for the nine months ended December
31, 1996.
Marketing and selling. Marketing and selling expenses increased 100.0%
from $1.3 million for the nine months ended December 31, 1995 to $2.6 million
for the nine months ended December 31, 1996. The increase was primarily
attributable to increased headcount, commissions and promotional activities.
Marketing and selling expenses as a percentage of revenues decreased from 22.0%
for the nine months ended December 31, 1995 to 13.2% for the nine months ended
December 31, 1996.
Other income (expense), net. Other income (expense), net increased from
$52,000 for the nine months ended December 31, 1995 to $109,000 for the nine
months ended December 31, 1996. The increase was principally attributable to
higher interest income earned on higher average cash balances during the nine
months ended December 31, 1996.
Income tax expense. The effective tax rate for the nine months ended
December 31, 1996 was 8.7%, which is less than the federal and state statutory
rate of 40% due to the use of net operating loss carryforwards. The Company did
not provide for income taxes in the nine months ended December 31, 1995 as a
result of the Company's expectation that it would incur a loss for the complete
fiscal year.
Fiscal 1996 Compared to Fiscal 1995
Revenues. Revenues increased 459% from $1.7 million for the year ended
March 31, 1995 to $9.5 million for the year ended March 31, 1996. The increase
in total revenues for the year ended March 31, 1996 was primarily due to
increased product shipments to OEMs in the cellular and cordless telephones, PCS
and industrial radio markets. For the year ended March 31, 1996, sales to
QUALCOMM and Cincinnati
20
<PAGE> 24
Microwave accounted for 31.3% and 11.9%, respectively, of revenues. Engineering
revenues as a percentage of revenues was 13.7% for the year ended March 31, 1996
compared to 25.7% for the year ended March 31, 1995.
Gross profit. Gross profit margin decreased from 28.1% for the year ended
March 31, 1995 to 21.5% for the year ended March 31, 1996. This decrease was
primarily attributable to poor manufacturing, assembly and test yields primarily
associated with custom-designed products developed for QUALCOMM, which was the
first high volume OEM to order significant quantities of RFICs from the Company.
Research and development. Research and development expenses increased from
$2.8 million for the year ended March 31, 1995 to $4.2 million for the year
ended March 31, 1996. The increase was attributable primarily to an increase in
salaries and increased expenditures on development mask sets, wafers and
prototype assembly related to increased developmental activities and to an
increase in developmental expenses attributable to development contracts,
primarily related to the Company's development contract with QUALCOMM. Research
and development expenses decreased as a percentage of total revenues from 168%
for the year ended March 31, 1995 to 44.6% for the year ended March 31, 1996.
General and administrative. General and administrative expenses increased
93.5% from $620,000 for the year ended March 31, 1995 to $1.2 million for the
year ended March 31, 1996. The increase was attributable primarily to increased
bad debt expense and salaries and benefits related to increased headcount. The
Company reserved $490,000 for bad debts during the year ended March 31, 1996
related to outstanding receivable balances from two specific customers, most of
which was subsequently recovered. General and administrative expenses as a
percentage of revenues decreased from 36.7% for the year ended March 31, 1995 to
12.9% for the year ended March 31, 1996.
Marketing and selling. Marketing and selling expenses increased 50.0% from
$1.2 million for the year ended March 31, 1995 to $1.8 million for the year
ended March 31, 1996. The increase was due primarily to increased salaries and
benefits related to headcount increases along with increased promotional
activities and commissions. Marketing and selling expenses as a percentage of
revenues decreased from 69.9% for the year ended March 31, 1995 to 19.1% for the
year ended March 31, 1996.
Other income (expense), net. Other income (expense), net increased from
$41,000 for the year ended March 31, 1995 to $56,000 for the year ended March
31, 1996. This increase was due primarily to higher interest income for the year
ended March 31, 1996.
Income tax expense. The Company did not provide for income tax expense in
fiscal 1995 or fiscal 1996 because the Company incurred losses for such fiscal
years.
Fiscal 1995 Compared to Fiscal 1994
Revenues. Revenues increased 70.0% from $1.0 million for the year ended
March 31, 1994 to $1.7 million for the year ended March 31, 1995. The Company
was in the development stage prior to the year ended March 31, 1995. Engineering
revenues as a percentage of total revenue decreased from 41.7% for the year
ended March 31, 1994 to 25.7% for the year ended March 31, 1995.
Gross profit. Gross profit margin increased slightly from 26.6% for the
year ended March 31, 1994 to 28% for the year ended March 31, 1995. The
Company's gross profit margins for both years reflected the relatively low
volume of units sold during both years.
Research and development. Research and development expenses increased from
$1.6 million for the year ended March 31, 1994 to $2.8 million for the year
ended March 31, 1995. The increase primarily reflected an increase in headcount
and increased expenditures on development mask sets, wafers and prototype
assembly. Research and development expenses as a percentage of total revenues
increased from 158% for the year ended March 31, 1994 to 168% for the year ended
March 31, 1995.
General and administrative. General and administrative expenses decreased
14.5% from $725,000 for the year ended March 31, 1994 to $620,000 for the year
ended March 31, 1995. The decrease was attributable primarily to a reduction in
bad debt expense and legal fees during fiscal 1995. General and administrative
21
<PAGE> 25
expenses as a percentage of revenues decreased from 73.5% for the year ended
March 31, 1994 to 36.7% for the year ended March 31, 1995.
Marketing and selling. Marketing and selling expenses increased 48.5% from
$808,000 for the year ended March 31, 1994 to $1.2 million for the year ended
March 31, 1995. The increase was due primarily to increased headcount,
promotional activities and commissions. Marketing and selling expenses as a
percentage of revenues decreased from 82.0% for the year ended March 31, 1994 to
69.9% for the year ended March 31, 1995.
Other income (expense), net. Other income (expense), net increased from
$(22,000) for the year ended March 31, 1994 to $40,000 in the year ended March
31, 1995. The increase was caused by higher interest income earned on higher
average cash balances.
Income tax expense. The Company did not provide for income tax expense in
fiscal 1994 or fiscal 1995 because the Company incurred a loss for such fiscal
years.
Quarterly Results of Operations
The following table presents unaudited quarterly results in dollar amounts
and as a percentage of revenues for the periods indicated. The information has
been prepared by the Company on a basis consistent with the Company's audited
financial statements and includes all adjustments that management considers
necessary for a fair presentation of the information for the periods presented.
Results of operations for any fiscal quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
--------------------------------------------------- ---------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1996 1996 1996 1996
-------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $1,001 $1,893 $2,925 $3,696 $3,611 $6,011 $10,032
Operating costs and expenses:
Cost of goods sold.............. 657 1,216 2,286 3,312 2,479 3,027 5,467
Research and development........ 899 857 1,069 1,420 1,294 1,421 1,664
Marketing and selling........... 334 376 568 539 608 791 1,189
General and administrative...... 161 183 295 587 256 209 495
------ ------ ------ ------ ------ ------ ------
Total operating costs and
expenses............... 2,051 2,632 4,218 5,858 4,637 5,448 8,815
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations..... (1,050) (739) (1,293) (2,162) (1,026) 563 1,217
Other income (expense), net....... 21 16 15 4 38 41 30
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes........................... (1,029) (723) (1,278) (2,158) (988) 604 1,247
Income tax expense................ 0 0 0 0 0 0 75
------ ------ ------ ------ ------ ------ ------
Net income (loss)................. $(1,029) $ (723) $(1,278) $(2,158) $ (988) $ 604 $1,172
====== ====== ====== ====== ====== ====== ======
Pro forma net income (loss) per
share(1)........................ $ (.09) $ (.06) $ (.11) $ (.18) $ (.07) $ .05 $ .09
====== ====== ====== ====== ====== ====== ======
Pro forma weighted average shares
outstanding(1).................. 11,561 11,561 11,830 12,166 13,379 13,379 13,379
</TABLE>
- ---------------
(1) Pro forma data give effect to the automatic conversion of outstanding shares
of Preferred Stock and the TRW Convertible Note upon consummation of this
offering.
22
<PAGE> 26
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
---------------------------------------------------------------------------------------------
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
--------------------------------------------------- ---------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1996 1996 1996 1996
-------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Costs of goods sold............ 65.6 64.2 78.2 89.6 68.6 50.4 54.5
Research and development....... 89.8 45.2 36.6 38.4 35.8 23.6 16.4
Marketing and selling.......... 33.4 19.9 19.4 14.6 16.8 13.2 11.8
General and administrative..... 16.1 9.7 10.1 15.9 7.1 3.5 5.3
------ ----- ------ ----- ----- ----- -----
Total operating costs
and expenses.......... 204.9 139.1 144.2 158.5 128.4 90.6 87.9
------ ----- ------ ----- ----- ----- -----
Income (loss) from operations.... (104.9) (39.1) (44.2) (58.5) (28.4) 9.4 12.1
Other income (expense), net...... 2.0 0.8 0.5 0.1 1.0 0.7 1.8
------ ----- ------ ----- ----- ----- -----
Income (loss) before income
taxes.......................... (102.8) (38.2) (43.7) (58.4) (27.4) 10.1 13.9
Income tax expense............... 0.0 0.0 0.0 0.0 0.0 0.0 0.6
------ ----- ------ ----- ----- ----- -----
Net income (loss)................ (102.8)% (38.2)% (43.7)% (58.4)% (27.4)% 10.1% 13.3%
====== ===== ====== ===== ===== ===== =====
</TABLE>
Revenues increased each quarter in fiscal 1996 as a result of increased
unit product shipments. Revenues increased in each quarter of fiscal 1997, with
significant quarter to quarter increases in the second and third quarters
reflecting increased unit shipments to the cellular and PCS handset market
segments. Gross profit margins experienced wide fluctuations throughout the
seven quarters. Gross profit margin reached a low of 10.4% in the fourth quarter
of fiscal 1996 due to high material scrap caused by low production test yields
related to the Company's development contract with QUALCOMM. Gross profit margin
was the highest in the second quarter of fiscal 1997 because of favorable sales
mix and pricing, improved test yields and increased absorption of manufacturing
overhead due to higher sales volume. The Company's research and development
expense increased over the seven quarters to $1.7 million in the third quarter
of fiscal 1997. The Company's marketing and selling and general and
administrative expenses generally increased over the last period to $1.2 million
and $500,000, respectively, in the third quarter of fiscal 1997, reflecting
increased salaries and benefits related to increased hiring, commissions,
promotional activities and provision for bad debt expense.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's cash flow from operations has been insufficient
to satisfy the Company's cash requirements. To date, the Company has funded its
operations primarily through the private sale of equity and debt securities,
bank borrowings and equipment leases. Since fiscal 1994, the Company's primary
cash requirements have been to finance operating activities, to purchase
property and equipment and to repay capital lease obligations and bank
borrowings and interest.
The Company and Silicon Valley Bank have entered into a secured credit
facility that includes a $7 million working capital revolving line of credit and
a $2 million equipment line of credit. Both lines of credit have an expiration
date of December 19, 1997. Borrowings under the revolving line of credit can be
made from time to time in an amount not to exceed 80% of eligible accounts
receivable and bear interest at prime plus 0.75%, payable monthly. Borrowings
under the equipment line of credit are converted into term loans, repayable in
36 equal monthly installments from the date of advance, and bear interest at
prime plus 1.5%. The credit facility requires, among other things, that the
Company maintain certain amounts of tangible net worth and certain ratios with
regard to liquidity and debt to equity. At February 24, 1997, there was
approximately $700,000 outstanding under such facility. The Company intends to
repay the outstanding indebtedness under such facility with a portion of the
proceeds from this offering. See "Use of Proceeds."
In February 1997, the Company entered into an equipment lease agreement
with an equipment financing company, pursuant to which such financing company
agreed to finance the lease of equipment having an aggregate cost not in excess
of $10 million. The terms of such lease agreement provide for a lease term of 52
months and monthly lease payments of 2.41% of the cost of the equipment leased,
subject to adjustment by such financing company proportionately to the change in
the weekly average of interest rates of five-year U.S.
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<PAGE> 27
treasury securities. Pursuant to the lease agreement, the Company has issued to
such financing company a warrant for 41,322 shares of Common Stock and has
agreed to issue such to financing company, upon the lease under the agreement of
equipment having an aggregate cost of $5 million, a warrant to purchase an
additional 41,323 shares of Common Stock. Both warrants are exercisable at $9.00
per share and expire five years from their respective dates of issuance. The
Company anticipates using such lease agreement to finance the acquisition of
wafer fabricating, clean room and other testing and manufacturing equipment to
be used in its proposed fabrication facility.
In February 1997, the Company entered into agreements with a financing
company providing for the financing of the acquisition of equipment to be
assembled as a clean room facility at the Company's proposed wafer fabrication
facility and for the sale and lease-back of such equipment between the Company
and the financing company when the equipment has been installed. The equipment
subject to this arrangement has an aggregate cost of approximately $2.5 million.
The terms of the lease agreement provide for a term of 60 months from the date
the equipment is installed, and for monthly lease payments calculated by
applying a lease investment return factor of 9.25% to the aggregate amount of
the cost of the equipment and the interest accrued on such amount at an annual
rate of 9.25% prior to installation. The Company has the option to purchase the
equipment at the end of the lease term for the lesser of the fair market value
of the equipment at such time or 10% of the original cost of the equipment.
The Company entered into a lease agreement in October 1996 with the owner
of the real estate on which the Company's wafer fabrication facility is proposed
to be built that provides for the construction of the facility. The lease
agreement has a term of 15 years from the completion of the building with two
10-year renewal options. The initial rental payment under the lease is to be
calculated on a per-square-foot basis based on the per-square-foot cost of the
construction of the building. To the extent that such construction cost is any
amount up to $90.00 per square foot, the annual lease payment per square foot
will be 12.5% of such cost. All of such construction cost in excess of $90.00
per square foot, up to an aggregate cost of $155.00 per square foot, will be
amortized over the initial 15-year term of the lease at a rate of 12%.
Construction costs in excess of $155.00 per square foot are to be paid by the
Company directly to the contractors. The initial rent under the lease will
increase by 4.5% after three years, and every three years thereafter by a
percentage equal to 80% of the percentage increase in the Consumer Price Index
during the immediately preceding three years. The Company has agreed under the
lease to provide guarantees in secured cash or corporate guarantees for all
construction costs in excess of $80.00 per square foot up to $155.00 per square
foot.
The Company will require substantial capital to construct its wafer
fabrication facility and to fund its operations and growth. The Company's wafer
fabrication facility is scheduled to be developed in two phases, the first of
which has a budgeted cost of $40 million and the second of which involves an
expansion of production capacity at a budgeted cost of $30 million. The
Company's future capital requirements will depend on many factors, including the
actual cost of constructing the new fabrication facility, whether demand for the
Company's products justifies the phased expansion of its facility, the timing
and extent of spending to support product development efforts and expansion of
sales and marketing, the timing of introductions of new products and market
acceptance of the Company's products. The Company expects that it may need to
raise additional equity or debt financing during 1998 to finance a portion of
the cost of constructing the fabrication facility. However, there can be no
assurance that additional financing will not be required prior to such time.
There can be no assurance that additional equity or debt financing, if required,
will be available on acceptable terms or at all.
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BUSINESS
INTRODUCTION
The Company designs, develops and markets proprietary radio frequency
integrated circuits ("RFICs") for wireless communications applications such as
cellular and personal communication services ("PCS"), cordless telephony,
wireless local area networks ("wireless LANs"), wireless local loop ("WLL"),
industrial radios, wireless security and remote meter reading. The Company
offers a broad array of products, including amplifiers, mixers, and
modulators/demodulators that represent a substantial majority of the RFICs
required in wireless subscriber equipment. The Company designs products using
three distinct process technologies: gallium arsenide heterojunction bipolar
transistor ("GaAs HBT"), gallium arsenide metal semiconductor field effect
transistor ("GaAs MESFET") and silicon bipolar transistor. The Company believes
that for certain applications, GaAs HBT devices offer advantages in terms of
linearity, efficiency, reduced system complexity and size.
TRW is currently manufacturing all of the Company's GaAs HBT products and
has granted the Company a license to use its GaAs HBT process to design products
for commercial wireless applications. Through its relationship with TRW, the
Company has become a leading commercial supplier of GaAs HBT RFICs. The
Company's GaAs HBT power amplifiers and small signal devices have been designed
into advanced subscriber equipment manufactured by leading OEMs such as
QUALCOMM, Nokia, Hyundai Electronics Industries Co. Ltd. ("Hyundai"), Nortel and
LG Information and Communications, Ltd. ("LG"). The Company also offers GaAs
MESFET and silicon components through a delivery strategy called Optimum
Technology Matching(R) to complement its GaAs HBT products. Optimum Technology
Matching(R) allows the Company to offer RFIC solutions, on a component by
component basis, that best fulfill OEMs' performance, cost and time-to-market
requirements.
INDUSTRY BACKGROUND
The wireless communications industry has grown rapidly over the past decade
as cellular, paging, PCS and other emerging wireless communications services
have become widely available and increasingly affordable. Technological
advances, changes in telecommunications regulations and the allocation and
licensing of additional radio spectrum have helped fuel this growth worldwide
and have led not only to the development of competing wireless communications
services, but also to the development of new and emerging wireless applications,
including second generation digital cordless telephony, wireless LANs, WLL,
wireless security and remote meter reading. As wireless usage grows, wireless
service providers continue to improve the quality and functionality of the
services they offer and seek to offer greater bandwidth for increased capacity.
To expand capacity from first generation cellular communications networks,
certain national governments have made available less congested frequency bands
for new wireless communications services. In the United States, the Federal
Communications Commission (the "FCC") has allocated and auctioned 10 MHz and 30
MHz portions of spectrum in the 1850 to 1990 MHz range for PCS, and allocated
broad band spectrum in the 2.4 GHz range for wireless LANs. Capacity and
functionality also are being addressed by the wireless industry's movement from
wireless networks that use analog signal modulation techniques to wireless
networks that use digital signal modulation techniques. As compared to analog
technologies, digital technologies generally provide improved signal quality,
facilitate the transmission of both voice and data and improve capacity by
allowing the transmission of more information in a smaller amount of frequency
space. These digital technologies place a premium on linear power amplification,
which can translate into higher quality signals.
The wireless communications markets are characterized by a proliferation of
different air interface signal transmission standards in different parts of the
world, including analog standards, such as Advanced Mobile Phone Service
("AMPS") and Total Access Communications Systems ("TACS"), digital standards,
such as Time Division Multiple Access ("TDMA") and Code Division Multiple Access
("CDMA"), and certain hybrid standards. For PCS, the FCC has approved seven
different air interface standards. The handsets
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<PAGE> 29
designed for each air interface standard generally require unique RF and
baseband integrated circuit solutions that must be designed to meet the demands
of subscriber equipment users for greater functionality, smaller and lighter
equipment, longer battery life and better security, all at reduced costs. As a
result of these technical challenges and end user demands, it has become
increasingly difficult for OEMs of subscriber equipment to develop and supply
all the required components in a timely and cost-effective manner. This has
caused some OEMs to rely increasingly on third party value-added technology
providers that have the component and systems level expertise to design and the
production capacity to supply these solutions. In addition, new entrants to the
wireless subscriber equipment market, such as large consumer electronics
companies, tend to be less vertically integrated than established OEMs, and thus
must rely even more on third party suppliers. This technology outsourcing trend
is particularly evident in the RF segment of the equipment due to the scarcity
of RFIC engineers and the design complexity of the technology.
RF Overview
A typical subscriber device for wireless personal communications, such as a
handset, contains control, baseband and RF components. Digital components
control the overall circuitry and encrypt the voice or other data intended for
transmission and reception, while baseband components are used to process
signals into or from their original electrical form (low frequency analog voice
or data). RF components, such as amplifiers, mixers, attenuators, switches,
modulators, demodulators, oscillators and frequency synthesizers, convert,
switch, process and amplify the high frequency signals that carry the
information to be transmitted or received.
RF technology presents different engineering challenges than standard
semiconductor design. In general, digital and baseband semiconductor design
engineers create standard semiconductor circuit designs by combining "cells"
that previously have been evaluated and characterized. Because cells have
predictable performance, the design engineer can use computers to automate the
design process, which helps accelerate the development of these components. Each
RF component, however, has distinctly different characteristics that influence
overall system performance in complex ways. Instead of having stable inputs and
outputs, the RF circuit characteristics can drift based on process variations,
temperature, power supply and other variables. As a result, performance
characteristics are unique for each device, and the RF engineer must evaluate
and develop new designs on a continuous basis for each system performance level
and air interface standard. In addition to being skilled in semiconductor
circuit design, the RF circuit designer must have a thorough understanding of
signal processing principles, must understand the totality of the system for
which the device is intended and must be able to create designs that function
within the unique parameters of different wireless system architectures. As RF
technology has moved from discrete components to integrated circuit solutions,
the scarcity of engineers with both integrated circuit design and RF expertise
has become more pronounced.
RF Device Technology
In early generations of wireless communications equipment, individually
packaged discrete components were mounted on circuit boards to form complex
circuits used to transmit and receive RF signals. Size, reliability and cost
concerns ultimately led to a move from discrete devices to silicon-based
integrated circuits. The use of silicon integrated circuits in high frequency
wireless technologies, however, has been limited because of decreased operating
performance generally at frequencies higher than approximately 1 GHz. In
particular, at high frequencies silicon integrated circuits consume more power,
have relatively high noise and distortion parameters and create excess heat.
Within the last decade, GaAs semiconductor technology has emerged as an
effective alternative or complement to silicon technology in many high
performance RF applications. GaAs has inherent physical properties that allow
electrons to move up to five times faster than in silicon, which permits the
manufacture of GaAs devices that operate at much higher speed than silicon
devices or at the same speeds with lower power consumption. This is particularly
important in battery powered portable applications such as handsets. Moreover,
the semi-insulating GaAs substrate significantly reduces some of the unwanted
parasitic effects of the conductive silicon substrate that cause its performance
to degrade at high frequencies.
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GaAs integrated circuits were first implemented using a type of transistor
known as MESFET. While GaAs MESFET integrated circuits have become accepted for
many high frequency applications, these devices have certain limitations. In
particular, for power amplifiers used in digital systems, it is important to
have a linear signal (i.e., one that is not altered or distorted). It is
difficult for GaAs MESFET devices to meet high linearity performance criteria
without sacrificing other performance criteria. In addition, GaAs MESFET power
amplifiers generally require both a positive and negative power supply for power
stages, which requires the inclusion of additional components or circuitry and a
corresponding increase in device size and complexity. Moreover, the lateral
structure of GaAs MESFET devices hinders the ability to shrink the device size
to enhance manufacturing yields and reduce costs. A different type of GaAs
transistor known as an HBT, which has been used in military and space
applications over the past decade, has emerged recently in commercial RF
applications.
THE RF MICRO DEVICES SOLUTION
The Company is a leading supplier of GaAs HBT RFICs for commercial wireless
applications. The Company's GaAs HBT products include power amplifiers and small
signal devices that have been designed into advanced subscriber handsets
manufactured by leading OEMs such as QUALCOMM, Nokia, Hyundai, Nortel and LG. In
addition to the advantages that GaAs provides over silicon in terms of speed,
efficiency and the ability to operate at high frequencies, the Company believes
that GaAs HBT components offer the following benefits over comparable GaAs
MESFET devices in comparable applications:
- Efficiency -- Efficiency is a measure of RF power output as a
percentage of battery power consumed by the device. The Company believes
its GaAs HBT power amplifiers are more efficient and use less power to
transmit the same output power than comparable GaAs MESFET devices.
Increased efficiency can translate into improved battery life and increased
talk time.
- Linearity -- Linearity is a measure of the distortion of a signal as
a result of the amplification of the signal. The Company believes GaAs HBT
products have higher breakdown voltages and smaller and more constant
base-collector capacitance than comparable GaAs MESFET devices, which
results in better linearity. Improved linearity can translate into a higher
quality signal, which is essential for wireless networks using digital air
interface standards such as TDMA and CDMA.
- Complexity -- GaAs HBT transistors are bipolar devices that require
only a single polarity power supply, while GaAs MESFET transistors
generally require both a positive and negative power supply, which results
in the need to include a negative voltage generator and other additional
components or circuitry. As a result, GaAs HBT system architectures are
simpler and easier to design, which can translate into reduced component
costs and smaller equipment.
- Size -- GaAs MESFET devices have a lateral or horizontal design
structure while GaAs HBT devices have a vertical structure. The Company
believes that GaAs HBT circuits can be made smaller than GaAs MESFET
devices, enabling more die per wafer, which can increase manufacturing
yields and translate into reduced costs.
In addition to its expertise in GaAs HBT process technology, the Company's
design engineers, test engineers and marketing personnel are experienced in
designing and delivering RFICs based on silicon bipolar and GaAs MESFET
technologies. As a result, the Company is able to offer a broad array of
standard and custom-designed RF solutions through a delivery strategy called
Optimum Technology Matching(R). Optimum Technology Matching(R) allows the
Company to offer OEM customers RFIC solutions on a component-by-component basis
that best fulfill the OEMs' performance, cost and time-to-market requirements.
Across these three semiconductor technologies, the Company offers more than 60
products that have a wide range of applications.
The Company's circuit design staff is continually developing RFIC design
solutions for new and emerging wireless applications. The Company's research and
development activities include not only new circuit designs, but also the
development and refinement of proprietary design tools and models to facilitate
new product development. Moreover, the Company is continually evaluating test RF
circuits under emerging
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semiconductor process technologies to augment its Optimum Technology Matching(R)
program and to meet its customer's future wireless equipment needs.
STRATEGY
The Company's objective is to be the leading worldwide supplier of RFICs
for a broad range of commercial wireless applications. To meet this objective,
the Company has developed a focused strategy, the key elements of which include:
Focus on Wireless Markets. Since the Company's formation in 1991, it
has focused its efforts almost exclusively on the design, development and
sale of RFICs to participants in the commercial wireless markets. The
Company has developed and sold integrated circuits for a broad range of
applications within these markets, including cellular and PCS, cordless
telephony, industrial radios, wireless LANs, WLL, wireless security and
wireless utility meter reading. The Company's customers include some of the
leading wireless OEMs, including Nokia, Motorola, QUALCOMM, Samsung, Lucent
Technologies, Inc. ("Lucent") and LG. The Company continuously pursues
opportunities to use its RF circuit design and engineering capabilities and
Optimum Technology Matching(R) expertise to provide cost-effective
integrated circuit solutions for emerging high volume wireless
applications.
Offer a Wide Range of RF Products. The Company supplies its customers
with a broad range of standard and custom-designed RFICs in order to
position itself as a "one-stop" solution for customers' RFIC needs. The
Company offers a full line of products that include power amplifiers, low
noise amplifiers/mixers, quadrature modulators/demodulators and automatic
gain control amplifiers. For cellular and PCS applications, the Company
offers products addressing virtually all of the analog and digital air
interface standards. The Company's design engineering staff has developed
proprietary design and fabrication modeling techniques and tools to enable
the Company to deliver state-of-the-art integrated circuit designs that
meet its customers' stringent technical specifications.
Leverage GaAs HBT Capabilities. The Company believes that its GaAs
HBT expertise allows it to deliver high efficiency, high performance
components such as linear power amplifiers and LNAs to the wireless
communications markets. As the Company improves its design and
manufacturing of GaAs HBT components, it will seek to incorporate GaAs HBT
technology in other RF components in an effort to improve the price
performance characteristics of its products. Through its Optimum Technology
Matching(R) strategy, the Company is often able to leverage GaAs HBT design
wins into additional sales for its silicon and GaAs MESFET components.
Expand Manufacturing Capacity. In June 1996, the Company entered into
a strategic relationship with TRW in order to provide GaAs HBT components.
As a part of this relationship, TRW is expanding its GaAs HBT manufacturing
capacity. In addition, the Company is constructing an approximately 50,000
square foot fabrication facility in which the Company intends to fabricate
its own GaAs HBT wafers using TRW's proprietary GaAs HBT and related wafer
fabrication technologies. This facility currently is scheduled to reach
commercial production levels in the second half of 1998. The Company
believes that operating its own GaAs HBT wafer fabrication facility will
improve its ability to respond to customer demand for GaAs HBT products and
will provide it with greater opportunities to enhance product and process
quality and reliability.
Maintain Balanced Product Mix. The Company strives to maintain a
balance between custom and standard products. Custom-designed products are
usually developed for volume production orders from large OEMs. Custom
products normally are manufactured on an exclusive basis for the
originating customer for a negotiated period of time. Once exclusivity
periods expire, the Company attempts to migrate custom products rapidly
into the standard product category in order to broaden its customer base
and leverage its design and product development expenditures.
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MARKETS
The Company designs, develops and markets its products to both domestic and
international OEMs for commercial applications in the wireless markets,
including cellular and PCS handsets, cordless telephony, industrial radios, WLAN
equipment, WLL handsets, wireless security systems and wireless utility meter
reading systems.
Cellular Telephony and Personal Communication Services
In cellular and PCS applications, calls are placed through hand held
subscriber devices by establishing a connection with a base station via RF
channels. While the initial PCS services are comparable to cellular telephony,
as PCS becomes more widely deployed, it is expected that a subscriber will be
able to use a single small, lightweight handset and a single phone number for
all calls in the home, office or elsewhere with relatively seamless routing.
Based on information published by Dataquest, there were 85.5 million cellular
subscribers worldwide at the end of 1995 and this number was projected to grow
to 363.8 million by 2000.
Cordless Telephony
Cordless telephones are moving from first generation analog phones
operating at low (46-49 MHZ) frequencies to digital cordless phones operating at
higher frequencies. In the United States, new phones operating in the 902-928
MHz frequency range use spread spectrum modulation to provide improved range and
voice quality, less interference and greater security. In Western Europe, the
Digital European Cordless Telephone, which operates in the 1880-1900 MHz
frequency range, has been successfully introduced, and, in Japan, the Personal
HandyPhone System ("PHS") was introduced in July 1995. PHS operates at the 1895-
1907 MHz frequency range and acts as a cordless telephone while at home, a
wireless PBX extension at the office, and a low mobility cellular-like phone
elsewhere.
Wireless Local Loop Systems
A WLL system is a fixed location wireless communications system in which
the end user is connected to the local telephone company's central switch via a
wireless connection. WLL systems employ simplified cellular or PCS technology.
The absence of high speed mobility, roaming or intercell handoff requirements
make the infrastructure and operating costs of WLL systems significantly lower
than traditional wired and cellular systems. WLL systems can be rapidly
deployed, even in difficult terrain areas, and are easily scalable.
Wireless Networks
Wireless networking involves the transmission and reception of data such as
e-mail, faxes and computer files by desktop and portable computers via wireless
RF links rather than wired lines. Network coverage ranges from wireless LANs,
which might be found within a business or single building, to metropolitan area
networks, which would be limited to a defined metropolitan or geographic area,
to wide area networks, which connect individuals and work groups over larger
geographic areas.
Industrial Radios
Industrial digital radios are trunked radio networks that transmit voice
communications from one location to another (point-to-point) and from one
location to many locations (point-to-multipoint). Industrial radios are
primarily used by law enforcement officers and in other public safety
applications.
Other Markets
The Company also supplies custom components for other applications in the
wireless markets, such as wireless security systems and wireless utility meter
reading systems, and is pursuing other emerging wireless markets, including
enhanced two-way paging, wireless environmental monitoring devices and wireless
handheld devices used for point-of-sale, bar coding and other applications. The
Company also pursues opportunities to leverage the technological advantages of
its RF components by identifying applications in
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other markets. For example, the Company has applied its RF power amplifier
design expertise to develop high performance power line amplifiers for the CATV
market and markets various GaAs HBT and MESFET components for satellite and
microwave communications applications. In addition, certain of its components,
such as gain blocks and attenuators, are used for instruments and in other
non-wireless applications.
TECHNOLOGY
The following diagram illustrates a typical wireless system:
CHART
In the receive mode, a signal strikes the antenna and is applied to a low
noise amplifier (LNA). The LNA amplifies the strength of the incoming signal by
a factor of approximately 10 to 1,000 times and applies it to the mixer. Without
distorting the information contained, the mixer transforms the carrier frequency
of the signal from its original high value, termed an RF frequency (869-894 MHz
for cellular systems and 1930-1990 MHz for PCS systems), to a lower frequency
(usually at 200 MHz or less) called an "intermediate frequency" ("IF"). The IF
amplifier then amplifies this signal further while reducing much of its
amplitude variation before it is applied to the quadrature demodulator where the
digital information is recovered from the signal. This digital information is
supplied to the baseband portion of the handset where it is processed to recover
the original voice or data.
In the transmit mode, voice or other data that the user desires to transmit
is processed into digital information in the baseband section of the handset.
This information is applied to the quadrature modulator, where the digital
information is combined with an intermediate frequency carrier signal. This
modulated IF signal is applied to the upconverter where it is raised to an RF
frequency (824-849 MHz for cellular and 1850-1910 MHz for PCS). The linear power
amplifier then amplifies this low strength signal significantly to levels of one
watt or more, to allow the signal to cover substantial distances as it leaves
the antenna. The linear power amplifier must produce this high-level signal with
a minimum of distortion, particularly when processing signals employing complex
digital modulation standards such as CDMA.
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Description of Graphic in Business Section
This graphic, titled "Simplified digital handset," illustrates the basic
components of the RF section of a typical wireless communications system and the
sequence in which information travelling through such a system is applied to
these components. The bottom right corner contains the words "Baseband
Section." Immediately above is a line formed into a rectangular wave pattern,
meant to depict the passage of digital information. Immediately above this wave
pattern is an arrow pointing to the left, and to the pattern's left in
descending order are the letters "I" and "Q". A line leads to the left from
each of these letters, crossing a vertical dotted line that runs the length of
the graphic and denotes the division between the baseband section, which
occupies approximately one quarter of the graphic, and the RF section, which
occupies the remainder of the graphic. The words "RF Section" appear at the
bottom of this latter section. Immediately above is a rectangle of dotted lines
with the word "Transmitter" at the top. Within this rectangle are, from right
to left, a rectangle in which the words "Quadrature Modulator" appear (and the
right side of which the lines extending from the letters "I" and "Q" in the
baseband section touch), a rectangle in which the word "Upconverter" appears and
a triangle, pointing to the left, in which the words "Linear PA" appear. These
three shapes are linked by a line that continues to the left of the triangle,
passes through the left side of the rectangle of dotted lines in which the three
shapes are located, and turns upward, where it reaches a stylized depiction of
an antenna emitting a signal that occupies the upper left corner of the graphic.
The word "Antenna" appears immediately below this depiction. The line continues
upward and then turns to the right, where it crosses into another rectangle of
dotted lines. This rectangle has the word "Receiver" immediately above it and
contains three rectangles that are linked by the line and contain the labels,
from left to right, "LNA/Mixer," "Gain Control IF Amplifier" and "Quadrature
Demodulator." From the right side of the rightmost rectangle, two parallel
lines extend rightward through the right side of the rectangle of dotted lines
in which these three shapes are located and across the vertical dotted line
representing the division between the RF section and the baseband section.
Within the baseband section, the two parallel lines reach another pair of the
letters "I" and "Q," which are in descending order. To the right of these
letters appears another line formed into a rectangular wave pattern, meant to
depict the passage of digital information. Immediately above this pattern, in
the upper right corner of the graphic, is an arrow pointing to the right.
<PAGE> 35
PRODUCTS AND APPLICATIONS
The Company offers a broad range of standard and custom-designed RFICs.
Custom-designed products are usually developed for volume production orders from
large OEMs. Custom orders are normally manufactured on an exclusive basis for a
negotiated period. Once exclusivity periods expire, the Company attempts to
convert custom products into standard products to broaden its customer base and
leverage its design and product expenditures. At January 31, 1997, the Company
offered 63 products and 40 additional products were in various stages of
development. Set forth below is a list of the Company's current products by
category, the number of products in each category, the semiconductor process
technology used to fabricate such products and the types of OEM devices into
which such products are incorporated.
<TABLE>
<CAPTION>
NO. OF
PRODUCT CATEGORY PRODUCTS FABRICATION TECHNOLOGY END USER DEVICES
<S> <C> <C> <C>
Power Amplifiers 11 - Silicon - Cellular and PCS handsets
- GaAs MESFET - Cordless phones
- GaAs HBT - Industrial radios
- CATV line amplifiers
Quadrature
Modulators/Demodulators 15 - Silicon - Cellular and PCS handsets
- GaAs MESFET - Cellular and PCS base stations
- GaAs HBT - Cordless phones
- Wireless LAN cards
Low Noise Amplifiers/Mixers 10 - Silicon - Cellular and PCS handsets
- GaAs MESFET - Cordless phones
- GaAs HBT - Wireless security systems
IF Components 10 - Silicon - Cellular and PCS handsets
- Cordless phones
- Industrial radios
Gain Blocks 10 - Silicon - Cellular and PCS handsets
- GaAs MESFET - Cordless phones
- GaAs HBT - Instruments
Transceivers 4 - Silicon - Wireless meter readers
- Cordless phones
Attenuators 3 - GaAs MESFET - Cellular and PCS handsets
- Cellular and PCS base stations
- Instruments
</TABLE>
Power Amplifiers
Power amplifiers provide signal amplification in the transmitter section of
a wireless system in order to boost a signal through the antenna. Power
amplifiers operate at different frequencies, power levels and air interface
standards and generally are classified either as linear amplifiers, which add a
minimum amount of distortion to the shape of the input signal, or non-linear
amplifiers, which are used in analog devices. Power amplifiers are often the
most critical RF component for a number of reasons. They frequently are the most
expensive component and are difficult to design and implement. In addition,
power amplifiers normally use the greatest amount of battery power in a handset,
which impacts talk time, and they generally dissipate the greatest amount of
heat. The Company's GaAs HBT power amplifiers offer low distortion, small size,
high efficiency and improved linearity, and they are able to operate from a
single polarity power source.
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Quadrature Modulators/Demodulators
Quadrature modulators are devices in the transmitter section of a wireless
system that combine digital information with an RF signal by varying the phase
and amplitude of the signal so that the resulting signal can be transmitted.
Quadrature demodulators reverse this process in the receiver section by taking
received RF signals and recovering the embedded digital information for further
processing. The Company believes its GaAs HBT process technology produces
quadrature modulators/demodulators with superior amplitude and phase balance.
Low Noise Amplifiers/Mixers
A low noise amplifier (LNA) is a device in the receiver section of a
wireless system that receives signals from an antennae at extremely low
microvolt levels and amplifies such signals by a factor of approximately 10 to
1,000 times with the addition of as little "white noise" as possible. In
general, the less noise added by a LNA, the weaker the signal it can process.
LNAs are commonly integrated into circuits with mixers (also referred to as
"down-mixers" or "down converters"), and this combination generally is referred
to as a "receiver front end." Mixers accept the filtered output from the LNA,
which is typically at a high frequency and difficult to process, and mix it with
a local oscillator signal to produce a lower frequency (IF) signal, which is
easier to process.
IF Components
In a typical handset, high frequency RF signals are converted into lower
frequency IF signals by the LNA/Mixer and then to baseband in the receive
functions. In the transmit function, baseband inputs, (e.g., voice) are
converted from analog to digital and processed through the IF range to the
higher RF frequency before transmission through the antenna. RFMD's IF devices
include digitally controlled IF amplifiers, which amplify baseband signals after
they have been converted from analog to digital form, and IF amplifiers with
automatic gain control and received signal strength indicators, which are used
for IF-to-baseband conversion in the receive mode.
Gain Blocks
Gain blocks are simple general purpose amplifiers that boost signals over a
broad frequency range. They are used for amplifier applications whenever noise
is not a concern and whenever a signal's strength has been diminished by
processing through a filter or other component.
Transceivers
Transceivers are highly integrated circuits that combine transmitters with
receivers into a single device. Because this degree of integration generally
results in some performance compromises, single chip transceivers tend to be
used in cost-sensitive applications where performance is less critical.
Attenuators
An attenuator is a device that reduces the level of an input signal by
controllable amounts. RFMD's attenuators are programmable through use of an
external analog or digital control signal to reduce signals to desired levels
with minimal noise and signal loss when the device is not active. Like gain
blocks, attenuators have many applications both within and outside the wireless
markets.
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<PAGE> 37
CUSTOMERS
The following table identifies, by market, customers of the Company that
have generated revenues for the Company of greater than $50,000 during the nine
months ended December 31, 1996. Such customers are listed in alphabetical order.
<TABLE>
<S> <C>
CELLULAR HANDSETS BASE STATIONS
- ------------------ --------------
LG Information & Communications, Ltd. Hughes Network System (a subsidiary of
Matsushita Communication Industrial Co., Hughes
Ltd. Aircraft Company)
Maxon Electronics Co., Ltd. Lockheed Sanders Inc.
Nokia Mobile Phone Ltd. Motorola, Inc.
QUALCOMM Incorporated NEC Corporation
Samsung Electronics Co., Ltd. Spectrian Corp.
WIRELESS DATA
- ---------------
AT&T
International Business Machines
Research in Motion Limited
Rockwell International Corp.
OTHER WIRELESS APPLICATIONS
- ------------------------------
Cincinnati Microwave, Inc. (cordless
telephones)
Digital Security Controls Ltd. (wireless
security systems)
Mitsubishi Consumer Electronics (satellite
terminals)
Motorola, Inc. (CATV; industrial radios)
Sensus Technologies, Inc. (wireless meter
readers)
Telrad Telecommunications of Electronic Ind.
Ltd. (WLL handsets)
Viewsonics, Inc. (CATV)
</TABLE>
For the nine months ended December 31, 1996, sales to QUALCOMM and Samsung
were $7.6 million and $3.9 million, respectively, representing approximately
38.9% and 20.3%, respectively, of the Company's revenues. Because of the
Company's inability to meet delivery terms and quantity requirements, QUALCOMM
has determined to produce internally components that will replace certain
products currently purchased from the Company and to look to other sources for
other RFICs currently purchased from the Company. Accordingly, the Company
expects that sales to QUALCOMM will cease in May 1997. See "Risk
Factors -- Variability of Operating Results; Dependence on a Limited Number of
Customers; GaAs HBT Capacity Constraints."
The Company, TRW and Nokia have entered into an arrangement pursuant to
which such parties have agreed in principle to cooperate to develop and supply
Nokia with RFICs that are manufactured using TRW's GaAs HBT process. The
arrangement contemplates that the Company and Nokia will negotiate separate
agreements to address the development and supply of each component. Pursuant to
the arrangement, the Company has agreed to provide Nokia with access to certain
RFIC technologies and to its GaAs HBT foundry if and when such facility becomes
operational, and Nokia has agreed to provide the Company with rights to bid for
and supply Nokia's requirements for certain RFICs. The arrangement can be
terminated without penalty by TRW, the Company or Nokia for any reason. The
arrangement does not obligate Nokia to purchase any products from the Company,
and there can be no assurance that Nokia will become or subsequently remain a
significant customer of the Company or that this relationship will continue. See
"Risk Factors -- Relationship with Nokia."
33
<PAGE> 38
SALES AND MARKETING
The Company sells its products worldwide directly to customers as well as
through a network of 27 domestic sales representative firms and 26 foreign sales
representative firms. The Company selects its domestic and foreign
representatives based on technical skills and sales experience, as well as the
presence of complementary product lines and the customer base served. The
Company provides ongoing training to its representatives to keep them
knowledgeable of the Company's products. The Company maintains an internal
marketing organization that is responsible for developing sales and advertising
literature, such as product announcements, catalogs, brochures and magazine
articles in trade and other publications, and preparing technical presentations
for industry conferences.
The Company believes that maintaining a close relationship with customers
and providing customers with ongoing technical support is essential to customer
satisfaction in the wireless communications industry. The Company's design and
application staff interacts with customers during all stages of design and
production, provides customers with current product application notes and
engineering data, maintains regular contact with customer engineers and assists
in the resolution of technical problems. The Company assigns to its largest
customers a contract account manager who maintains regular contact with the
customer to determine its product needs and concerns. Members of senior
management also are involved in managing relationships with significant
customers. The Company believes that maintaining close contact with customers
improves their level of satisfaction and enables the Company to anticipate their
future product needs.
MANUFACTURING, PACKAGING AND TESTING
The Company's manufacturing cycle consists of semiconductor wafer
fabrication, assembly and packaging and final product testing. With the
exception of product testing, the Company currently outsources all stages of
production. The Company currently uses independent foundries located in the
United States to manufacture its products. The Company uses two independent
foundries to supply its silicon wafer requirements and two independent foundries
to supply its GaAs MESFET devices. The Company currently purchases all GaAs HBT
wafers from TRW. See "-- Strategic Relationship with TRW." Although TRW
currently is in the process of expanding its fabrication facility to increase
its capacity to fabricate GaAs HBT wafers, the Company has experienced capacity
limitations on its ability to supply GaAs HBT components. To address these
concerns the Company is seeking to establish an additional source for such
wafers and is constructing a fabrication facility at which it plans to fabricate
such wafers. The Company's reliance on independent foundries involves a number
of risks, including the possibility of material disruptions in the supply of key
RFICs and the lack of control over delivery schedules, manufacturing yields,
quality and fabrication costs. See "Risk Factors -- Dependence on TRW" and
"-- Dependence on Third Parties."
The Company intends to use a portion of the net proceeds from this offering
to construct an approximately 50,000 square foot fabrication facility adjacent
to its existing facility in Greensboro, North Carolina to fabricate four-inch
GaAs HBT wafers using technologies licensed from TRW. The facility will be
constructed in two phases, the first of which is budgeted at approximately $40
million and involves construction of the building shell, installation and
certification of an approximately 10,300 square foot clean room and the purchase
or lease and installation of the required fabrication equipment. The first phase
will continue until the GaAs HBT process technology transfer from TRW is
completed and specific commercial production yields are attained, which is
currently anticipated to occur in the second half of 1998. The second phase is
budgeted at approximately $30 million and involves an approximately 6,000 square
foot expansion to the clean room and the purchase or lease and installation of
an additional production equipment. The commencement and completion of the
second phase of the fabrication facility are dependent on a number of factors,
including the timing of completion of the first construction phase, the
availability of necessary capital, whether the Company successfully completes
the transfer of TRW's GaAs HBT and MBE processes, the demand for GaAs HBT
products and a number of other factors both within and outside the control of
the Company. See "Risk Factors -- Construction and Operation of Fabrication
Facility," "-- Adoption of GaAs HBT Components" and "-- Need for Additional
Capital."
34
<PAGE> 39
The Company maintains an inventory of certain standard products based on
its internal forecasts of expected demand for such products. For custom-designed
products, designs of the Company's products are verified by both the Company and
the customer before orders for production wafers are placed. Upon receipt of
orders from an OEM, the Company schedules production based on order size,
customer delivery requirements, production schedules and other production
considerations. The Company's GaAs HBT products are subject to supply
constraints as discussed under "Risk Factors -- Dependence on TRW."
The Company currently uses five vendors located in Asia and one vendor
located in the United States to package and assemble its products. All of such
vendors are certified to applicable ISO 9000 series specifications. The Company
qualifies and monitors assembly contractors based on cost and quality. Such
contractors typically provide the Company with per-unit pricing. The Company has
encountered packaging quality problems with certain of such vendors,
particularly with regard to GaAs products. The Company believes that until it
can obtain and train additional vendors to package its GaAs products, it will
have to continue to monitor closely its vendors as production volumes increase.
See "Risk Factors -- Dependence on Third Parties" and "-- International Sales
and Operations."
The Company tests 100% of its products for compliance with both DC and RF
parameters at its facility in Greensboro, North Carolina.
STRATEGIC RELATIONSHIP WITH TRW
In June 1996, the Company and TRW entered into a broad strategic
relationship based on several agreements which evidence an investment in RFMD by
TRW, a technology license from TRW to the Company (the "License Agreement") and
a supply arrangement between the parties (the "Supply Agreement"). As a part of
such alliance, TRW provided the Company with $15 million of equity and debt
financing and became a significant shareholder in the Company. See "Principal
and Selling Shareholders" and "Certain Transactions -- TRW." The key goal of the
Company in entering into this alliance was to enable the Company to construct a
four-inch wafer fabrication facility to manufacture products using GaAs HBT
technologies developed by TRW and licensed to the Company.
Pursuant to the License Agreement, TRW has granted to the Company fully
paid up, royalty-free, worldwide licenses with respect to certain of TRW's
existing and future GaAs HBT patent rights and MBE process patent rights, in
each case with accompanying know-how and technical information, to design,
develop, manufacture, market, service and repair certain existing products of
the Company and any GaAs HBT product in which the emitter of the GaAs HBT has a
width of from one to three microns, in either case provided such products are
for commercial wireless communications applications and operate on signals
having a frequency of less than 10 GHz. The license with respect to the GaAs HBT
rights currently is effective, and the MBE license becomes effective as of the
date that the Company's wafer fabrication facility becomes operational. Subject
to TRW's right to use the licensed technology to fulfill existing contractual
obligations and to provide to customers on an ongoing basis certain specified
foundry services, both licenses are exclusive as to all persons including TRW,
but may be made non-exclusive at the option of TRW if the Company fails to meet
certain revenue goals. See "Risk Factors -- Dependence on TRW" and "Certain
Transactions -- TRW -- License Agreement."
TRW also granted non-exclusive licenses to the Company to use certain of
its existing GaAs HBT rights and MBE rights for the development and sale of
certain of the Company's existing products for applications other than
commercial wireless communications or that operate on signals having a frequency
of 10 GHz or more. In addition, TRW agreed to provide certain technical
assistance to the Company in connection with the design, construction and
operation of the Company's planned wafer fabrication facility. The License
Agreement provides that TRW will offer to the Company, on the same terms as are
offered to third parties, certain future non-HBT related technologies that it
develops for a period of 10 years following the date on which the Company's
wafer fabrication facility becomes operational. The Company agreed to share with
TRW any modifications or improvements that it makes in the technology or the
products developed therefrom, and to grant TRW a non-exclusive, royalty-free
license to use such modifications or improvements in applications outside the
Company's field of use. The licenses granted pursuant to the License Agreement
35
<PAGE> 40
may be terminated by TRW if the Company's wafer fabrication facility is not
operational by December 31, 1998. See "Risk Factors -- Dependence on TRW" and
"Certain Transactions -- TRW -- License Agreement."
Under the terms of the Supply Agreement, the Company has agreed to purchase
from TRW, and TRW has agreed to sell to the Company, certain minimum quantities
of three-inch GaAs HBT processed wafers and four-inch GaAs epitaxial wafer
starting material until December 31, 2000.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused primarily on the
development of new integrated circuit products. At January 31, 1997, there were
44 persons in the Company's research and development organization. The Company's
research and development efforts also are directed at improving manufacturing
processes and yields. In fiscal 1994, 1995 and 1996 and for the nine months
ended December 31, 1996, the Company incurred $1,553,244, $2,835,876, $4,245,302
and $4,378,582, respectively. The Company does not separately account for
Company-sponsored and customer-sponsored research and development expenses.
The market for RFICs is characterized by rapid changes in product designs
and the emergence of new semiconductor technologies used to fabricate higher
performance devices. Because the demand of OEMs for continual improvements in
product performance is expected to increase, the Company believes that its
future success depends in part on its ability to design RFICs under emerging
wafer fabrication technologies that meet the cost and performance parameters of
its customers. See "Risk Factors -- Rapid Technological Change; Dependence on
Development and Growth of Wireless Markets."
COMPETITION
Competition in the markets for the Company's products is intense. The
Company faces competition from several companies primarily engaged in the
business of designing, manufacturing and selling silicon and GaAs MESFET RFICs,
as well as suppliers of discrete products such as transistors, capacitors and
resistors. The Company may face future competition from companies that have or
may develop GaAs HBT or other fabrication processes. In addition, the Company's
current and potential competitors also include OEMs that have or may develop the
ability to produce RFICs or discrete products internally for their requirements.
The Company's primary competitors include ANADIGICS, Motorola, NEC, Philips,
Rockwell and TriQuint.
The Company believes that competition within the markets for its products
is driven primarily by the ability to design and deliver high performance and
price competitive products in sufficient quantities and in a timely manner.
Competition is also affected by the quality of customer service and technical
support and the ability to design customized products that address each
customer's particular requirements and cost limitations.
Many of the Company's current and potential competitors have entrenched
market positions, established patents, copyrights, trade names, trademarks and
intellectual property rights and substantial technological capabilities.
Further, most of the Company's current and potential competitors have
significantly greater financial, technical, manufacturing and marketing
resources than the Company. Increased competition could adversely affect the
Company's revenue and profitability by causing it to reduce prices or by
reducing demand for the Company's products. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY
It is the Company's practice to seek U.S. patent and copyright protection
on its products and developments, where appropriate, and also to protect its
valuable technology under U.S. and foreign laws affording protection for trade
secrets and for semiconductor chip designs. The Company owns one U.S. patents
and has one pending U.S. patent application. The U.S. patent will be issued on
March 4, 1997 and will expire in 2015.
36
<PAGE> 41
The Company relies primarily upon trade secrets, technical know-how and
other unpatented proprietary information relating to its product development and
manufacturing activities. To protect its trade secrets, technical know-how and
other proprietary information, the Company's employees are required to enter
into agreements providing for maintenance of confidentiality and the assignment
of rights to inventions made by them while in the employ of the Company. The
Company also has entered into non-disclosure agreements to protect its
confidential information delivered to third parties in conjunction with possible
corporate collaborations and for other purposes. However, there can be no
assurance that these type of agreements will effectively prevent unauthorized
disclosure of the Company's confidential information, that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or independently discovered by others. See "Risk
Factors -- Intellectual Property Claims."
While the Company has not been involved in any patent or other intellectual
property rights litigation, there can be no assurance that third parties will
not assert claims against the Company with respect to existing and future
products. In the event of litigation to determine the validity of any third
party's claims, such litigation could result in significant expense to the
Company, and divert the efforts of the Company's technical and management
personnel, whether or not such litigation is determined in favor of the Company.
The semiconductor industry is subject to frequent litigation regarding patent
and other intellectual property rights. Leading companies and organizations in
the wireless industry have numerous patents that protect their intellectual
property rights in these areas. In the event of an adverse result of any such
litigation, the Company could be required to expend significant resources to
develop non-infringing technology or to obtain licenses to the technology which
is the subject of the litigation. There can be no assurance that the Company
would be successful in such development or that any such license would be
available on commercially reasonable terms.
BACKLOG
At December 31, 1996, the Company's backlog was approximately $20.0
million. The Company includes in its backlog all accepted product purchase
orders for which delivery has been specified within one year. Product orders in
the Company's backlog are subject to changes in delivery schedules or to
cancellation at the option of the purchaser without significant penalty. The
Company's backlog may vary significantly from time to time depending upon the
level of capacity available to satisfy unfilled orders. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be a
reliable indicator of sales for any future period.
EMPLOYEES
At January 31, 1997, the Company had 112 full-time employees. The Company
believes that its future prospects will depend, in part, on its ability to
continue to attract and retain skilled technical, marketing and management
personnel. Competition for such personnel is intense, and the number of persons
with relevant experience, particularly in engineering, software design and
marketing, is limited. None of the Company's employees is represented by a labor
union, and the Company has never experienced any work stoppage. The Company
believes that its employee relations are good.
FACILITIES
The Company's principal administrative facility is located in a building
comprising approximately 25,000 square feet in Greensboro, North Carolina. The
Company leases such building under a lease agreement that expires at the end of
2002, the term of which may be extended for an additional three years. The
Company has the option to request an expansion of this facility, in which case
the term of the lease would be extended to seven years from the date of
completion of such expansion. The Company has leased real estate adjacent to its
principal facility for the construction by a third party real estate developer
of a wafer fabrication facility that will consist of approximately 50,000 square
feet initially. The Company intends to use a portion of the net proceeds from
this offering to construct this facility. The lease for the fabrication facility
has a term of 15 years from the date of completion of the initial stage, which
is anticipated to occur in the second half of 1998, with two 10-year renewal
options. The Company also leases approximately 17,500 square feet of commercial
space
37
<PAGE> 42
in Greensboro, North Carolina that it uses for office space and storage. Such
facility is leased under three leases that each expire at the end of 1999.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is not a party to any legal proceeding.
The Company's operations are subject to a variety of extensive and changing
federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations or ordinances may impose liability for
the cost of remediating, and for certain damages resulting from, sites of past
releases of hazardous materials. The Company believes that it currently
conducts, and in the past has conducted, its activities and operations in
substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial position or results of operations. There can
be no assurance, however, that the environmental laws will not become more
stringent in the future or that the Company will not incur significant costs in
the future in order to comply with such laws.
38
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David A. Norbury..................... 46 President, Chief Executive Officer and Director
William J. Pratt..................... 54 Chairman of the Board, Chief Technical Officer
and Director
Powell T. Seymour.................... 54 Vice President of Operations and Secretary
Jerry D. Neal........................ 52 Vice President of Sales and Marketing
William A. Priddy, Jr................ 35 Vice President of Finance and Treasurer
Arthur E. Geissberger................ 43 Vice President of Wafer Fabrication Operations
Robert C. Fleming.................... 40 Director
Dr. Albert E. Paladino............... 64 Director
Erik H. van der Kaay................. 56 Director
Walter H. Wilkinson, Jr.............. 51 Director
Terri D. Zinkiewicz.................. 42 Director
</TABLE>
DAVID A. NORBURY has been President and Chief Executive Officer and a
director of the Company since September 1992. Mr. Norbury was employed as
President and Chief Executive Officer of Polylithics, Inc., a developer of
semiconductor technology based in Santa Clara, California, from August 1989 to
March 1991.
WILLIAM J. PRATT, a founder of the Company, was President of the Company
from February 1991 to September 1992 and has been Chairman and Chief Technical
Officer since September 1992. He has also been a director of the Company since
its inception. Prior to such time, Mr. Pratt was employed for 13 years with
Analog Devices, Inc. ("ADI"), an integrated circuit manufacturer in Greensboro,
North Carolina, as Engineering Manager and General Manager.
POWELL T. SEYMOUR, a founder of the Company, has been Vice President of
Operations and Secretary of the Company since its inception. Prior to such time,
Mr. Seymour was employed for 11 years with ADI as Manufacturing Engineer and
Manufacturing Engineer Manager. Mr. Seymour served as a director of the Company
from its inception until July 1993.
JERRY D. NEAL, a founder of the Company, has been its Vice President of
Sales and Marketing since September 1991. Prior to such time, Mr. Neal was
employed for 10 years with ADI as Marketing Engineer, Marketing Manager and
Business Development Manager. Mr. Neal served as a director of the Company from
February 1992 to July 1993.
WILLIAM A. PRIDDY, JR. was Controller of the Company from December 1991 to
December 1993 and became Treasurer in December 1993 and Vice President of
Finance in December 1994. Prior to joining the Company, Mr. Priddy was employed
for five years with ADI as Financial Analyst, Marketing Analyst and Marketing
Services Manager.
ARTHUR E. GEISSBERGER has been Vice President of Wafer Fabrication
Operations since July 1996. From February 1991 to July 1996, Mr. Geissberger was
employed with Alpha Industries, Inc., a manufacturer of microwave and
millimeter-wave frequency components and subsystems based in Methuen,
Massachusetts, as GaAs Wafer Fabrication Manager and Manager of Foundry
Operations.
ROBERT C. FLEMING became a director of the Company in November 1993. Mr.
Fleming founded Prism Venture Partners I L.P., a venture capital firm based in
Wellesley, Massachusetts, in May 1995 and has been a general partner of that
firm since that time. From July 1993 to April 1995, he was a general partner
with Norwest Venture Capital, a Minneapolis, Minnesota-based venture capital
firm. From 1989 to June 1993, he
39
<PAGE> 44
was a general partner of Orien Ventures II L.P., a venture capital firm
affiliated with The Vista Group of Del Mar, California.
DR. ALBERT E. PALADINO became a director of the Company in March 1992. Dr.
Paladino has been a general partner of Advanced Technology Ventures, a Boston,
Massachusetts-based venture capital firm focused on investments in early stage
high technology companies, since 1981. He is a director of TranSwitch
Corporation, a designer of high speed VLSI communications devices based in
Shelton, Connecticut.
ERIK H. VAN DER KAAY became a director of the Company in July 1996. Mr. van
der Kaay has been President and Chief Executive Officer of Allen Telecom Group,
Inc. ("Allen Telecom"), a telecommunications company based in Cleveland, Ohio,
since its founding in August 1992. Mr. van der Kaay has also been Vice President
of Allen Telecom's parent company, The Allen Group Inc., since February 1993.
From June 1990 to August 1992, he was President of The Antenna Specialists
Company, a manufacturer of mobile telecommunications antennas that is now a
division of Allen Telecom. He is a director of SSE Telecom, Inc., a manufacturer
of satellite telecommunications equipment based in Vienna, Virginia.
WALTER H. WILKINSON, JR. became a director of the Company in March 1992.
Mr. Wilkinson is a general partner of Kitty Hawk Capital, a venture capital firm
based in Charlotte, North Carolina that he founded in 1980.
TERRI D. ZINKIEWICZ became a director of the Company in February 1997. Ms.
Zinkiewicz has been employed with TRW in various capacities during the past five
years, most recently as Director of Finance and Business of the Electronic
Systems and Technology Division of the Space and Electronics Group.
Pursuant to the Company's bylaws, the Board of Directors consists of from
seven to nine members, as may be determined by the Board from time to time.
Directors are elected annually to serve for one-year terms and until their
successors are duly elected and qualified. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
elected and qualified. There are no family relationships among any of the
directors or officers of the Company.
BOARD COMMITTEES
The Board of Directors has two standing committees, a Compensation
Committee and an Audit Committee. The Compensation Committee has the authority
to (i) establish and implement the cash and noncash compensation of each
officer, salaried employee and agent of or consultant to the Company (subject to
any employment or other agreement such officer, employees, agent or consultant
may have with the Company) on an annual, semi-annual or other periodic basis;
and (ii) establish and implement every personnel policy, collective bargaining
agreement, health or dental insurance plan, retirement plan, profit sharing
plan, deferred compensation plan, stock option or other stock-based benefit
plan, bonus plan, incentive or any other employee benefit plan or agreement
provided by the Company to its employees, officers, directors or consultants.
See "-- Stock Option Plans." The members of the Compensation Committee are
Messrs. van der Kaay, Paladino and Wilkinson, none of whom is an employee of the
Company.
The Audit Committee has the authority to (i) nominate an independent public
accounting firm to serve as the Company's external auditor for approval by the
whole Board of Directors and recommend the compensation of the external auditors
to the whole Board of Directors for its approval, (ii) discuss with the
Company's external auditors the scope and timing of their examination of the
financial records of the Company, with particular attention to those areas where
either the Committee or the external auditors believe special attention should
be directed, (iii) implement, and solicit the advice of external auditors on,
such internal accounting controls, procedures and systems, including an internal
auditor department, as may help to ensure accountability and the preparation of
complete and correct financial statements, (iv) direct, monitor and discuss with
the Company's internal auditors the scope of their examinations, the
effectiveness of internal controls, the revision or establishment of new
controls and the findings of their audits and their recommendations with respect
thereto, (v) direct the internal and external auditors to perform such
supplemental reviews or audits as it in its discretion deems appropriate and
(vi) review the external auditor's annual findings and recommendations to
management and advise the whole Board of Directors with respect thereto. The
members
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<PAGE> 45
of the Audit Committee are Ms. Zinkiewicz and Messrs. Fleming and Wilkinson,
none of whom is an employee of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in March 1994, the
Board of Directors made all determinations with respect to executive officer
compensation. No interlocking relationships exist between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company. Each of the Company's directors, or an affiliate
thereof, has purchased securities of the Company, except for Mr. Fleming. Mr.
Fleming was formerly associated with Norwest Equity Partners IV and Norwest
Equity Partners V, both of which own securities of the Company. See "Certain
Transactions" and "Principal and Selling Shareholders."
COMPENSATION OF DIRECTORS
Upon consummation of this offering, each director who is not an employee of
the Company will receive $6,000 per year for service as a member of the Board of
Directors and $2,000 per year for service on each committee of the Board of
Directors on which he serves. In addition, all directors are reimbursed for
expenses incurred by them in their capacity as directors. Other than the
reimbursement of expenses, directors who are employees of the Company do not
receive additional compensation for service.
Prior to consummation of this offering, the Board of Directors of the
Company intends to adopt the Nonemployee Directors' Option Plan (the "Directors'
Option Plan"). Pursuant to the Directors' Option Plan, each director who is not
an employee of the Company at the time of consummation of this offering, and
each nonemployee director of the Company who is first elected to the Board of
Directors thereafter, will receive options to purchase 10,000 shares of Common
Stock of the Company. In addition, each nonemployee director of the Company will
receive an annual award of options to purchase 5,000 shares of Common Stock of
the Company upon the anniversary his or her initial grant so long as he or she
remains a member of the Board of Directors. See "-- Stock Option
Plans -- Nonemployee Directors' Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during the Company's fiscal year ended March 31, 1996 to the Company's
President and Chief Executive Officer and the four most highly compensated
executive officers other than the President and Chief Executive Officer
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
AWARDS
---------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
FISCAL ------------------- OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (NO. OF SHARES)
--------------------------- ------ -------- ------- ---------------
<S> <C> <C> <C> <C>
David A. Norbury................................ 1996 $152,771 $35,950 41,818
Chief Executive Officer and President
William J. Pratt................................ 1996 $134,460 $32,250 21,818
Chairman and Chief Technical Officer
Jerry D. Neal................................... 1996 $106,231 $27,000 36,818
Vice President of Sales and Marketing
Powell T. Seymour............................... 1996 $ 89,654 $24,000 11,818
Vice President of Operations and Secretary
William A. Priddy, Jr........................... 1996 $ 71,558 $19,500 11,818
Vice President of Finance and Treasurer
</TABLE>
41
<PAGE> 46
At February 1, 1997, the base salary in effect for each of the Named
Executive Officers was as follows: Mr. Norbury -- $175,000; Mr.
Pratt -- $155,000; Mr. Neal -- $135,000; Mr. Seymour -- $115,000; and Mr.
Priddy -- $95,000. The base salary in effect at such time for Arthur E.
Geissberger, Vice President of Wafer Fabrication Operations, was $130,000. In
October 1996, the Compensation Committee awarded bonuses payable December 1,
1996 to the Named Executive Officers as follows: Mr. Norbury -- $64,000; Mr.
Pratt -- $49,350; Mr. Neal -- $36,000; Mr. Seymour -- $30,000; and Mr.
Priddy -- $22,500.
OPTION GRANTS DURING FISCAL 1996
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the year ended March
31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME GRANTED FISCAL 1996 SHARE DATE 5% 10%
- ---- ---------- ---------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Norbury............. 1,818(1) 16.7% $0.28 8/1/05 $ 320 $ 811
Chief Executive 40,000(2) $0.91 12/1/05 22,892 58,012
Officer and President
William J. Pratt............. 1,818(1) 8.7% $0.28 8/1/05 320 811
Chairman and Chief 20,000(2) $0.91 12/1/05 11,445 29,006
Technical Officer
Powell T. Seymour............ 1,818(1) 4.7% $0.28 8/1/05 320 811
Vice President of 10,000(2) $0.91 12/1/05 5,723 14,503
Operations and Secretary
Jerry D. Neal................ 1,818(1) 14.7% $0.28 8/1/05 320 811
Vice President 35,000(2) $0.91 12/1/05 20,030 50,761
of Sales and Marketing
William A. Priddy, Jr........ 1,818(1) 4.7% $0.28 8/1/05 320 811
Vice President of 10,000(2) $0.91 12/1/05 5,723 14,503
Finance and Treasurer
</TABLE>
- ---------------
(1) Such options vest and become exercisable in five equal installments on the
first five anniversaries of the date of grant (August 1, 1995).
(2) Such options vest and become exercisable in five equal installments on the
first five anniversaries of the date of grant (December 1, 1995).
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the
stock price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last
day of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price.
In December 1996, the Compensation Committee granted the following options
to the Named Executive Officers: David A. Norbury -- 50,000 shares; William J.
Pratt -- 50,000 shares; Powell T. Seymour -- 20,000 shares; Jerry D.
Neal -- 30,000 shares; and William A. Priddy, Jr. -- 27,000 shares. All such
options vest and become exercisable in five equal installments on each of the
five anniversaries of the date of grant, are exercisable at $6.50 per share and
expire on December 3, 2006.
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<PAGE> 47
STOCK OPTION PLANS
1992 Stock Option Plan
The Company's 1992 Stock Option Plan (the "1992 Option Plan") was adopted
by the shareholders of the Company in February 1992. The 1992 Option Plan
provides for the grant of options to purchase Common Stock to key employees,
non-employee directors and advisors and consultants in the service of the
Company. The 1992 Option Plan permits the granting of both incentive stock
options (options that meet the requirements of Section 422A of the Code)
("Incentive Options") and nonqualified stock options (options that do not meet
such requirements) ("Nonqualified Options"). The aggregate number of shares of
Common Stock that may be issued pursuant to options granted under the 1992
Option Plan may not exceed 1,426,000 shares, subject to adjustment upon the
occurrence of certain events affecting the Company's capitalization.
The 1992 Option Plan is administered by the Compensation Committee of the
Board of Directors (see "-- Board Committees" and "-- Compensation Committee
Interlocks and Insider Participation"), which is authorized, subject to the
provisions of the 1992 Option Plan, to determine to whom and at what time
options may be granted, the designation of each option as either an Incentive
Option or a Nonqualified Option, the per share exercise price, the duration of
each option, the number of shares subject to each option, the rate and manner of
exercise and the timing and form of payment.
An Incentive Option may not have an exercise price less than the fair
market value of the Common Stock on the date of the grant or an exercise period
that exceeds ten years from the date of grant, may not be granted to any person
who holds more than 10% of the total combined voting power of all classes of
capital stock of the Company (unless the terms of such Incentive Option meet
certain additional criteria) and is subject to certain other limitations that
allow the optionee to qualify for favorable tax treatment. Nonqualified Options
may have an exercise price less than the fair market value of the underlying
Common Stock on the date of grant and may have an exercise period of more than
ten years from the date of grant. Other than as described below, no option
granted under the 1992 Option Plan may be exercisable during the six months
immediately following the date of grant.
Except as may be provided in an individual option agreement, if the
employment or service of a person to whom an option has been granted under the
1992 Option Plan is terminated for any reason, the optionee or his or her
personal representative may exercise such option to the extent that he or she
was entitled to exercise it as of the date of termination only during the 30-day
period following such termination and in no event after the expiration of ten
years from the date such option was granted. No option granted under the 1992
Option Plan may be transferred by the optionee.
The 1992 Option Plan includes provisions designed to protect the rights of
optionholders upon the occurrence of certain events affecting the capital stock
of the Company, and provides for the acceleration of the exercisability of all
options granted thereunder in the event of the acquisition of a sale of
substantially all the assets of the Company or a business combination in which
the Company's shareholders would receive less than 50% of the resulting
corporation's voting capital stock.
As of February 28, 1997, the Company had granted options to employees
(including certain officers; see "-- Option Grants During Fiscal 1996" and
"Principal and Selling Shareholders") for 1,060,556 shares of Common Stock under
the 1992 Option Plan, of which options for 15,700 shares have been forfeited.
The exercise prices of options granted under the 1992 Option Plan range from
$0.15 to $9.00 per share, with a weighted average of $2.03 per share. As of
February 28, 1997, none of these options had been exercised. The Company intends
to terminate the 1992 Option Plan effective upon the consummation of this
offering, after which no additional options will be awarded under the 1992
Option Plan. Such action will not affect options outstanding under the 1992
Option Plan.
1997 Key Employees' Stock Option Plan
Prior to consummation of this offering, the Board of Directors intends to
adopt the 1997 Key Employees' Stock Option Plan (the "1997 Option Plan"). The
1997 Option Plan will provide for the grant of options to purchase Common Stock
to key employees and independent contractors in the service of the Company. The
43
<PAGE> 48
1997 Option Plan will permit the granting of both Incentive Options and
Nonqualified Options. The aggregate number of shares of Common Stock that may be
issued pursuant to options granted under the 1997 Option Plan will not exceed
1,300,000 shares, subject to adjustment in the event of certain events affecting
the Company's capitalization.
The 1997 Option Plan will be administered by the Compensation Committee of
the Board of Directors (see "-- Board Committees"), which will be authorized,
subject to the provisions of the 1997 Option Plan, to determine to whom and at
what time options may be granted, the designation of the option as either an
Incentive Option or a Nonqualified Option, the per share exercise price, the
duration of each option, the number of shares subject to each option, the rate
and manner of exercise and the timing and form of payment.
An Incentive Option may not have an exercise price less than the fair
market value of the Common Stock on the date of the grant or an exercise period
that exceeds 10 years from the date of grant, and is subject to certain other
limitations that allow the optionee to qualify for favorable tax treatment.
Nonqualified Options may have an exercise price less than the fair market value
of the underlying Common Stock on the date of grant but, like Incentive Options,
are limited to an exercise period of no longer than 10 years.
Except to the extent, if any, as may be permitted by the Code, Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
any successor statute or rule, an option granted under the 1997 Option Plan will
not be transferable (including by pledge or hypothecation) other than by will or
the laws of intestate succession, and such an option will be exercisable during
the optionee's lifetime only by the optionee. If an optionee is subject to
Section 16 of the Exchange Act, shares acquired upon the exercise of an option
will not, without the consent of the Compensation Committee, be transferable
(including by pledge or hypothecation) until the expiration of six months after
the date the option was granted. In addition, the Company may impose such
restrictions on any shares acquired upon exercise of options granted under the
1997 Option Plan as it may deem advisable, including, without limitation,
transfer and other restrictions necessary to ensure compliance with the
Securities Act and any blue sky or securities laws applicable to such shares.
As a general matter, no option that will be granted under the 1997 Option
Plan to an optionee who was an employee of the Company or a related corporation
at the time of the grant may be exercised unless the optionee is, at the time of
exercise, an employee of the Company or any of its subsidiaries and has been an
employee continuously since the date the option was granted, subject to certain
post-termination provisions in the case of Incentive Options.
Nonemployee Directors' Option Plan
Prior to consummation of this offering, the Company intends to adopt the
Directors' Option Plan. The purpose of the Directors' Option Plan will be to
compensate nonemployee directors for their service on the Board of Directors,
enable such directors to increase their holdings of Common Stock and allow the
Company to attract and retain qualified nonmanagement directors. Under the
Directors' Option Plan, directors who are not employees of the Company or any of
its subsidiaries will be entitled to receive options to acquire shares of Common
Stock in accordance with the terms of the plan. There will be 200,000 shares of
Common Stock reserved for issuance under the Directors' Option Plan, subject to
adjustment for certain events affecting the Company's capitalization. There
currently are five directors of the Company who will be eligible to participate
in the Directors' Option Plan.
The Directors' Option Plan will be administered by the Compensation
Committee of the Board of Directors. Subject to the provisions of the plan, the
Compensation Committee will have full and final authority, in its discretion, to
establish, amend and rescind rules and regulations for the administration of the
plan, to construe and interpret the plan, the rules and regulations for the plan
and the agreements evidencing options and to make all other determinations
deemed necessary or advisable for administering the plan. However, no director
or any other person will have any discretion with respect to the granting of
options pursuant to the plan.
44
<PAGE> 49
Under the Directors' Option Plan, each director who is not an employee of
the Company will be entitled to receive an initial award in the form of an
option to purchase 10,000 shares of Common Stock of the Company at the time of
consummation of this offering. Such option may be exercised upon consummation of
this offering at the initial public offering price and will expire to the extent
not exercised prior to the tenth anniversary of the date on which this offering
is consummated. In addition, each nonemployee director of the Company who is
first elected to the Board of Directors after consummation of this offering will
be granted an initial award (an "Initial Award") on the date of such election of
options to purchase 10,000 shares of Common Stock of the Company. Further, each
nonemployee director of the Company will be granted an award (an "Annual Award")
to purchase 5,000 shares of Common Stock of the Company on each anniversary of
his or her initial grant so long as he or she remains a member of the Board of
Directors.
Initial Awards and Annual Awards will be exercisable on a per share basis
at the fair market value per share of the Common Stock on the date of grant. For
purposes of the Directors' Option Plan, "fair market value" means the closing
sale price of the Common Stock as reported on the Nasdaq National Market on the
date of grant.
Initial Awards and Annual Awards will vest in equal annual installments
over the three-year period following the date of grant and will expire on the
tenth anniversary of the date of grant. Except as described below, no options
covered by Initial Awards and Annual Awards may be exercised unless the optionee
is, on the date of exercise, a director and has been a director continuously
since the date of grant.
Options granted under the Directors' Option Plan will be nonqualified stock
options subject to federal income taxation under Section 83 of the Code. In
general, under Section 83 of the Code, an optionee will not be subject to
federal income tax upon the grant of an option. The exercise of an option,
however, will result in tax consequences to the optionee and to the Company.
Employee Stock Purchase Plan
Prior to consummation of this offering, the Company intends to adopt the
Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase
Plan will be intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. All regular full-time employees of the Company
(including officers) and all other employees whose customary employment is for
more than a specified number of months in any calendar year or more than a
specified number of hours per week, who in either case have been employed by the
Company on the commencement date of the first purchase period under the Stock
Purchase Plan or for at least three months, will be eligible to participate in
the Stock Purchase Plan. Directors who are not employees will not be eligible.
An aggregate of 500,000 shares of Common Stock will be reserved for offering
under the Stock Purchase Plan and available for purchase thereunder, subject to
anti-dilution adjustments in the event of certain changes in the capital
structure of the Company.
To participate in the Stock Purchase Plan, an employee must authorize the
Company in writing to deduct an amount (not less than 1% nor more than 15% of a
participant's base compensation) from his or her pay during six-month periods to
be specified in the Stock Purchase Plan (each a "Purchase Period"). On the first
day of each Purchase Period, the Company will grant to each participating
employee an option to purchase up to a specified number of shares of Common
Stock. The exercise price for the option for each Purchase Period will be the
lesser of 85% of the fair market value of the Common Stock on the first or last
business day of the Purchase Period. The fair market value will be the closing
price of the Common Stock as quoted on the Nasdaq National Market. If an
employee is not a participant on the last day of the Purchase Period, such
employee will not be entitled to exercise his or her option, and the amount of
his or her accumulated payroll deduction will be refunded to the employee. An
employee's rights under the Stock Purchase Plan will terminate upon his or her
voluntary withdrawal from the plan at any time or upon termination of
employment.
The Company will make no cash contributions to the Stock Purchase Plan, but
will bear the expenses of its administration. The Stock Purchase Plan will be
administered by the Compensation Committee, which will have authority to
establish the number and duration of the Purchase Periods during the term of the
Stock Purchase Plan, and to make rulings and interpretations thereunder.
45
<PAGE> 50
CERTAIN TRANSACTIONS
SALES OF PREFERRED STOCK
Since the incorporation of the Company in 1991, the Company has issued, in
private placement transactions, shares of Preferred Stock as follows: 975,000
shares of Class A-1 Preferred Stock at $1.538 per share in cash and in
satisfaction of outstanding debt; 1,034,091 shares of Class A-2 Preferred Stock
at $1.692 per share in cash; 3,300,000 shares of Class B Preferred Stock at
$2.75 per share in cash and in satisfaction of outstanding debt; and 2,645,229
shares of Class C Preferred Stock at $6.048 per share in cash and in
satisfaction of outstanding debt. In addition, the Company has issued to TRW
2,683,930 shares of Common Stock on the terms and conditions described below in
exchange for TRW's execution and performance of a license and technical
assistance agreement, and a convertible note and a warrant that together provide
for the issuance, under certain conditions, of up to an aggregate amount of
2,111,111 shares of equity securities at an average price of $9.474 per share.
See "-- TRW." The Company has also issued warrants to Allen Telecom for the
purchase of up to 54,546 shares of Common Stock at $2.75 per share and 12,400
shares of Common Stock at $6.048 per share. See "-- Other Transactions." The
outstanding shares of Preferred Stock will convert into an aggregate of
7,954,320 shares of Common Stock upon the consummation of this offering. The
holders of such converted shares of Common Stock are entitled to certain
registration rights with respect to the Common Stock issued or issuable upon
conversion thereof. See "Description of Capital Stock -- Registration Rights."
The following table sets forth the series of Preferred Stock and number of
shares purchased by the Company's directors, executive officers and five percent
shareholders and their respective affiliates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C
INVESTOR PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- -------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
TRW(1).......................... 0 0 0 826,446
Allen Telecom(2)................ 162,500 219,621 394,086 178,071
Erik H. van der Kaay(2)......... 0 0 10,345 2,324
Robert A. Paul(2)............... 0 0 20,690 4,648
Philip W. Colburn(2)............ 0 0 20,690 4,648
Robert A. Youdelman(2).......... 0 0 10,345 2,324
Advanced Technology Ventures,
III, L.P.(3).................. 260,000 275,758 280,795 126,760
Brantley Ventures Partners II,
L.P........................... 276,250 340,265 291,934 0
Norwest Equity Partners, IV..... 0 0 620,690 0
Norwest Equity Partners, V...... 0 0 0 139,446
Kitty Hawk Capital Limited
Partnership II(4)............. 276,250 198,447 230,993 49,603
NationsBanc Capital
Corporation................... 0 0 0 744,048
</TABLE>
- ---------------
(1) Terri D. Zinkiewicz, who is a director of the Company, is Director of
Finance and Business of the Electronic Systems and Technology Division of
TRW's Space & Electronics Group.
(2) Mr. van der Kaay, who is a director of the Company, is President and Chief
Executive Officer of Allen Telecom, and Messrs. Paul, Colburn and Youdelman
are President and Chief Executive Officer, Chairman of the Board of
Directors and Chief Financial Officer, respectively, of The Allen Group
Inc., of which Allen Telecom is a wholly owned subsidiary.
(3) Dr. Albert E. Paladino, who is a director of the Company, is a general
partner of ATV Associates III, L.P., which is a general partner of Advanced
Technology Ventures III, L.P.
(4) Walter H. Wilkinson, Jr., who is a director of the Company, is a general
partner of Kitty Hawk Capital, which is a general partner of Kitty Hawk
Capital Limited Partnership II.
46
<PAGE> 51
TRW
On June 6, 1996, the Company initiated a strategic alliance with TRW and
entered into agreements pursuant to which the Company issued to TRW (i) 826,446
shares of Class C Preferred Stock in exchange for $5,000,000 in cash (which
shares will convert on a one-for-one basis into Common Stock upon the closing of
this offering); (ii) 2,683,930 shares of Common Stock in exchange for TRW's
execution and performance of the License Agreement, all of which shares are
subject to certain voting and transfer restrictions as described below; (iii)
the TRW Convertible Note in the maximum principal amount of $10,000,000,
convertible into up to 1,111,111 shares of Common Stock; and (iv) the TRW
Warrant for the purchase, under certain circumstances, of up to 1,000,000 shares
of Common Stock at $10.00 per share. The Company also entered into the Supply
Agreement, which provides for the purchase by the Company from TRW of certain
minimum quantities of GaAs HBT wafers and GaAs epitaxial wafers during the years
1996 to 2000, and TRW has agreed to refrain from taking certain actions
regarding control of the Company during the five years following this offering.
See "Risk Factors -- Dependence on TRW" and "Business -- Strategic Relationship
with TRW."
License Agreement
Pursuant to the License Agreement, TRW granted to the Company fully paid
up, royalty-free worldwide licenses with respect to certain of TRW's existing
and future GaAs HBT patent rights and MBE process patent rights, in each case
with accompanying know-how and technical information, to design, develop,
manufacture, market, service and repair certain existing products of the Company
and any product with an emitter with a width of from one to three microns, in
either case provided such products are for commercial wireless communication
applications and operate on signals having a frequency of less than 10 GHz. The
license with respect to the GaAs HBT patent rights was effective immediately,
and the MBE patent right license becomes effective as of the date that the
Company's GaAs HBT wafer fabrication facility becomes operational. Both licenses
are exclusive as to all persons including TRW, except that TRW has reserved the
right to fulfill existing contractual obligations and to provide to customers on
an ongoing basis with certain specified foundry services. At the option of TRW,
the license will become non-exclusive if the Company fails to meet the following
revenue goals, as measured in accordance with GAAP, following the date on which
the Company's GaAs HBT wafer fabrication facility becomes operational: during
the first year, $30 million; during the second year, $65 million; and during the
third year, $125 million. See "Risk Factors -- Dependence on TRW."
TRW also granted certain non-exclusive licenses to the Company and agreed
to provide certain technical assistance and equipment to the Company in
connection with the design, construction and operation of the Company's GaAs HBT
wafer fabrication facility. The License Agreement provides that TRW will offer
to the Company, on the same terms as are offered to third parties, certain
non-GaAs HBT process technologies that it develops in the future for a period of
ten years following the date on which the Company's GaAs HBT wafer fabrication
facility becomes operational. The Company agreed to share with TRW any
modifications or improvements and to grant TRW a non-exclusive, royalty-free
license to use such modifications or improvements outside the Company's field of
use.
The licenses granted pursuant to the License Agreement may be terminated by
TRW if the Company's wafer fabrication facility is not operational by December
31, 1998, unless the parties agree upon a later date. See "Risk
Factors -- Dependence on TRW."
Restricted Stock Agreement
The Company and TRW have entered into a restricted stock agreement with
respect to the 2,683,930 shares of Common Stock issued to TRW in consideration
of the License Agreement. Pursuant to this agreement, TRW granted to David
Norbury, the President of the Company, or any successor President, an
irrevocable proxy to vote these shares in favor of any measure approved by the
Board of Directors of the Company. Any attempt by TRW to revoke this proxy would
result in all of the shares becoming redeemable, at the option of the Company,
for an aggregate purchase price of $1.00. The agreement also provides that the
47
<PAGE> 52
shares may not be transferred by TRW to any third party without the Company's
written consent, and that any attempt at such a transfer would result in the
shares becoming redeemable as described above. Such a right of redemption will
also arise with respect to half of the 2,683,930 shares subject to the agreement
if the circumstances that would permit termination of the License Agreement
exist, namely if the Company's wafer fabrication facility is not operational by
December 31, 1998, unless the parties agree upon a later date. The agreement
does not affect TRW's right to receive any cash dividends that may be declared
and payable with respect to the Common Stock.
The agreement further provides that TRW and the Company will cooperate with
respect to issues that may arise under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), relating to TRW's
investment in the Company. The agreement will terminate 30 days following the
agreed-upon date by which the facility must have become operational.
TRW Convertible Note
Under the terms of the TRW Convertible Note, the Company has borrowed $10
million from TRW. Unless otherwise agreed to in writing by TRW, such funds must
be used exclusively for the planning and construction and the operational,
working capital and related requirements of the Company's wafer fabrication
facility. The unpaid principal amount under the TRW Convertible Note bears
simple interest at the rate of 6% per annum and, subject to the prior conversion
of the TRW Convertible Note, all principal and accrued interest thereon is
payable in full in a lump sum on June 6, 2003. The indebtedness evidenced by the
TRW Convertible Note is subordinated to certain other indebtedness of the
Company. The Company may at its option prepay amounts owed under the TRW
Convertible Note without premium or penalty, unless TRW has initiated the
conversion of the TRW Convertible Note as described in the following paragraph.
Subject to prior compliance by TRW with the HSR Act, the TRW Convertible
Note may be converted at any time before December 31, 1998 into up to 1,111,111
shares of Common Stock at a price of $9.00 per share. The TRW Convertible Note
must be converted, subject to compliance with the HSR Act, immediately prior to
the closing of an underwritten public offering of Common Stock in which gross
proceeds to the Company are at least $15 million and in which the offering price
to the public is at least $12.00 per share and implies a pre-financing fully
diluted valuation of the Company of at least $75 million. Based on the
$10,000,000 outstanding principal amount, and assuming that neither the Federal
Trade Commission nor the U.S. Department of Justice does not approve the
conversion under the HSR Act, the Company anticipates that the TRW Convertible
Note will be converted into 1,111,111 shares of Common Stock immediately prior
to the closing of this offering. If this offering does not meet or exceed all of
the criteria described above, however, there will be no mandatory conversion,
and the TRW Convertible Note will continue to represent debt of the Company.
As part of the TRW Convertible Note financing arrangement, the Company
issued to TRW a warrant (the "Deficit Warrant") for the purchase of up to
1,111,111 shares of Common Stock at a price of $9.00 per share. The Deficit
Warrant is exercisable only to the extent that the TRW Convertible Note is not
converted into Common Stock. If the TRW Convertible Note is converted into
Common Stock in conjunction with this offering, the Deficit Warrant will
terminate at such time without being exercised. If the TRW Convertible Note is
not converted in full, the Deficit Warrant will remain outstanding and will not
terminate until the earlier of the full conversion of the TRW Convertible Note
or December 31, 1998.
TRW Warrant
The TRW Warrant provides for the purchase of up to 1,000,000 shares of
Common Stock at a price of $10.00 per share. The TRW Warrant first becomes
exercisable on the date that the Company's wafer fabrication facility becomes
operational, and thereafter must be exercised before the first to occur of (i)
the second anniversary of such date and (ii) 90 days after the Company has
provided notice to TRW that the current market price of the Common Stock is, and
has been for at least 20 consecutive trading days, greater than $12.00 per
share. If the Company's wafer fabrication facility does not become operational
by December 31, 1998, the TRW Warrant will terminate and be of no further force
or effect.
48
<PAGE> 53
Supply Agreement
Under the terms of the Supply Agreement, the Company has agreed to purchase
from TRW, and TRW has agreed to sell to the Company, certain minimum quantities
of three-inch GaAs HBT processed wafers and four-inch GaAs epitaxial wafers
commencing in 1997 and continuing until 2000.
Standstill Agreement
TRW has agreed with the Company and the holders of Old Preferred Stock
that, before the fifth anniversary of the closing of this offering, it will not,
and will cause its affiliates not to, (i) acquire, offer to acquire or agree to
acquire, directly or indirectly, any voting securities or rights or options to
acquire any assets of the Company or any voting securities of the Company in
excess of the lesser of (a) 40% of the Company's equity securities or (b) the
actual maximum percentage of the Company's equity securities owned by TRW
(assuming conversion by TRW of all of its convertible securities and the
exercise of any warrants or options held by TRW), calculated on a fully diluted
basis; (ii) make any public announcement with respect to, or submit any proposal
for, any extraordinary transaction involving the Company or its securities or
assets; (iii) make, or in any way participate in, any solicitation of proxies to
vote, or seek to advise or influence any person or entity with respect to the
voting of, any voting securities of the Company; (iv) form, join or in any way
participate in a "group" within the meaning of the Exchange Act with respect to
any voting securities of the Company; or (v) solicit or encourage any person to
propose a business combination or similar transaction with, or a change in
control of, the Company. Notwithstanding the foregoing, if any party makes a
bona fide offer to purchase all of the outstanding shares of the Company, TRW
will be entitled during the 30-day period following notification of such offer
to make a counterproposal for all outstanding shares of the Company on the same
or better terms and conditions as provided in the offer.
OTHER TRANSACTIONS
On August 4, 1995, the Company entered into a note and warrant purchase
agreement with Allen Telecom, which is a shareholder of the Company and of which
Erik H. van der Kaay, who is a director of the Company, is President and Chief
Executive Officer. See "Management -- Directors and Executive Officers" and
"Principal and Selling Shareholders." This agreement provided for the borrowing
by the Company of up to $2,000,000 and for the issuance to Allen Telecom of
warrants to purchase up to 109,091 shares of Common Stock at a price of $2.75
per share. On August 7, 1995, the Company borrowed $1,000,000 from Allen Telecom
pursuant to this agreement, which amount earned interest at a rate equal to the
prime rate of interest as reported in the Wall Street Journal plus one percent,
and issued a warrant for the purchase of up to 54,546 shares of Common Stock for
$2.75 per share. On November 10, 1995, the Company borrowed an additional
$500,000 pursuant to this agreement, at the same rate of interest, and issued a
warrant for the purchase of 27,272 shares of Common Stock for $2.75 per share.
Pursuant to the terms of this second warrant, and by virtue of the closing of
the sale of 1,818,783 shares of Class C Preferred Stock on November 22, 1995,
the number of shares purchasable under this warrant was reduced to 12,400 and
the purchase price was increased to $6.048 per share. The Company satisfied its
obligations to pay principal and interest on amounts borrowed under this
agreement on November 22, 1995, when it repaid $454,279 in cash and issued an
aggregate of 178,071 shares of Class C Preferred Stock to Allen Telecom. Allen
Telecom continues to hold warrants for the purchase of an aggregate of 66,946
shares of Common Stock; the warrant to purchase up to 54,546 shares for $2.75
per share expires on August 6, 2000 and the warrant to purchase 12,400 shares
for $6.048 per share expires on November 9, 2000.
The Company and all of the holders of Old Preferred Stock are party to an
agreement pursuant to which such holders have certain rights to require the
Company to register the sale of equity securities of the Company held by them,
or to include such securities in a registration initiated by the Company. See
"Description of Capital Stock -- Registration Rights."
The Company has granted options to purchase Common Stock under the 1992
Option Plan to certain executive officers. See "Management -- Option Grants
During Fiscal 1996," "-- Stock Option Plans -- 1992 Stock Option Plan" and
"Principal and Selling Shareholders."
49
<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Common Stock as of February 28, 1997, and as adjusted to reflect
the sale of shares of Common Stock offered by the Company and the Selling
Shareholders hereby (assuming no exercise of the Underwriters' over-allotment
option), by (i) each person known by the Company to own beneficially five
percent or more of the Company's outstanding shares of Common Stock, (ii) each
director of the Company, (iii) the Named Executive Officers and (iv) all current
directors and executive officers as a group. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission (the
"Commission"). In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or that
are or may become exercisable within 60 days of the date hereof are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, each shareholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such shareholder's name.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- ---------------------
NUMBER OF SHARES NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
---------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
TRW(1)......................................... 4,621,487 37.5 -- 4,621,487 31.2
Robert G. Paul(2).............................. 1,046,562 8.4 -- 1,046,562 7.0
Erik H. van der Kaay(3)........................ 1,033,893 8.3 -- 1,033,893 6.9
Allen Telecom(4)............................... 1,021,224 8.2 -- 1,021,224 6.9
Advanced Technology Ventures III, L.P.(5)...... 943,313 7.7 -- 943,313 6.4
Dr. Albert E. Paladino(6)...................... 943,313 7.7 -- 943,313 6.4
Brantley Ventures Partners II, L.P.(7)......... 908,449 7.4 -- 908,449 6.1
Norwest Equity Partners IV(8).................. 760,136 6.2 -- 760,136 5.1
Norwest Equity Partners V(9)................... 760,136 6.2 -- 760,136 5.1
Kitty Hawk Capital Limited Partnership
II(10)....................................... 755,293 6.1 -- 755,293 5.1
Walter H. Wilkinson, Jr.(11)................... 755,293 6.1 -- 755,293 5.1
NationsBanc Capital Corporation(12)............ 744,048 6.0 -- 744,048 5.0
William J. Pratt(13)........................... 384,206 3.1 20,000 364,206 2.5
Powell T. Seymour(14).......................... 146,531 1.2 7,000 139,531 *
Jerry D. Neal(15).............................. 101,088 * 10,000 91,088 *
David A. Norbury(16)........................... 81,399 * -- 81,399 *
William A. Priddy, Jr.(17)..................... 24,836 * -- 24,836 *
Directors and executive officers as a group (11
persons)(18)................................. 3,470,559 27.6 37,000 3,433,559 22.8
</TABLE>
- ---------------
* Indicates less than one percent
(1) Includes (i) 1,111,111 shares of Common Stock issuable upon the conversion
of a $10,000,000 principal amount promissory note to be converted
immediately prior to the completion of this offering and (ii) 2,683,930
shares of Common Stock as to which TRW has granted an irrevocable proxy to
the President of the Company to vote such shares in favor of any measure
approved by the Board of Directors of the Company. Does not include
1,000,000 shares of Common Stock issuable upon the exercise of the TRW
Warrant, which is exercisable after such time as the Company's wafer
fabrication facility becomes operational. See "Certain
Transactions -- TRW." Terri D. Zinkiewicz, who is a director of the
Company, is Director of Finance and Business of the Electronic Systems and
Technology Division of TRW's Space & Electronics Group. TRW's address is
1900 Richmond Road, Cleveland, Ohio 44124.
(2) Includes 1,021,224 shares of Common Stock held by Allen Telecom. Mr. Paul
is President and Chief Executive Officer of The Allen Group Inc., of which
Allen Telecom is a wholly owned subsidiary.
50
<PAGE> 55
(3) Includes 1,021,224 shares of Common Stock held by Allen Telecom. Mr. van
der Kaay, who is a director of the Company, is President and Chief
Executive Officer of Allen Telecom. Mr. van der Kaay disclaims beneficial
ownership of such shares.
(4) Includes (i) 54,546 shares of Common Stock issuable upon the exercise of a
warrant exercisable through August 6, 2000 and (ii) 12,400 shares of Common
Stock issuable upon the exercise of a warrant exercisable through November
9, 2000. See "Certain Transactions -- Other Transactions." Does not include
(i) 12,669 shares of Common Stock held by Erik H. van der Kaay, who is
President and Chief Executive Officer of Allen Telecom and a director of
the Company, (ii) 25,338 shares of Common Stock held by Robert G. Paul, who
is President and Chief Executive Officer of The Allen Group Inc., of which
Allen Telecom is a wholly owned subsidiary, (iii) 25,338 shares of Common
Stock held by Phillip W. Colburn, who is Chairman of the Board of Directors
of The Allen Group Inc., and (iv) 12,609 shares of Common Stock held by
Robert A. Youdelman, who is Chief Financial Officer of The Allen Group Inc.
The address of Allen Telecom is 30500 Bruce Industrial Parkway, Cleveland,
Ohio, 44139.
(5) The address of Advanced Technology Ventures III, L.P. is 281 Winter Street,
Waltham, Massachusetts 02154.
(6) Includes 943,313 shares of Common Stock held by Advanced Technology
Ventures III, L.P. Dr. Paladino, who is a director of the Company, is a
general partner of ATV Associates III, L.P., which is a general partner of
Advanced Technology Ventures III, L.P. Dr. Paladino disclaims beneficial
ownership of such shares.
(7) The address of Brantley Ventures Partners II, L.P. is Suite 1150, Tower
East, 20600 Chagrin Boulevard, Cleveland, Ohio 44122.
(8) Includes 139,446 shares of Common Stock held by Norwest Equity Partners V,
which is under common control with Norwest Equity Partners IV. Robert C.
Fleming, who is a director of the Company, was formerly a general partner
of Itasca Partners, which is the general partner of Norwest Equity Partners
IV. The address of Norwest Equity Partners IV is Wellesley Office Park, 40
William Street, Suite 305, Wellesley, Massachusetts 02181.
(9) Includes 620,690 shares of Common Stock held by Norwest Equity Partners IV,
which is under common control with Norwest Equity Partners V. Robert C.
Fleming, who is a director of the Company, was formerly a general partner
of Itasca Partners II, which is the general partner of Norwest Equity
Partners V. The address of Norwest Equity Partners V is Wellesley Office
Park, 40 William Street, Suite 305, Wellesley, Massachusetts 02181.
(10) The address of Kitty Hawk Capital Limited Partnership II is Suite 202, 2700
Coltsgate Road, Charlotte, North Carolina 28211.
(11) Includes 755,293 shares of Common Stock held by Kitty Hawk Capital Limited
Partnership II. Mr. Wilkinson, who is a director of the Company, is a
general partner of Kitty Hawk Capital, which is a general partner of Kitty
Hawk Capital Limited Partnership II.
(12) The address of NationsBanc Capital Corporation is 901 Main Street, 66th
Floor, Dallas, Texas 75202.
(13) Includes 14,206 shares of Common Stock issuable upon the exercise of
options granted under the 1992 Option Plan. See "Management -- Stock Option
Plans -- 1992 Stock Option Plan."
(14) Includes (i) 2,000 shares of Common Stock held by each of Leah B. Seymour
and Christopher M. Seymour, who are children of Mr. Seymour and (ii) 10,531
shares of Common Stock issuable upon the exercise of options granted under
the 1992 Option Plan. See "Management -- Stock Option Plans -- 1992 Stock
Option Plan." Does not include 2,000 shares of Common Stock held by each of
Wendy L. Hicks and James M. Mecum, Jr., who are children of Mr. Seymour.
(15) Includes 41,088 shares of Common Stock issuable upon the exercise of
options granted under the 1992 Option Plan. See "Management -- Stock Option
Plans -- 1992 Stock Option Plan." Does not include 2,500 shares of Common
Stock held by each of Jerry D. Neal, III, James A. Pendergrast, Judith M.
Neal and Annette L. Neal-Smith, who are children of Mr. Neal.
51
<PAGE> 56
(16) Includes 81,399 shares of Common Stock issuable upon the exercise of
options granted under the 1992 Option Plan. See "Management -- Stock Option
Plans -- 1992 Stock Option Plan." Does not include 2,683,930 shares of
Common Stock held by TRW as to which TRW has granted an irrevocable proxy
to Mr. Norbury, as President of the Company, to vote such shares in favor
of any measure approved by the Board of Directors of the Company. See
"Certain Transactions -- TRW."
(17) Includes 24,836 shares of Common Stock issuable upon the exercise of
options granted under the 1992 Option Plan. See "Management -- Stock Option
Plans -- 1992 Stock Option Plan."
(18) Includes (i) 1,021,224 shares of Common Stock held by Allen Telecom, of
which Mr. van der Kaay is President and Chief Executive Officer; (ii)
943,313 shares of Common Stock held by Advanced Technology Ventures III,
L.P., of which Dr. Paladino is a general partner of the general partner;
(iii) 755,293 shares of Common Stock held by Kitty Hawk Capital Limited
Partnership II, of which Mr. Wilkinson is a general partner; and (iv)
167,060 shares of Common Stock issuable upon the exercise of options
granted under the 1992 Option Plan. See "Management -- Stock Option
Plans -- 1992 Stock Option Plan."
52
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, no par value, and
5,000,000 shares of Preferred Stock, of which 14,834,361 shares of Common Stock
and no shares of Preferred Stock will be issued and outstanding. All outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, when issued, duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock of the Company.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have cumulative voting rights in the election of directors. Holders of Common
Stock are entitled to receive dividends when, as and if declared by the
Company's Board of Directors out of funds legally available therefor. In the
event of the liquidation, dissolution or winding up of the Company, holders of
Common Stock will be entitled to share ratably in the assets, if any, available
for distribution after payment of all creditors and the liquidation preferences
on any outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive rights to subscribe for any additional securities of any class which
the Company may issue, nor any conversion, redemption or sinking fund rights.
The rights and privileges of holders of Common Stock are subject to the
preferences of any shares of Preferred Stock that the Company may issue in the
future.
PREFERRED STOCK
The Company may issue shares of Preferred Stock in one or more series as
may be determined by the Company's Board of Directors, who may establish, from
time to time, the number of shares to be included in each series, may fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, and may increase or
decrease the number of shares of any such series without any further vote or
action by the shareholders. Any Preferred Stock so issued by the Board of
Directors may rank senior to the Common Stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up of the Company,
or both. In addition, any such shares of Preferred Stock may have class or
series voting rights. Moreover, under certain circumstances, the issuance of
Preferred Stock or the existence of the unissued Preferred Stock may tend to
discourage or render more difficult a merger or other change in control of the
Company.
PREFERRED STOCK
As of February 28, 1997, the Company has issued and outstanding 975,000
shares of Class A-1 Preferred Stock, 1,034,091 shares of Class A-2 Preferred
Stock, 3,300,000 shares of Class B Preferred Stock and 2,645,229 shares of Class
C Preferred Stock. Effective upon consummation of this offering, all shares of
Preferred Stock will be converted automatically into Common Stock on a
one-for-one basis pursuant to their terms. No shares of Preferred Stock will be
outstanding after this offering. No dividends have been or will be paid on
outstanding shares of Preferred Stock.
WARRANTS
The Company has outstanding the TRW Warrant, which will become exercisable
at such time as the Company's wafer fabrication facility becomes operational
into up to 1,000,000 shares of Common Stock at an exercise price of $10.00 per
share. The TRW Warrant will terminate upon the earlier of (i) the second
anniversary of the date it becomes exercisable or (ii) 90 days after the Common
Stock has traded for at least 20 consecutive trading days at a price greater
than $12.00 per share. In addition, in connection with certain financing
transactions, the Company has issued or agreed to issue the Lender Warrants,
which comprise (i) two warrants granted to Allen Telecom to purchase up to
54,546 shares for $2.75 and up to 12,400 shares for $6.048 per share, which
expire on August 6, 2000 and November 9, 2000, respectively (See "Certain
Transactions -- Other Transactions"), (ii) a warrant granted to a lender to
purchase up to 41,322 shares of Common Stock for $9.00 per share that expires on
February 25, 2002, and (iii) a warrant that the Company
53
<PAGE> 58
has agreed to issue to such lender in the event certain financing is provided,
which warrant would be exercisable into up to 41,323 shares of Common Stock for
$9.00 per share and have a term of five years. See "Certain
Transactions -- TRW -- TRW Convertible Note."
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
General
A number of provisions of the Company's articles of incorporation and
bylaws deal with matters of corporate governance and the rights of shareholders.
Certain of these provisions may be deemed to have an anti-takeover effect and
may delay or prevent takeover attempts not first approved by the Board of
Directors (including takeovers that certain shareholders may deem to be in their
best interests). These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by shareholders. The Company
believes that these provisions are appropriate to protect the interests of the
Company and all of its shareholders.
Certain Business Combinations
The Company's articles of incorporation require that any business
combination, as defined in the articles, to be entered into by the Company with
a person or entity beneficially owning 15% or more of the Company's outstanding
voting shares (an "Interested Shareholder") be approved by the affirmative vote
of the holders of at least 60% of the outstanding voting shares, other than
shares held by such Interested Shareholder, or, alternatively, by a majority of
certain members of the Board of Directors not affiliated with such Interested
Shareholder. The business combinations which are subject to these provisions
include a merger or share exchange with an Interested Shareholder, certain sales
to an Interested Shareholder of assets of the Company and certain issuances or
transfers to an Interested Shareholder by the Company or any of its subsidiaries
of equity securities of the Company or such subsidiary. These provisions will
make a takeover of the Company more difficult and may have the effect of
diminishing the possibility of certain types of "front-end loaded" acquisitions
of the Company or other unsolicited attempts to acquire the Company.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
The Company's bylaws provide that a special meeting of shareholders may be
called only by the Board of Directors and certain designated officers of the
Company. Special meetings may not be called by the shareholders. The Company's
bylaws establish advance notice procedures for shareholder proposals and the
nomination, other than by or under the direction of the Board of Directors or a
committee thereof, of candidates for election as directors. These procedures
provide that the notice of shareholder proposals and shareholder nominations for
the election of directors must be in writing, contain certain specified
information and be received by the Secretary of the Company (i) in the case of
an annual meeting that is called for a date that is within 30 days before or
after the anniversary date of the immediately preceding annual meeting of
shareholders, not less than 60 days nor more than 90 days prior to such
anniversary date, and (ii) in the case of an annual meeting that is called for a
date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting or, in the case of a special meeting of
shareholders, not later than the close of business on the tenth day following
the day on which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever occurs first. These
provisions may preclude some shareholders from bringing matters before the
shareholders at any annual or special meeting, including making nominations for
directors.
Amendment of Articles and Bylaws
Subject to the North Carolina Business Corporation Act, the Company's
articles of incorporation may be amended by the affirmative vote of a majority
of the outstanding shares entitled to vote thereon. Notwithstanding the
foregoing, the amendment or repeal of certain provisions of the articles
relating to the shares which the Company shall have authority to issue, the
approval of certain business combinations as described above and certain other
matters require the affirmative vote of the holders of 60% of the Company's
voting
54
<PAGE> 59
securities, other than securities held by an Interested Shareholder. The
articles further provide that certain provisions of the bylaws relating to the
size and composition of the Board of Directors and meetings of shareholders may
be amended by the shareholders, except in certain specified circumstances, only
by the affirmative vote of the holders of 60% of the outstanding shares of
voting securities, other than securities held by an Interested Shareholder.
Moreover, the articles provide that the Board of Directors may repeal, amend or
adopt any bylaw adopted, amended or repealed by the shareholders. These
provisions will make it more difficult for shareholders to amend the articles or
bylaws.
Anti-takeover Legislation
Pursuant to the Company's articles of incorporation, the Company has
elected not to be governed by the North Carolina Control Share Act, which
restricts the right of certain shareholders who acquire specified amounts of the
Common Stock from voting those shares without certain approval by other
shareholders of the Company, and the North Carolina Shareholder Protection Act,
which imposes certain requirements for approval of transactions between the
Company and a shareholder beneficially owning in excess of 20% of the Common
Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the current holders of
Preferred Stock (the "Investor Holders"), the Investor Holders are entitled to
certain rights as described below with respect to the registration under the
Securities Act of the sale of up to 12,898,952 shares of Common Stock (the
"Registrable Securities"). Such number represents 7,954,320 shares issuable upon
conversion of Preferred Stock, 2,683,930 shares of Common Stock held by TRW
(except that none of these shares will be Registrable Securities until released
from the terms of the restricted stock agreement between the Company and TRW;
see "Certain Transactions -- TRW"), 1,111,111 shares of Common Stock issuable in
connection with the conversion of the TRW Convertible Note and up to 1,149,591
shares of Common Stock issuable upon the exercise of the TRW Warrant and the
Lender Warrants. See "Certain Transactions -- TRW" and "-- Other Transactions."
Subject to certain exceptions, if the Company proposes to register the sale
of any Common Stock for its own account or the account of others, the Investor
Holders are entitled to notice of such registration and to include the
Registrable Securities therein at the Company's expense. The Company has
obtained waivers of the foregoing rights from the Investor Holders in connection
with this offering. After June 6, 1997, the Investor Holders of at least 60% of
the Registrable Securities may require the Company to file a registration
statement at the Company's expense with respect to the Registrable Securities
held by such Investor Holders and such other Registrable Securities as other
Investor Holders may wish to include. The Company must use its diligent best
efforts to effect such a registration. Moreover, after the Company becomes
eligible for the use of a registration statement on Form S-3, the Investor
Holders will have the right to request the Company, at its expense, to effect an
unlimited number of registrations on Form S-3 (but no more than one registration
every six months) for any sale of Registrable Securities having a proposed
aggregate offering price (before deduction of underwriting discounts and
expenses of sale) of at least $500,000. The Company must use its best efforts to
effect such registrations.
The foregoing registration rights are subject to certain conditions and
limitations, including (i) the right of the Company not to effect a requested
registration during the 90 days following this offering and (ii) the right of
the underwriters of an offering undertaken at the Company's initiative to limit
the number of Registrable Securities in the offering, unless other holders of
the Company's securities are permitted to include their securities in the
offering. The Investor Holders are subject to additional limitations with
respect to the exercise of registration rights by virtue of certain contractual
provisions. See "Underwriting."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is First
Union National Bank.
55
<PAGE> 60
LISTING
The Company has applied for inclusion of the Common Stock on the Nasdaq
National Market under the symbol "RFMD."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale as described below, sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of 14,834,361 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options and
warrants to purchase Common Stock. Of these shares, the 2,537,000 shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act (except for any shares purchased by
"affiliates," as that term is defined in Rule 144 under the Securities Act
("Affiliate")). Of the remaining shares of Common Stock, the Company believes
that 7,898,385 shares (the "Affiliate Shares") will be held by Affiliates and
4,398,976 shares (the "Nonaffiliate Shares") will be held by nonaffiliates of
the Company. All of such shares of Common Stock are "restricted securities" as
that term is defined in Rule 144 under the Securities Act ("Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 (including Rule
144(k)) or 701 promulgated under the Securities Act, which rules are summarized
below. As a result of the current provisions of Rules 144 (including Rule
144(k)) and 701, the Company believes Restricted Shares will be available for
sale in the public market as follows: (i) no Restricted Shares will be eligible
for immediate sale on the effective date of this offering; (ii) 9,613,431
Restricted Shares will be eligible for sale upon expiration of lock-up
agreements 180 days after the date of this Prospectus; and (iii) 2,683,930
Affiliate Shares will become eligible for sale at such time as they are released
from the terms of the Restricted Stock Agreement. See "Certain
Transactions -- TRW -- Restricted Stock Agreement."
Upon completion of this offering, the holders of certain shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by Affiliates)
immediately upon the effectiveness of such registration.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 148,344 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Pursuant to a recently
approved amendment to Rule 144, the two-year holding period described in the
preceding sentence will be reduced to one year in all instances effective April
or May, 1997. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an Affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
Affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144;
therefore, unless otherwise restricted, "144(k) shares" may therefore be sold
immediately upon the completion of this offering. Pursuant to the recently
approved amendment to Rule 144, the three-year holding period described in the
preceding sentence will be reduced to
56
<PAGE> 61
two years in all instances effective April or May, 1997. In general, under Rule
701 of the Securities Act as currently in effect, any employee, consultant or
advisor of the Company who purchased shares from the Company in connection with
a compensatory stock or option plan or other written agreement is eligible to
resell such shares 90 days after the effective date of this offering in reliance
on Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
All of the Common Shares held by existing shareholders or acquired in the
future by such shareholders or by any director or executive officer of the
Company are subject to lock-up agreements with the Underwriters and may not be
sold or otherwise transferred until 180 days after the date of this Prospectus
without the consent of Montgomery Securities, on behalf of the Underwriters.
Montgomery Securities, on behalf of the Underwriters, may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements.
The Company intends to file registration statements under the Securities
Act covering shares of Common Stock reserved for issuance under the 1992 Option
Plan, the 1997 Option Plan, the Directors' Option Plan and the Stock Purchase
Plan. Based on the number of options outstanding and shares reserved for
issuance or anticipated to be reserved as issuance under these plans, such
registration statements would cover approximately 3,426,000 shares, including up
to 463,567 shares that may be issued upon the exercise of stock options during
1997. See "Management -- Stock Option Plans." Such registration statements are
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under such
registration statements will, subject to Rule 144 volume limitations applicable
to Affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above. As of February 28, 1997, options to purchase 1,044,856 shares
of Common Stock were issued and outstanding under the 1992 Option Plan. See
"Management -- Compensation of Directors" and "-- Stock Option Plans."
57
<PAGE> 62
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities,
Hambrecht & Quist LLC and Oppenheimer & Co., Inc. (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Montgomery Securities.......................................
Hambrecht & Quist LLC.......................................
Oppenheimer & Co., Inc. ....................................
----------
Total.............................................
==========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters initially propose to offer the shares of Common Stock to
the public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than
$ per share, and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives. The Common Stock is offered subject
to receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of additional shares of Common Shares to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
At the request of the Company, the Underwriters have reserved approximately
120,000 of the shares of Common Stock offered by the Company hereby for sale at
the initial public offering price to directors, officers, employees and certain
individuals associated with the Company, its directors, its officers or its
employees. The number of shares of Common Stock available to the public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares that are not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
All of the shares of Common Stock currently held by existing shareholders
or acquired in the future by such shareholders or by any director or executive
officer of the Company are subject to lock-up agreements with the Underwriters
and may not be sold or otherwise transferred until 180 days after the date of
this Prospectus without the consent of Montgomery Securities, on behalf of the
Underwriters. Montgomery
58
<PAGE> 63
Securities, on behalf of the Underwriters, may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
these lock-up agreements.
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price
will be determined by negotiations between the Company and the Representatives.
Among the factors to be considered in such negotiations are the history of, and
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, its past and present operations and financial
performance, the prospects for future earnings of the Company, the present state
of the Company's development, the general condition of the securities markets at
the time of the offering, the market price for publicly traded common stock of
comparable companies in recent periods.
Certain persons participating in this offering may engage in transactions,
including the entry of stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may involve the purchase of Common Stock on
the Nasdaq National Market or otherwise. Such transactions may stabilize or
maintain the market price of the Common Stock at a level above that which
otherwise might prevail in the open market and, if commenced, may be
discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of shares of Common Stock offered hereby to accounts over
which they exercise discretionary authority in excess of five percent of the
number of shares of Common Stock offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Womble Carlyle Sandridge & Rice, PLLC,
Winston-Salem, North Carolina. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Hale and Dorr LLP,
Washington, D.C.
EXPERTS
The Financial Statements of the Company as of March 31, 1994, 1995 and
1996, and for the nine months ended December 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") (which term shall encompass all amendments,
exhibits and schedules thereto) under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement can be inspected and
copied at the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of the Registration Statement can be obtained from the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed
59
<PAGE> 64
rates. In addition, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other documents filed electronically with the Commission,
including the Registration Statement.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
60
<PAGE> 65
RF MICRO DEVICES, INC.
AUDITED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, MARCH 31, 1995, MARCH 31, 1996,
AND NINE MONTH PERIOD ENDED DECEMBER 31, 1996
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Redeemable Convertible Preferred Stock and
Shareholders' Deficiency............................... F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
Board of Directors
RF Micro Devices, Inc.
We have audited the balance sheets of RF Micro Devices, Inc. as of March
31, 1994, March 31, 1995, March 31, 1996, and December 31, 1996 and the related
statements of operations, redeemable convertible preferred stock and
shareholders' deficiency and cash flows for each of the three years in the
period ended March 31, 1996 and the nine months ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RF Micro Devices, Inc. at
March 31, 1994, March 31, 1995, March 31, 1996, and December 31, 1996 and the
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1996 and the nine months ended December 31, 1996 in
conformity with generally accepted accounting principles.
Raleigh, North Carolina
January 24, 1997
F-2
<PAGE> 67
RF MICRO DEVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
LIABILITIES AND
MARCH 31, SHAREHOLDERS' EQUITY
------------------------------- DECEMBER 31, DECEMBER 31, 1996
1994 1995 1996 1996 (NOTE 2)
-------- -------- --------- ------------ ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 3,341 $ 2,223 $ 6,638 $ 3,321
Accounts receivable, less allowance for
doubtful accounts of $489,000 at March
31, 1996 and $510,000 at December 31,
1996.................................... 298 353 2,299 4,024
Inventories (Note 3)...................... 431 1,232 3,014 6,194
Other current assets...................... 6 6 32 39
------- -------- -------- --------
Total current assets............... 4,076 3,814 11,983 13,578
Property and equipment (Note 4):
Machinery and equipment................... 460 605 1,193 2,624
Furniture, fixtures and improvements...... 20 20 139 604
Computer equipment and software........... 116 196 314 604
------- -------- -------- --------
596 821 1,646 3,832
Less accumulated depreciation............. (153) (292) (537) (857)
------- -------- -------- --------
443 529 1,109 2,975
Construction in progress.................. -- -- -- 403
------- -------- -------- --------
443 529 1,109 3,378
Cash restricted for capital additions....... -- -- -- 14,932
Other assets................................ -- -- 100 105
Technology license (Note 13)................ -- -- -- 3,202
------- -------- -------- --------
Total assets....................... $ 4,519 $ 4,343 $ 13,192 $ 35,195
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable.......................... $ 305 $ 751 $ 3,276 $ 5,137
Accrued liabilities....................... 198 254 302 549
Income tax payable........................ -- -- -- 15
Line of credit (Note 5)................... 15 -- 350 350
Current maturities of long-term debt (Note
5)...................................... -- 27 81 185
Current obligations under capital leases
(Note 4)................................ 115 96 62 250
------- -------- -------- --------
Total current liabilities.......... 633 1,128 4,071 6,486 $ 6,486
Long-term debt, less current maturities
(Note 5).................................. -- 47 77 158 158
Obligations under capital leases, less
current maturities (Note 4)............... 108 12 76 499 499
Note and accrued interest payable to
shareholder (Note 6)...................... -- -- -- 10,152 --
------- -------- -------- -------- --------
741 1,187 4,224 17,295 7,143
Redeemable convertible preferred stock (Note
9)........................................ 8,825 12,325 23,325 28,257 --
Shareholders' (deficiency) equity:
Convertible preferred stock, no par value;
1,200,000 shares authorized; no shares
issued and outstanding.................. -- -- -- -- --
Common stock, no par value, 15,000,000
shares authorized, 50,000,000 shares
authorized, pro forma, 3,268,930 shares
issued and outstanding; 12,334,361
issued and outstanding, pro forma....... 8 8 8 2,960 41,217
Additional paid in capital................ -- -- -- 550 702
Deferred compensation..................... -- -- -- (290) (290)
Accumulated deficit....................... (5,055) (9,177) (14,365) (13,577) (13,577)
------- -------- -------- -------- --------
Total shareholders' (deficiency)
equity........................... (5,047) (9,169) (14,357) (10,357) 28,052
------- -------- -------- -------- --------
Total liabilities and shareholders'
(deficiency) equity.............. $ 4,519 $ 4,343 $ 13,192 $ 35,195 $ 35,195
======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
RF MICRO DEVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------------ ------------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales....................... $ 574 $ 1,254 $ 8,212 $ 5,061 $ 19,081
Engineering revenue................. 412 434 1,303 758 573
------- ------- ---------- ----------- ----------
Total Revenue 986 1,688 9,515 5,819 19,654
Costs and expenses:
Cost of goods sold.................. 724 1,215 7,471 4,159 10,973
Research and development............ 1,553 2,836 4,245 2,825 4,379
Marketing and selling............... 808 1,180 1,817 1,278 2,588
General and administrative.......... 725 620 1,226 640 960
------- ------- ---------- ----------- ----------
Total Costs and Expenses 3,810 5,851 14,759 8,902 18,900
------- ------- ---------- ----------- ----------
(Loss) income from operations......... (2,824) (4,163) (5,244) (3,083) 754
Interest expense...................... (62) (27) (81) (54) (234)
Interest income....................... 40 68 137 106 343
------- ------- ---------- ----------- ----------
(Loss) income before income taxes..... (2,846) (4,122) (5,188) (3,031) 863
Income tax expense.................... -- -- -- -- 75
------- ------- ---------- ----------- ----------
Net (loss) income..................... $(2,846) $(4,122) $ (5,188) $ (3,031) $ 788
======= ======= ========== =========== ==========
(Loss) income per share............... $ (0.43) $ (0.26) $ 0.06
========== =========== ==========
Weighted average number of shares used
in per share calculations........... 12,166,240 11,830,061 13,379,394
========== =========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
RF MICRO DEVICES, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK;
AND SHAREHOLDERS' DEFICIENCY
(IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS B CLASS C
PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK TOTAL
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1993............. $1,500 $1,750 $ -- $ -- $ 3,250
Issuance of Class B preferred
stock.......................... -- -- 5,575 -- 5,575
Net loss for the year ended March
31, 1994....................... -- -- -- -- --
------ ------ ------ ------- -------
Balance, March 31, 1994............ 1,500 1,750 5,575 -- 8,825
Issuance of Class B preferred
stock.......................... -- -- 3,500 -- 3,500
Net loss for the year ended March
31, 1995....................... -- -- -- -- --
------ ------ ------ ------- -------
Balance, March 31, 1995............ 1,500 1,750 9,075 -- 12,325
Issuance of Class C preferred
stock.......................... -- -- -- 11,000 11,000
Net loss for the year ended March
31, 1996....................... -- -- -- -- --
------ ------ ------ ------- -------
Balance, March 30, 1996............ 1,500 1,750 9,075 11,000 23,325
Issuance of common stock......... -- -- -- -- --
Issuance of warrant.............. -- -- -- -- --
Issuance of Class C preferred
stock.......................... -- -- -- 4,932 4,932
Deferred compensation related to
grant of stock options......... -- -- -- -- --
Amortization of deferred
compensation................... -- -- -- -- --
Net income for the nine month
period ended December 31,
1996........................... -- -- -- -- --
------ ------ ------ ------- -------
Balance, December 31, 1996......... $1,500 $1,750 $9,075 $15,932 $28,257
====== ====== ====== ======= =======
<CAPTION>
SHAREHOLDERS' DEFICIENCY
------------------------------------------------------------
ADDITIONAL
COMMON PAID IN DEFERRED ACCUMULATED
STOCK CAPITAL COMPENSATION DEFICIT TOTAL
------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1993............. $ 8 $ -- $ -- $ (2,209) $ (2,201)
Issuance of Class B preferred
stock.......................... -- -- -- -- --
Net loss for the year ended March
31, 1994....................... -- -- -- (2,846) (2,846)
------ ---- ----- -------- --------
Balance, March 31, 1994............ 8 -- -- (5,055) (5,047)
Issuance of Class B preferred
stock.......................... -- -- -- -- --
Net loss for the year ended March
31, 1995....................... -- -- -- (4,122) (4,122)
------ ---- ----- -------- --------
Balance, March 31, 1995............ 8 -- -- (9,177) (9,169)
Issuance of Class C preferred
stock.......................... -- -- -- -- --
Net loss for the year ended March
31, 1996....................... -- -- -- (5,188) (5,188)
------ ---- ----- -------- --------
Balance, March 30, 1996............ 8 -- -- (14,365) (14,357)
Issuance of common stock......... 2,952 -- -- -- --
Issuance of warrant.............. -- 250 -- -- --
Issuance of Class C preferred
stock.......................... -- -- -- -- --
Deferred compensation related to
grant of stock options......... -- 300 (300) -- --
Amortization of deferred
compensation................... -- -- 10 -- 10
Net income for the nine month
period ended December 31,
1996........................... -- -- -- 788 788
------ ---- ----- -------- --------
Balance, December 31, 1996......... $2,960 $550 $(290) $(13,577) $(10,357)
====== ==== ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
RF MICRO DEVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------- ----------------------
1994 1995 1996 1995 1996
------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.............................. $(2,846) $(4,122) $(5,188) $(3,031) $ 788
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation.............................. 101 139 245 166 320
Accrued interest converted to preferred
stock................................... -- -- 31 -- --
Amortization of deferred compensation..... -- -- -- -- 10
Changes in operating assets and
liabilities:
Accounts receivable.................. (215) (56) (1,947) (1,678) (1,725)
Inventories.......................... (336) (801) (1,781) (1,883) (3,180)
Other assets......................... 5 -- (125) (50) (12)
Accounts payable..................... 78 446 2,525 1,062 1,861
Accrued liabilities.................. 113 56 48 722 399
Income tax payable................... (61) -- -- 2 15
Deferred revenue..................... -- -- -- 200 --
------- ------- ------- ------- --------
Net cash used in operating activities.......... (3,161) (4,338) (6,192) (4,490) (1,524)
INVESTING ACTIVITIES
Purchases of property and equipment............ (84) (225) (686) (643) (1,763)
------- ------- ------- ------- --------
Net cash used in investing activities.......... (84) (225) (686) (643) (1,763)
FINANCING ACTIVITIES
Proceeds from bridge financing................. 1,000 -- 1,500 -- --
Repayment of capital lease obligations......... (92) (114) (109) -- (214)
Proceeds from issuance of redeemable preferred
stock........................................ 4,575 3,500 9,469 11,000 4,932
(Decrease) increase in line of credit.......... (7) (15) 350 349 --
Proceeds from note payable to shareholder...... -- -- -- 10,000
Increase in long-term debt..................... -- 74 128 135 272
Increase in cash restricted for capital
additions.................................... -- -- -- -- (14,932)
Principal payments on long-term debt........... -- -- (45) -- (88)
------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities................................... 5,476 3,445 11,293 11,484 (30)
------- ------- ------- ------- --------
Net (decrease) increase in cash................ 2,231 (1,118) 4,415 6,351 (3,317)
Cash and cash equivalents at beginning of
period....................................... 1,110 3,341 2,223 2,223 6,638
------- ------- ------- ------- --------
Cash and cash equivalents at end of period..... $ 3,341 $ 2,223 $ 6,638 $ 8,574 $ 3,321
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest....... $ 62 $ 27 $ 81 $ -- $ 112
======= ======= ======= ======= ========
Cash paid during the period for income taxes... $ -- $ -- $ -- $ -- $ 60
======= ======= ======= ======= ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for new
equipment.................................... $ 117 $ -- $ 139 $ -- $ 826
Conversion of bridge financing notes payable to
preferred stock.............................. $ 1,000 $ -- $ 1,500 $ -- $ --
Issuance of common stock and warrant in
consideration for technology license......... $ -- $ -- $ -- $ -- $ 3,202
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF COMPANY BUSINESS
The Company designs, develops and markets proprietary analog radio
frequency and immediate frequency integrated circuits ("RFICs") for wireless
applications. These applications include cellular and cordless telephones, PCS
handsets, wireless local area data networks, wireless local loop handsets,
wireless security systems and remote meter reading systems. The Company ceased
being a development stage enterprise during the year ended March 31, 1995.
The Company offers products fabricated under three distinct process
technologies: silicon bipolar transistor, gallium arsenide metal semiconductor
field effect transistor and gallium arsenide heterojunction bipolar transistor
("GaAs HBT"). In June 1996, the Company and TRW Inc. ("TRW") entered into a
license arrangement under which TRW exclusively licensed its GaAs HBT and
related wafer fabrication technologies to the Company for commercial wireless
applications operating at frequencies less than 10 GHz. The Company's GaAs HBT
integrated circuits are manufactured for the Company by TRW through a
proprietary process developed by TRW. In order to exploit this licensed
technology, a third party developer is currently constructing a GaAs HBT
four-inch wafer fabrication facility adjacent to the Company's executive offices
in Greensboro, North Carolina, which the Company will lease upon completion.
This facility is currently scheduled to be operational in the second half of
1998. Until then, the Company will purchase its GaAs HBT parts exclusively from
TRW.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash equivalents consist of demand deposit accounts, money market funds and
temporary, highly liquid investments with original maturities of three months or
less.
Cash Restricted for Capital Additions
Proceeds from the sale of Class C preferred stock to TRW (Note 13) and
proceeds from the $10 million note payable agreement with TRW (Note 6) are to be
used exclusively in funding the planning, construction and the operational,
working capital and related requirements of the wafer fabrication facility.
Unused proceeds from these instruments are classified as restricted cash on the
balance sheet.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the related assets.
Inventories
Inventories are stated at the lower of cost or market determined using the
average cost method.
Accounting Periods
The Company uses a 52 or 53 week fiscal year ending on the Saturday closest
to March 31 of each year. Each of the fiscal years ended April 2, 1994, April 1,
1995 and March 30, 1996 was a 52 week year. The periods ended December 28, 1996
and December 30, 1995 were 39 week periods. For purposes of financial statement
presentation, each fiscal year is described as having ended on March 31 and each
nine month period as having ended on December 31.
F-7
<PAGE> 72
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue from product sales is generally recognized when products are
shipped. The Company also enters into engineering agreements with certain
customers relating to the development of customer specific applications. Revenue
is recognized for engineering contracts when contract milestones are met.
The Company's products generally carry a one or two year warranty against
defects depending on the specific type of product. The Company provides for
estimated warranty costs in the period the related sales are made.
Pro Forma Presentation of Liabilities and Shareholders' Equity (Unaudited)
The Company has issued and outstanding four classes of redeemable
convertible preferred stock and a convertible note payable which, subject to
conditions that are expected to be satisfied, automatically convert into common
stock with the closing of an initial public offering of the Company's common
stock. The pro forma presentation in the accompanying balance sheet gives effect
to the conversion of the preferred stock and note payable on the assumption that
the Company will become a public entity and the conditions for conversion, as
described in Notes 6 and 9, will be satisfied.
Risks and Uncertainties
Pursuant to the strategic alliance with TRW (Note 13), TRW has granted to
the Company certain licenses to produce certain GaAs HBT products. The Company
plans to lease from a third party real estate developer, a wafer fabrication
facility and begin manufacturing its own GaAs HBT products covered by such
licenses. These licenses may be terminated by TRW if the fabrication facility is
not operational by December 31, 1998. A decision by TRW to terminate the license
agreements or make them non-exclusive would have a material adverse effect on
the Company's operations.
Until the Company is able to internally produce GaAs HBT products, it will
continue to purchase all such products from TRW. Sales of GaAs HBT products
represented 86% of the Company's total revenue for the nine month period ended
December 31, 1996. Failure by TRW to continue to supply adequate quantities of
product to the Company or the inability to successfully transfer the GaAs HBT
technology to the Company in a timely manner would have a material adverse
effect on the Company.
The demand for certain of the Company's products has currently exceeded
supply capacity and consequently the Company has been unable to meet requested
delivery times and quantity requirements. One of the Company's most significant
customers, a company which is a subsidiary of one of the Company's corporate
shareholders, has decided to obtain these products from sources other than the
Company. This customer's purchases represented 0%, 15%, 31% and 39% of the
Company's revenue for the years ended March 31, 1994, 1995 and 1996 and the nine
month period ended December 31, 1996. Continuation of capacity limitations may
cause existing or potential customers to develop other sources of supply.
Interim Financial Information (Unaudited)
The statement of operations and cash flows for the nine month period ended
December 31, 1995 are unaudited and reflect all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of results of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
F-8
<PAGE> 73
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Sales and Accounts Receivable
The Company operates in a single industry and is engaged in the design and
sale of integrated circuits. Approximately 65%, 38%, 43% and 60% of sales were
made to the Company's two largest customers during the years ended March 31,
1994, 1995 and 1996 and the nine month period ended December 31, 1996.
Additionally, 0%, 17%, 40% and 61% of the Company's accounts receivable are due
from the two largest customers, respectively. Sales to customers located outside
the United States were 44%, 27%, 24% and 36% of total revenues for fiscal 1994,
1995, 1996 and the nine month period ended December 31, 1996.
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company's exposure to credit loss in the event that payment from a customer is
not received for revenue recognized equals the net outstanding accounts
receivable balance from that customer.
The Company provides an allowance for doubtful accounts equal to estimated
losses expected to be incurred in the collection of accounts receivable.
Research and Development
The Company charges all research and development cots to expense as
incurred.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, the liability method is used in accounting for income taxes and
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities.
Stock Based Compensation
The Company accounts for stock options in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." Under APB No. 25, no
compensation expense is recognized for stock options issued to employees at fair
value. For stock options granted at exercise prices below the deemed fair value,
the Company records deferred compensation expense for the difference between the
exercise price of the shares and the deemed fair market value. The deferred
compensation expense is amortized ratably over the vesting period of the
individual options.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), which
provides an alternative to APB No. 25 in accounting for stock based compensation
issued to employees. SFAS 123 provides for a fair value based method of
accounting for employee stock options and similar equity instruments. However,
companies that continue to account for stock based compensation arrangements
under APB No. 25 are required by SFAS 123 to disclose the pro forma effect on
net (loss) income and (loss) earnings per share as if the fair value based
method prescribed by SFAS 123 had been applied. The disclosure requirements are
effective for fiscal years beginning after December 31, 1995, or upon initial
adoption of the statement, if earlier. The Company plans to continue to account
for stock based compensation using the provisions of APB 25 and has adopted the
disclosure requirements of SFAS 123 in the nine month period ended December 31,
1996 (see Note 10).
F-9
<PAGE> 74
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1994 1995 1996 1996
---- ------ ------ ------------
<S> <C> <C> <C> <C>
Raw materials.................................... $ 90 $ 412 $1,118 $1,979
Work in process.................................. 103 324 782 2,400
Finished goods................................... 238 496 1,195 2,515
---- ------ ------ ------
431 1,232 3,094 6,894
Inventory allowances............................. -- -- (81) (700)
---- ------ ------ ------
Total inventory........................ $431 $1,232 $3,014 $6,194
==== ====== ====== ======
</TABLE>
4. LEASES
The Company leases certain equipment under capital and operating leases.
The Company's leased equipment, included in property and equipment, is as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1994 1995 1996 1996
---- ----- ----- ------------
<S> <C> <C> <C> <C>
Machinery and equipment........................... $320 $ 321 $ 460 $1,286
Accumulated depreciation.......................... (73) (139) (216) (306)
---- ----- ----- ------
$247 $ 182 $ 244 $ 980
==== ===== ===== ======
</TABLE>
Capital lease amortization totaling $59,773, $65,805, $77,106 and $89,972
is included in depreciation expense for the years ended March 31, 1994, 1995,
and 1996 and the nine month period ended December 31, 1996.
Minimum future lease payments under capital and operating leases as of
December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $ 333 $ 951
1998........................................................ 327 768
1999........................................................ 240 601
2000........................................................ -- 270
2001........................................................ -- 258
Thereafter.................................................. -- 215
----- ------
Total minimum payments...................................... 900 $3,063
======
Less interest............................................... (151)
-----
Present value of net minimum payments....................... 749
Less current portion........................................ (250)
-----
Long-term portion........................................... $ 499
=====
</TABLE>
Rent expense under operating leases, including building and equipment was
$71, $167, $255 and $537 for the years ended March 31, 1994, 1995, and 1996 and
the nine month period ended December 31, 1996.
5. LINES OF CREDIT AND LONG-TERM DEBT
During the nine month period ended December 31, 1996, the Company increased
its revolving working capital line of credit to an amount equal to 80% of
eligible accounts receivable up to a maximum of
F-10
<PAGE> 75
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$7,000,000. The line commitment expires on December 19, 1997 at which time the
balance is due and payable. At March 31, 1994, 1995, 1996 and December 31, 1996,
the outstanding balance was $14,976, $0, $350,000 and $350,000. This line bears
interest at the prime rate plus .75% and is collateralized by all the Company's
assets. The agreement contains provisions to allow the Company to utilize the
line for letters of credit and foreign exchange contracts, none of which are
outstanding for any of the periods presented.
During the nine month period ended December 31, 1996, the Company increased
its equipment line of credit to $2,000,000. Borrowings on this line are
converted to term loans, repayable in 36 equal monthly installments at the time
the draw is made. At March 31, 1994, 1995, 1996 and December 31, 1996, the
outstanding balance on the equipment line notes totaled, $74,328, $157,842 and
$342,653. These borrowings bear interest at the prime rate plus 1.50% and are
collateralized by all the Company's assets.
Future year maturities under the equipment term loans at December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997........................................................ $185
1998........................................................ 130
1999........................................................ 27
----
$342
====
</TABLE>
The loan agreements contain restrictions which, among other things, require
maintenance of certain financial ratios, liquidity and net worth and prohibit
the payment of dividends.
6. NOTE PAYABLE TO SHAREHOLDER
The note payable to shareholder consists of a $10 million subordinated
convertible note issued on June 6, 1996 to a corporate shareholder of the
Company (see Note 13). The note bears interest at 6% and all principal and
accrued interest is payable in full on June 6, 2003. The Company incurred
interest expense of $152,420 related to this note during the nine month period
ended December 31, 1996. Payment of interest will be forfeited if and when the
note is converted into the Company's capital stock.
At the holder's option, all or any portion of the then outstanding
principal of the note is convertible at a conversion price of $9.00 per share.
The conversion price is subject to change in the event certain equity
transactions, as defined in the agreement, occur. If conversion occurs prior to
the closing of a public offering which results in gross proceeds of not less
than $15 million and a fully diluted market valuation of at least $75 million,
the outstanding principal will be converted into newly created preferred stock
of the Company. If conversion occurs after a public offering not meeting the
criteria specified above, the conversion shall be made into the Company's common
stock. Mandatory conversion into shares of the Company's common stock will
occur, at $9.00 per share, in full immediately prior to the closing of a public
offering in which the per share price is at least $12.00. The Company has
reserved a sufficient number of shares of its authorized but unissued stock to
permit conversion.
In connection with the issuance of the $10 million subordinated convertible
note, the Company issued a warrant to purchase at any time through December 31,
1998 up to 1,111,111 shares of stock, less the number, if any, that have been
acquired through conversion of the related $10 million note. Should the related
note convert into 1,111,111 shares of stock, the warrant shall become null and
void. The warrant has an exercise price of $9.00 per share, which is subject to
change in the event certain equity transactions, as defined in the agreement,
occur.
F-11
<PAGE> 76
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------- DECEMBER 31,
1994 1995 1996 1996
------- ------- ------- ------------
<S> <C> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Accumulated depreciation............................... $ 41 $ 53 $ 81 $ 110
DEFERRED TAX ASSETS:
Net operating loss carryforwards....................... 1,640 2,408 3,599 1,972
Research and experimental credit carryforwards......... 173 409 660 642
Research and development costs......................... 283 1,211 1,451 2,578
Allowance for bad debts................................ -- -- 191 225
Inventory valuation.................................... -- -- -- 303
Alternative minimum tax credit carryforwards........... -- -- -- 75
Other.................................................. 59 69 91 64
------- ------- ------- -------
Total deferred tax assets......................... 2,155 4,097 5,992 5,859
Deferred tax asset valuation allowance................. (2,114) (4,044) (5,911) (5,749)
------- ------- ------- -------
Net deferred tax assets........................... (41) (53) (81) (110)
------- ------- ------- -------
Net deferred taxes................................ $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes, which consist only of
federal alternative minimum tax, to income tax expense computed by applying the
statutory federal income tax rate to pretax earnings at December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
AMOUNT %
------ ---
<S> <C> <C>
Income tax expense at statutory federal rate................ $ 293 34%
Increase (decrease) resulting from:
Utilization of loss carryforwards......................... (293) (34)
Alternative minimum tax................................... 75 9
------ ---
$ 75 9%
====== ===
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards and
research and experimental credit carryforwards of approximately $5,000,000 and
$642,000, respectively, for income tax purposes. The tax benefits of these items
are reflected in the accompanying table of deferred tax assets and liabilities.
If not used, these carryforwards begin to expire in 2010. U.S. tax rules impose
limitations on the use of net operating losses following certain changes in
ownership. If such change occurs, the limitation could reduce the amount of
these benefits that would be available to offset future taxable income each
year, starting with the year of ownership change.
8. 401(K) PLAN
Each employee is eligible to participate in the Company's fully qualified
401(k) plan after three months of service. An employee may invest a maximum of
15% of pretax earnings in the plan. Employer contributions to the plan are made
at the discretion of the Company and its Board of Directors. An employee is
fully vested in the employer contribution portion of the plan after completion
of 5 continuous years of service. The Company did not make any contributions to
the plan during the years ended March 31, 1994, 1995, and 1996 and the nine
month period ended December 31, 1996.
F-12
<PAGE> 77
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK
The Company's mandatorily redeemable preferred stock consists of Class A-1
redeemable convertible preferred stock, no par value, 1,000,000 shares
authorized, 975,000 shares issued and outstanding; Class A-2 redeemable
convertible preferred stock, no par value, 1,100,000 shares authorized,
1,034,091 shares issued and outstanding; Class B redeemable convertible
preferred stock, no par value, 3,700,000 shares authorized, 3,300,000 shares
issued and outstanding and Class C redeemable convertible preferred stock, no
par value, 2,700,000 shares authorized, 2,645,229 shares issued and outstanding.
Contemporaneously with the closing of an underwritten public offering
resulting in gross proceeds of at least $15,000,000 at a price per share which
implies a prefinancing, fully diluted valuation of the Company of at least
$75,000,000, each share of preferred stock shall automatically convert to common
stock. The preferred stock, which includes liquidation preferences, is
convertible, initially at the rate of one share of common stock for each share
of preferred stock. The conversion rate and value are subject to adjustment in
the event of certain changes, as defined in the articles of incorporation. Each
share of preferred stock is entitled to the number of votes per share equal to
the number of shares of common stock into which each share of preferred stock is
convertible. The preferred stock was recorded at the value received on the date
of issuance and includes redemption privileges if, on or after November 23,
2000, a public offering has not been completed. The redemption price is the
original issuance price of the preferred shares.
The Company has reserved a sufficient number of its authorized shares of
common stock for the purpose of effecting the future conversion of the preferred
stock.
10. STOCK OPTIONS
The Company has adopted an incentive stock option plan which provides for
the purchase of the Company's common stock by certain employees. Under the terms
of the plan, 20% of total shares awarded are exercisable one year after the date
of grant and 20% are exercisable for each of the following four years. Options
terminate ten years from date of grant. As of December 31, 1996 none of the
outstanding options had been exercised. The Company has reserved a sufficient
number of shares of common stock for future issuance under the Stock Option
Plan.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") requires use of option valuation models that were
not developed for use in valuing employee stock options. The Company has
recorded deferred compensation expense of $300,000 for the difference between
the grant price and the deemed fair value of certain of the Company's common
stock options granted in 1996.
Pro forma information regarding net (loss) income and (loss) earnings per
share is required by SFAS 123, and has been determined as if the Company
accounted for its employee stock options under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for the year ended March 31, 1996 and the nine month period ended
December 31, 1996: risk-free interest rate of 6%, no expected dividends, a
volatility factor of .70 and a weighted average expected life of the options of
2 1/2 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumption can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-13
<PAGE> 78
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDED
MARCH 31, DECEMBER 31,
1996 1996
----------- ------------
<S> <C> <C>
Pro forma net (loss) income earnings........................ $(5,178,080) $750,300
Pro forma (loss) income earnings per share.................. $ (0.43) $ 0.06
</TABLE>
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
------------------------------------- --------------------------
AVAILABLE OPTIONS PER SHARE
EXERCISABLE FOR GRANT OUTSTANDING RANGE TOTAL
----------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1993............... -- 257,500 203,750 $ 0.15 $ 30,563
Granted.................... -- 220,000 69,895 $0.15 - $0.28 11,183
Exercised.................. -- -- -- -- --
Canceled................... -- -- -- -- --
Expired.................... -- -- -- -- --
March 31, 1994............... 41,250 477,500 273,645 $0.15 - $0.28 41,746
Granted.................... -- 175,000 67,771 $ 0.28 18,637
Exercised.................. -- -- -- -- --
Canceled................... -- -- -- -- --
Expired.................... -- -- -- -- --
March 31, 1995............... 103,125 652,500 341,416 $0.15 - $0.28 60,383
Granted.................... -- -- 255,040 $0.28 - $0.91 160,675
Exercised.................. -- -- -- -- --
Canceled................... -- -- (2,250) $0.15 - $0.28 (525)
Expired
March 31, 1996............... 163,105 652,500 594,206 $0.15 - $0.91 220,533
Granted.................... -- 773,500 413,000 $0.91 - $6.50 1,548,750
Exercised.................. -- -- -- -- --
Canceled................... -- -- (7,850) $0.15 - $0.91 (2,370)
Expired.................... -- -- -- -- --
------- --------- ------- ------------- ----------
December 31, 1996............ 269,829 1,426,000 999,356 $0.15 - $6.50 $1,766,913
======= ========= ======= ============= ==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1996, ranged
from $.15 to $6.50. The weighted average remaining contractual life of those
options is 8.34 years. The weighted average exercise price of outstanding
options at December 31, 1996 is $1.77.
F-14
<PAGE> 79
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1996, the Company had reserved a total of 11,641,022 of its
authorized 15,000,000 shares of common stock for future issuance as follows:
<TABLE>
<S> <C>
Outstanding stock options................................... 999,356
Possible future issuance under stock option plan............ 426,644
Outstanding warrants issued shareholders.................... 1,066,946
Convertible preferred stock................................. 7,954,320
Convertible note payable.................................... 1,111,111
Possible future issuance related to lease agreements........ 82,645
----------
Total shares reserved....................................... 11,641,022
==========
</TABLE>
12. PRO FORMA INCOME (LOSS) PER SHARE OF COMMON STOCK
Pro Forma income (loss) per share of common stock is computed using the
weighted average number of shares of common stock and common stock equivalents
outstanding. The pro forma calculation assumes the conversion of all outstanding
classes of redeemable convertible pro forma stock and conversion of the
convertible note payable.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletins, all issuances of the Company's common and common equivalent shares,
at prices below the expected initial public offering price during the twelve
month period preceding the filing date of the initial public offering, have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method and the estimated initial public
offering price).
13. RELATED PARTY TRANSACTIONS
During the year ended March 31, 1996, in connection with the bridge
financing which was subsequently converted to preferred stock, the Company
issued to a shareholder warrants that entitle the holder to purchase 66,946
shares of common stock at exercise prices ranging from $2.75 to $6.05 per share.
The warrants expire on dates ranging from August 2000 to November 2000. No
warrants have been exercised as of December 31, 1996.
On June 6, 1996, the Company entered into a strategic alliance with TRW.
Pursuant to this alliance, the Company sold 826,445 shares of its Class C
preferred stock to TRW for net cash proceeds of $4,931,703. The Company also
entered into a $10 million subordinated, convertible promissory note agreement
with TRW, (see Note 6). The use of the proceeds from these transactions are to
be used exclusively in funding the development and construction of a wafer
fabrication facility.
Additionally, TRW granted to the Company a worldwide right and license to
make, have made, use and sell the products manufactured in the wafer fabrication
facility. This right and license will become exclusive and perpetual upon
completion of the condition discussed below. In consideration of the license,
the Company issued to TRW 2,683,930 shares of restricted common stock valued at
$2,952,323. The common stock is restricted in that it is non-voting and
non-transferable. These restrictions will lapse when the Company successfully
utilizes the TRW technology in its manufacturing process in the fabrication
facility. If by December 31, 1998 the wafer foundry is not operational, as
defined in the agreement, TRW has the right to revoke, or make non-exclusive,
the license and the Company correspondingly has the right to redeem as much as
one-half of the TRW shares for a nominal amount.
In connection with the licensing agreement, the Company issued a warrant to
TRW to purchase up to 1,000,000 shares of the Company's common stock at an
exercise price of $10 per share. The exercise price is
F-15
<PAGE> 80
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subject to adjustment in the event of certain changes, as defined by the
agreement, affecting the Company's capitalization. The TRW warrant first becomes
exercisable on the date that the Company's wafer facility becomes operational
and thereafter must be exercised before the first to occur of (i) the second
anniversary of such date and (ii) 90 days after the Company has provided notice
to TRW that the current market price of the Company's common stock is, and has
been for at least 20 consecutive days, greater than $12 per share. If the
Company's wafer facility does not become operational by December 31, 1998, the
warrant will terminate in full. A value of $250,000 has been recorded for this
warrant.
The restricted common stock and the related warrant have an aggregate value
of $3,202,323, which represents the Company's right to use the technology and
accordingly, a related intangible asset has been recorded on the Company balance
sheet. Amortization of this intangible asset will be provided on a straight-line
basis over a fifteen year estimated useful life of the asset and will commence
once the wafer facility becomes operational. Should the technology license be
revoked or made nonexclusive under the circumstances described above, a
resulting charge to income would be recorded to recognize impairment, if any, of
its value.
14. COMMITMENTS
Facility Construction and Equipment
At December 31, 1996, the Company is committed to leasing from a third
party real estate developer a wafer fabrication facility which is under
construction adjacent to its existing facility. The facility will be built in
two phases. The first and second phases are budgeted at approximately $40
million and $30 million, respectively. The Company's lease arrangement with the
developer is based on a total estimated cost to construct the facility. The
developer will provide partial construction financing for the facility. For the
remainder of the estimated construction costs, the Company is obligated to put
up cash deposits with the developer to fund the construction.
Costs to install a clean room at the facilities, estimated to cost between
$2.5 and $3 million including equipment, will be financed through a construction
loan which will convert to a lease upon completion of construction and an
equipment lease line. The Company has also obtained a lease commitment for an
additional $10 million of financing for equipment to up-fit the new facility. In
connection with this financing commitment, the Company has issued a warrant to
purchase 41,323 shares of its common stock at an exercise price of $9.00 per
share to the equipment financing company.
The terms of these lease financing commitments are as follows:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RENTAL
TOTAL COSTS PAYMENTS (ASSUMING TOTAL
FINANCED COMMITMENTS FULLY UTILIZED)
------------------------- ---------------------------
<S> <C> <C>
Fabrication facility commitment................ Estimated at $7.8 million $1,400,000
(first phase only)
Clean room equipment commitment................ Up to $2.5 million $985,000
Equipment lease commitment..................... Up to $10.0 million $2.9 million
</TABLE>
Additionally, based on the expected timing of the fabrication facility
construction, interest related to certain borrowed amounts or amounts used under
the equipment lease lines will be capitalized and amortized over the lease term
in the form of additional lease payments.
Supply Agreement
The Company has agreed to purchase from TRW, through the year 2000, certain
minimum quantities of wafers and wafer starting material used in its production
of RFICs.
F-16
<PAGE> 81
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
During the period from December 31, 1996 to February 28, 1997, the Company
granted 43,000 incentive stock options to employees. The exercise price of these
shares ranged from $6.50 per share to $9.00 per share.
In connection with the Company's planned initial public offering, the
Company's Board of Directors intends to adopt the following:
- The 1997 Key Employees' Stock Option Plan which will permit the granting
of both Incentive and Nonqualified Options. The aggregate shares granted
under this plan will not exceed 1.3 million.
- The Directors' Option Plan which will provide for reserving up to 200,000
shares of common stock for future option grants under this plan.
- The Employee Stock Purchase Plan is intended to qualify under Section 423
of the Internal Revenue Code. The plan is intended to provide the
opportunity for the Company's employees to purchase the Company's common
stock based on terms and conditions allowed by Section 423. An aggregate
of 500,000 shares of common stock will be reserved for offering under this
plan.
F-17
<PAGE> 82
=======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Shareholder or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any securities other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company or that the information contained herein is correct as of any time
subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operation............................ 18
Business............................... 25
Management............................. 39
Certain Transactions................... 46
Principal and Selling Shareholders..... 50
Description of Capital Stock........... 53
Shares Eligible for Future Sale........ 56
Underwriting........................... 58
Legal Matters.......................... 59
Experts................................ 59
Additional Information................. 59
Index to Financial Statements.......... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
=======================================================
=======================================================
2,537,000 SHARES
(RF MICRO DEVICES LOGO)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
, 1997
=======================================================
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses of issuance and distribution payable by the Registrant are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,494
National Association of Securities Dealers, Inc. filing
fee....................................................... 4,293
Nasdaq National Market quotation fee........................ 50,000
Accounting fees and expenses................................ 150,000
Legal fees and expenses..................................... 250,000
Printing and engraving...................................... 100,000
Fees of Transfer Agent and Registrar........................ 5,000
State Blue Sky registration fees and expenses (including
counsel fees)............................................. 10,000
Miscellaneous expenses...................................... 19,213
----------
Total............................................. $ 600,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation
Act contains specific provisions relating to indemnification of directors and
officers of North Carolina corporations. In general, such sections provide that
(i) a corporation must indemnify a director or officer who is wholly successful
in his defense of a proceeding to which he is a party because of his status as
such, unless limited by the articles of incorporation, and (ii) a corporation
may indemnify a director or officers if he is not wholly successful in such
defense, if it is determined as provided by statute that the director or officer
meets a certain standard of conduct, provided when a director or officer is
liable to the corporation or is adjudged liable on the basis that personal
benefit was improperly received by him, the corporation may not indemnify him. A
director or officer of a corporation who is a party to a proceeding may also
apply to the courts for indemnification, and the court may order indemnification
under certain circumstances set forth in the statute. A corporation may, in its
articles of incorporation or bylaws or by contract or resolution, provide
indemnification in addition to that provided by statute, subject to certain
conditions.
The Registrant's bylaws provide for the indemnification of any director or
officer of the Registrant against liabilities and litigation expenses arising
out of his status as such, excluding (i) any liabilities or litigation expenses
relating to activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interest of the Registrant and
(ii) that portion of any liabilities or litigation expenses with respect to
which such person is entitled to receive payment under any insurance policy.
The Registrant's articles of incorporation provide for the elimination of
the personal liability of each director of the Registrant to the fullest extent
permitted by law.
In connection with the Offering, the Registrant intends to obtain
directors' and officers' liability insurance, under which any controlling
person, director or officer of the Registrant will be insured or indemnified
against certain liabilities which he may incur to his capacity as such.
Under the underwriting agreement to be entered into by the Registrant,
certain controlling persons, directors and officers of the Registrant may be
entitled to indemnification by underwriters who participate in the distribution
of securities covered by the Registration Statement against certain liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since April 1, 1994, except as set forth below, no securities of the
Registrant have been sold by the Registrant without registration under the
Securities Act.
II-1
<PAGE> 84
On December 30, 1994 and January 24, 1995, the Registrant issued an
aggregate amount of 1,272,727 shares of Class B Convertible Preferred Stock to
certain individuals and entities, each, except one individual, believed to be an
accredited investor. In exchange for such shares, the Registrant received cash
in the aggregate amount of $3,500,000. The Registrant issued the securities in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
On August 4, 1995, the Registrant issued to an investor, believed to be an
accredited investor, a subordinated note to evidence the borrowing of up to
$2,000,000. The note bore interest at a rate equal to the prime rate as reported
in the Wall Street Journal plus one percent. The note had a term of the shorter
of six months or the closing date of the sale and issuance of equity securities
by the Registrant with cash proceeds of at least $1,000,000. In connection with
the note, on August 7, 1995 and November 10, 1995, the Registrant borrowed
$1,000,000 and $500,000, respectively, from the investor and issued to the
investor warrants for the purchase of up to an aggregate amount of 54,546 and
27,272 shares of Common Stock, respectively, for a purchase price of $2.75 per
share. The Registrant issued the note and warrants in each case in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act.
On November 22, 1995, in reliance on the exemption provided by Section 4(2) of
the Securities Act, the Registrant issued an aggregate amount of 178,071 shares
of Class C Convertible Preferred Stock to this investor in satisfaction of
$1,076,974 in principal and accrued interest owed under the note. Pursuant to
its terms, the warrant issued to this investor for the purchase of 27,272 shares
of Common Stock at $2.75 per share became on this date a warrant for the
purchase of 12,400 shares of Common Stock at $6.048 per share.
In addition to the shares referred to in the foregoing paragraph, on
November 22, 1995, the Registrant issued an aggregate amount of 1,640,712 shares
of Class C Convertible Preferred Stock to certain individuals and entities, each
believed to be an accredited investor. In consideration for these shares, the
Registrant received cash in the amount of $9,923,084. The Registrant issued
these securities in reliance on the exemption from registration provided in
Section 4(2) of the Securities Act.
On June 6, 1996, the Registrant issued 826,446 shares of Class C
Convertible Preferred Stock to an entity, believed to be an accredited investor,
in exchange for an aggregate consideration of $5,000,000 in cash. In
consideration of this investor's execution, delivery and performance of a
licence and technical assistance agreement, the Registrant also issued to the
investor 2,683,930 shares of Common Stock, which shares are subject to a
restricted stock agreement pursuant to which, among other things, the investor
granted to the president of the Registrant an irrevocable proxy to vote such
shares of Common Stock in favor of any proposal approved by the Registrant's
board of directors. The Registrant also issued to the investor a promissory note
pursuant to which the Registrant may borrow funds in an amount up to
$10,000,000. The note bears interest at the rate of 6% per annum and is payable
in a lump sum on June 6, 2003. The note is convertible, at the option of the
noteholder, into certain equity securities of the Registrant at the conversion
price of $9.00 per share, subject to adjustment. In the event of an offering of
Common Stock with gross proceeds to the Registrant of at least $15,000,000, the
noteholder is required (subject to compliance with applicable antitrust
requirements) to convert the note into Common Stock. The note was accompanied by
a warrant for the purchase of equity securities of the Registrant on terms and
conditions set forth in the note. The warrant may be exercised only to the
extent that the note is not converted; together, the two securities provide for
the purchase of up to an aggregate amount of 1,111,111 shares of equity
securities of the Registrant at a conversion price or exercise price, as the
case may be, of $9.00 per share. The Registrant also issued to the investor an
additional warrant to purchase up to 1,000,000 shares of Common Stock at an
exercise price of $10.00 per share. This warrant may be exercised only if
certain conditions are met. The Registrant issued the Common Stock, the note and
the warrants in each case in reliance on the exemptions from registration
provided by Section 4(2) of the Securities Act.
Between April 1, 1994 and February 28, 1997, the Registrant granted options
for the purchase of an aggregate amount of 1,060,556 shares of Common Stock to
certain officers and employees of the Registrant pursuant to its 1992 Stock
Option Plan and in consideration of services rendered and to be rendered to the
Registrant. The options have an exercise price ranging from $0.275 per share to
$9.00 per share. Options covering 1,044,856 shares of Common Stock remained
outstanding, and no options had been exercised, as of
II-2
<PAGE> 85
such date. The Registrant granted the options in reliance on the exemption from
registration provided by Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits listed in accordance with the number assigned
to each in the exhibit table of Item 601 of Regulation S-K are included in
Part II of this Registration Statement. Exhibit numbers omitted are not
applicable.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement
3.1 -- Articles of Incorporation of RF Micro Devices, Inc.*
3.2 -- Bylaws of RF Micro Devices, Inc.*
4.1 -- Specimen Certificate of Common Stock*
4.2 -- Warrant, dated August 7, 1995, for the purchase of up to
54,546 shares of Common Stock
4.3 -- Warrant, dated November 10, 1995, for the purchase of up to
12,400 shares of Common Stock
4.4 -- Subordinated Convertible Promissory Note, dated June 6, 1996
4.5 -- Warrant, dated June 6, 1996, for the purchase of up to
1,111,111 shares of Common Stock*
4.6 -- Warrant, dated June 6, 1996, for the purchase of up to
1,000,000 shares of Common Stock*
4.7 -- Warrant, dated February 25, 1997, for the purchase of up to
41,322 shares of Common Stock*
4.8 -- Loan and Security Agreement, dated March 29, 1996, and Loan
Modification Agreement, dated December 20, 1996, between RF
Micro Devices, Inc. and Silicon Valley Bank*
5 -- Opinion of Womble Carlyle Sandridge & Rice, PLLC*
10.1 -- 1992 Stock Option Plan of RF Micro Devices, Inc.
10.2 -- Form of Stock Option Agreement (1992 Stock Option Plan)*
10.3 -- 1997 Key Employees' Stock Option Plan of RF Micro Devices,
Inc.*
10.4 -- Form of Stock Option Agreement (1997 Key Employees' Stock
Option Plan)*
10.5 -- Nonemployee Directors' Stock Option Plan of RF Micro
Devices, Inc.*
10.6 -- Form of Stock Option Agreement (1997 Directors' Stock Option
Plan)*
10.7 -- Stock Purchase Agreement, dated November 22, 1995, between
RF Micro Devices, Inc. and certain investors, as amended
10.8 -- Securities Purchase Agreement, dated June 6, 1996, between
RF Micro Devices, Inc. and TRW Inc.
10.9 -- License and Technical Assistance Agreement, dated June 6,
1996, between RF Micro Devices, Inc. and the Electronic
Systems & Technology Division of the Space and Electronics
Group of TRW Inc.*
10.10 -- Supply Agreement, dated June 6, 1996, between RF Micro
Devices, Inc. and TRW Inc.*
10.11 -- Restricted Stock Agreement, dated June 6, 1996, between RF
Micro Devices, Inc. and TRW Inc.
10.12 -- Second Amended and Restated Registration Rights Agreement,
dated June 6, 1996, between RF Micro Devices, Inc. and
certain shareholders, as amended
10.13 -- Lease Agreement, dated October 31, 1995, between RF Micro
Devices, Inc. and Piedmont Land Company, as amended
10.14 -- Lease Agreement, dated October 9, 1996, between RF Micro
Devices, Inc. and Highwoods/Forsyth Limited Partnership, as
amended
</TABLE>
II-3
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.15 -- Master Equipment Lease Agreement, dated as of December 2,
1996, between Finova Technology Finance, Inc. and RF Micro
Devices, Inc.*
10.16 -- Employee Stock Purchase Plan of RF Micro Devices, Inc.*
23.1 -- Consent of Womble Carlyle Sandridge & Rice, PLLC (included
in Exhibit 5)
23.2 -- Consent of Ernst & Young LLP
24 -- Power of Attorney (included on the signature page of this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the 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.
(b) For the purpose of determining any liability under the Securities
Act of 1933, 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.
2. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greensboro, State of
North Carolina, on February 28, 1997.
RF MICRO DEVICES, INC.
By: /s/ DAVID A. NORBURY
------------------------------------
David A. Norbury
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
David A. Norbury and William A. Priddy, Jr., and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capabilities, to sign any and all amendments
(including post-effective amendments, exhibits thereto and other documents in
connection therewith) to this registration statement and any subsequent
registration statement filed by the registrant pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, which relates to this registration
statement, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on February 28,
1997 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DAVID A. NORBURY President, Chief Executive Officer and
- ----------------------------------------------------- Director (principal executive officer)
David A. Norbury
/s/ WILLIAM A. PRIDDY, JR. Vice President of Finance and Treasurer
- ----------------------------------------------------- (principal financial and accounting officer)
William A. Priddy, Jr.
/s/ ROBERT C. FLEMING Director
- -----------------------------------------------------
Robert C. Fleming
/s/ ERIK H. VAN DER KAAY Director
- -----------------------------------------------------
Erik H. van der Kaay
/s/ ALBERT E. PALADINO Director
- -----------------------------------------------------
Albert E. Paladino
/s/ WILLIAM J. PRATT Director
- -----------------------------------------------------
William J. Pratt
/s/ TERRI D. ZINKIEWICZ Director
- -----------------------------------------------------
Terri D. Zinkiewicz
/s/ WALTER H. WILKINSON, JR. Director
- -----------------------------------------------------
Walter H. Wilkinson, Jr.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1
Draft of February 28, 1997
2,917,550 SHARES
RF MICRO DEVICES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED [___]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES...............................................................2
A. REPRESENTATIONS AND WARRANTIES...............................................................2
Compliance With Registration Requirements..............................................2
Offering Materials Furnished To Underwriters...........................................2
Distribution Of Offering Material By The Company.......................................2
The Underwriting Agreement.............................................................2
Authorization Of The Common Shares.....................................................4
No Applicable Registration Or Other Similar Rights.....................................4
No Material Adverse Change.............................................................4
Independent Accountants................................................................4
Preparation Of The Financial Statements................................................4
Incorporation And Good Standing Of The Company And Its Subsidiaries....................4
Capitalization And Other Capital Stock Matters.........................................5
Stock Exchange Listing.................................................................5
Non-Contravention Of Existing Instruments;
No Further Authorizations Or Approvals Required........................................5
No Material Actions Or Proceedings.....................................................6
Intellectual Property Rights...........................................................6
All Necessary Permits, Etc. ...........................................................6
Compliance With Environmental Laws.....................................................6
Periodic Review Of Costs Of Environmental Compliance...................................7
Title To Properties....................................................................7
Tax Law Compliance.....................................................................8
Company Not An Investment Company......................................................8
Insurance..............................................................................8
No Price Stabilization Or Manipulation.................................................8
Related Party Transactions.............................................................8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS
The Underwriting Agreement.............................................................9
The Custody Agreement And Power Of Attorney............................................9
Title To Common Shares To Be Sold; All Authorizations Obtained.........................9
Delivery Of The Common Shares To Be Sold...............................................9
Non-Contravention; No Further Authorizations Or Approvals Required.....................9
No Registration Or Other Similar Rights...............................................10
No Further Consents, Etc. ............................................................10
Disclosure Made By Such Selling Shareholder In The Prospectus.........................10
No Price Stabilization Or Manipulation................................................10
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Confirmation Of Company Representations And Warranties....................................11
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES
The Firm Common Shares....................................................................11
The First Closing Date....................................................................11
The Optional Common Shares; The Second Closing Date.......................................11
Public Offering Of The Common Shares......................................................12
Payment For The Common Shares.............................................................12
Delivery Of The Common Shares.............................................................13
Delivery Of Prospectus To The Underwriters................................................13
SECTION 3. ADDITIONAL COVENANTS
A. COVENANTS OF THE COMPANY........................................................................13
Representatives' Review Of Proposed Amendments And Supplements............................14
Securities Act Compliance.................................................................14
Amendments And Supplements To The Prospectus And Other Securities Act
Matters...................................................................................14
Copies Of Any Amendments And Supplements To The Prospectus................................14
Blue Sky Compliance.......................................................................14
Use Of Proceeds...........................................................................15
Transfer Agent............................................................................15
Earnings Statement........................................................................15
Periodic Reporting Obligations............................................................15
Agreement Not To Offer Or Sell Additional Securities......................................15
Future Reports To The Representatives.....................................................16
B. COVENANTS OF THE SELLING SHAREHOLDERS..........................................................16
Agreement Not To Offer Or Sell Additional Securities......................................16
Delivery Of Forms W-8 And W-9.............................................................16
SECTION 4. PAYMENT OF EXPENSES.............................................................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
Accountants' Comfort Letter...............................................................18
Compliance With Registration Requirements; No Stop Order, No Objection From NASD..........18
No Material Adverse Change Or Ratings Agency Change.......................................18
Opinion Of Counsel For The Company........................................................19
Opinion Of Counsel For The Underwriters...................................................19
Officers' Certificate.....................................................................19
Bring-Down Comfort Letter.................................................................19
Opinion Of Counsel For The Selling Shareholders...........................................20
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
Selling Shareholders' Certificate.........................................................20
Selling Shareholders' Documents...........................................................20
Lock-Up Agreement From Certain Shareholders Of The Company
Other Than Selling Shareholders...........................................................20
Additional Documents......................................................................20
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.........................................................21
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.................................................................21
SECTION 8. INDEMNIFICATION
Indemnification Of The Underwriters.......................................................21
Indemnification Of The Company, Its Directors And Officers................................23
Notifications And Other Indemnification Procedures........................................23
Settlements...............................................................................24
SECTION 9. CONTRIBUTION....................................................................................25
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS..............................................26
SECTION 11. TERMINATION OF THIS AGREEMENT...................................................................27
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.............................................27
SECTION 13. NOTICES.........................................................................................28
SECTION 14. SUCCESSORS......................................................................................29
SECTION 15. PARTIAL UNENFORCEABILITY........................................................................29
SECTION 16. GOVERNING LAW PROVISIONS........................................................................29
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL
AND DELIVER COMMON SHARES..............................................................30
SECTION 18. GENERAL PROVISIONS..............................................................................31
</TABLE>
iv
<PAGE> 5
UNDERWRITING AGREEMENT
___________, 1997
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. RF Micro Devices, Inc., a North Carolina corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,500,000 shares of its Common
Stock, no par value per share (the "Common Stock"); and the shareholders of the
Company named in Schedule B (collectively, the "Selling Shareholders") severally
propose to sell to the Underwriters an aggregate of 37,000 shares of Common
Stock. The 2,500,000 shares of Common Stock to be sold by the Company and the
37,000 shares of Common Stock to be sold by the Selling Shareholders are
collectively called the "Firm Common Shares." In addition, the Company has
granted to the Underwriters an option to purchase up to an additional 380,550
shares (the "Optional Common Shares") of Common Stock, as provided in Section 2.
The Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are collectively called the "Common Shares." Montgomery
Securities, Hambrecht & Quist LLC and Oppenheimer & Co., Inc. have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares (the "Initial Registration
Statement"). Such registration statement, as amended, including the financial
statements, exhibits and schedules thereto, in the form in which it was declared
effective by the Commission under the Securities Act of 1933 and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act in
connection with the public offering and sale of the Common Shares is called the
"Registration Statement." Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b)
Registration Statement," and from and after the date and time of filing of the
Rule 462(b) Registration Statement the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. Any prospectus subject to
completion included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations promulgated
under the Securities Act is call a "preliminary
<PAGE> 6
prospectus"). The prospectus, as first filed with the Commission pursuant to
Rule 424(b) under the Securities Act or, if no filing pursuant to the Securities
Act is required, as included in the Registration Statement at the time it
becomes effective, is called the "Prospectus"; provided, however, if the Company
has, with the consent of Montgomery Securities, elected to rely upon Rule 434
under the Securities Act, the term "Prospectus" shall mean the Company's
preliminary prospectus included in the Registration Statement at the time it
becomes effective (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS. Each of the Company and each of the Selling Shareholders hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to the Commission's Electronic Data
Gathering, Analysis and Retrieval System (except as may be permitted by
Regulation S-T under the Securities Act), was in all substantive
respects in the form of the copy thereof delivered to the Underwriters
for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times up to and including each
Closing Date referred to in Section 2 below, complied and will comply
in all material respects with the Securities Act and did not and will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times up to and
including each Closing Date referred to in Section 2 below, did not and
will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The representations
2
<PAGE> 7
and warranties set forth in the two immediately preceding sentences do
not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to each Representative a complete manually signed copy of
the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses
and the Prospectus, as amended or supplemented, in such quantities and
at such places as the Representatives have reasonably requested for
each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) [thirty days after the
First Closing Date], 1997, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable against it in accordance with
its terms, except as rights to indemnification hereunder may be limited
by applicable law and except as the enforcement hereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement,
other than the Selling Shareholders with respect to the Common Shares
included in the Registration Statement, except for such rights as have
been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether
3
<PAGE> 8
or not arising from transactions in the ordinary course of business, of
the Company considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company has not incurred any
material liability or obligation, indirect, direct or contingent, not
in the ordinary course of business nor entered into any material
transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of capital stock or repurchase
or redemption by the Company of any class of capital stock.
(h) Independent Accountants. Ernst & Young LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the Commission as a part of the
Registration Statement and (except for supporting schedules) included
in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the financial
position of the Company as of and at the dates indicated and the
results of its operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement, if any,
present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Financial Data,"
"Selected Financial Data" and "Capitalization" fairly present, in all
material respects, the information set forth therein on a basis
consistent with that of the audited financial statements contained in
the Registration Statement.
(j) Incorporation and Good Standing of the Company. The
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of North Carolina and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and of the
Company, to enter into and perform its obligations under this
Agreement. The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change. The Company does not own or control, directly
or indirectly, any corporation, association or other entity.
(k) Capitalization and Other Capital Stock Matters. Subject to
the assumptions set forth in the Prospectus, the authorized, issued and
outstanding capital stock of the
4
<PAGE> 9
Company is as set forth in the Prospectus under the caption
"Capitalization" (other than for subsequent issuances, if any, pursuant
to employee benefit plans described in the Prospectus or upon exercise
of outstanding options or warrants described in the Prospectus). The
Common Stock (including the Common Shares) conforms in all material
respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock (including the shares
of Common Stock owned by Selling Shareholders) have been duly
authorized and validly issued, are fully paid and nonassessable and
have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation
of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There
are no authorized or outstanding options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted thereunder, set forth in the Prospectus, except (i) such
options, warrants, preemptive rights, rights of first refusal or other
rights which expire on the First Closing Date and (ii) such options
granted pursuant to stock option plans described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus accurately and fairly presents
in all material respects the information required to be shown with
respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to
official notice of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation
of its articles of incorporation or bylaws nor is it in default (or,
with the giving of notice or lapse of time, would it be in default)
("Default") under any indenture, mortgage, loan or credit agreement,
note, contract, franchise, lease or other instrument to which the
Company is a party or by which it may be bound, or to which any of the
property or assets of the Company is subject (each, an "Existing
Instrument"), except for such Defaults as would not, individually or in
the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have
been duly authorized by all necessary corporate action and will not
result in any violation of the provisions of the articles of
incorporation or bylaws of the Company, (ii) will not conflict with or
constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to, or require the consent of any other
part to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually or
in the aggregate, result in a Material Adverse Change and (iii) will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company. No consent,
approval, authorization or other order of, or registration or filing
with, any court or
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<PAGE> 10
other governmental or regulatory authority or agency, is required for
the Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the
Prospectus, except such as have been obtained or made by the Company
and are in full force and effect under the Securities Act, and such as
may be required under applicable securities or blue sky laws of any
state or other jurisdiction and from the National Association of
Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the
Company, (ii) which have as the subject thereof any officer or director
of, or property owned or leased by, the Company or (iii) relating to
environmental or discrimination matters, where in any such case (A)
there is a reasonable possibility that such action, suit or proceeding
might be determined adversely to the Company and (B) any such action,
suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company, or to the
best of the Company's knowledge with the employees of any principal
supplier of the Company, exists or, to the best of the Company's
knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company owns or
possesses sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct its business as now conducted; and the expected expiration of
any of such Intellectual Property Rights would not result in a Material
Adverse Change. The Company has not received any notice of infringement
or conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company possesses such
valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct its business, and the Company has not received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(q) Compliance with Environmental Laws. Except as otherwise
disclosed in the Prospectus or as would not, individually or in the
aggregate, result in a Material Adverse Change (i) the Company is not
in violation of any federal, state, local or foreign law or regulation
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including
without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances,
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<PAGE> 11
petroleum and petroleum products (collectively, "Materials of
Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company under
applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, and the Company has not received any written
communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company is in violation of
any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no
written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from
the presence, or release into the environment, of any Material of
Environmental Concern at any location owned, leased or operated by the
Company, now or in the past (collectively, "Environmental Claims"),
pending or, to the best of the Company's knowledge, threatened against
the Company or any person or entity whose liability for any
Environmental Claim the Company has retained or assumed either
contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that reasonably could result in
a violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or against any person or entity
whose liability for any Environmental Claim the Company has retained or
assumed either contractually or by operation of law.
(r) Periodic Review of Costs of Environmental Compliance. In
the ordinary course of its business, the Company conducts a periodic
review of the effect of Environmental Laws on the business, operations
and properties of the Company, in the course of which it identifies and
evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws
or any permit, license or approval, any related constraints on
operating activities and any potential liabilities to third parties).
On the basis of such review and the amount of its established reserves,
the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a
Material Adverse Change.
(s) Title to Properties. Except as otherwise disclosed in the
Prospectus, the Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements
referred to in Section 1(A)(i) above (or elsewhere in the Prospectus),
in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as
do not materially and adversely affect the value of such property and
do not materially interfere with the
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<PAGE> 12
use made or proposed to be made of such property by the Company. The
real property, improvements, equipment and personal property held under
lease by the Company are held under valid and enforceable leases, with
such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company.
(t) Tax Law Compliance. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and,
if due and payable, any related or similar assessment, fine or penalty
levied against any of them except as may be being contested in good
faith and by appropriate proceedings. The Company has made adequate
charges, accruals and reserves in the applicable financial statements
referred to in Section 1(A)(i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the
tax liability of the Company has not been finally determined.
(u) Company Not an "Investment Company." The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and
will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(v) Insurance. The Company is insured by recognized,
financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for its business including, but
not limited to, policies covering real and personal property owned or
leased by the Company against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it
will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a
Material Adverse Change. The Company has not been denied any insurance
coverage which it has sought or for which it has applied.
(w) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(x) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.
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<PAGE> 13
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Shareholder, severally and not jointly, represents, warrants
and covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the
(i) Custody Agreement signed by or on behalf of such Selling
Shareholder and [___], as custodian (the "Custodian"), relating to the
deposit of the Common Shares to be sold by such Selling Shareholder
(the "Custody Agreement") and (ii) Power of Attorney appointing certain
individuals named therein as such Selling Shareholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Shareholder has
been duly authorized, executed and delivered by or on behalf of such
Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable
law and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations
Obtained. Such Selling Shareholder has, and on the First Closing Date
(as defined below) will have, good and valid title to all of the Common
Shares which may be sold by such Selling Shareholder pursuant to this
Agreement on such date and the legal right and power, and all
authorizations and approvals required by law and under its articles of
incorporation or bylaws or other organizational documents, to enter
into this Agreement and the Custody Agreement and Power of Attorney, to
sell, transfer and deliver all of the Common Shares which may be sold
by such Selling Shareholder pursuant to this Agreement and to comply
with his other obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the
Common Shares which are sold by such Selling Shareholder pursuant to
this Agreement will pass good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of his obligations
under, this Agreement, the Custody Agreement and the Power of Attorney
will not contravene or conflict with, result in a breach of,
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<PAGE> 14
or constitute a Default under, or require the consent of any other
party to, the charter or by-laws or other organizational documents of
such Selling Shareholder or any other agreement or instrument to which
such Selling Shareholder is a party or by which he is bound or under
which he is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable
to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Shareholder. No consent, approval,
authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions
contemplated in this Agreement, except such as have been obtained or
made and are in full force and effect under the Securities Act, or have
been obtained or made under applicable securities or blue sky laws of
any state or other jurisdiction and from the NASD.
(f) No Registration or Other Similar Rights. Such Selling
Shareholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering
contemplated by this Agreement, except for such rights as are described
in the Prospectus under _________________________________.
(g) No Further Consents, etc. Except for the (i) exercise by
such Selling Shareholder of certain registration rights pursuant to the
Registration Rights Agreement dated as of [___] (which registration
rights have been duly exercised pursuant thereto), (ii) consent of such
Selling Shareholder to the respective number of Common Shares to be
sold by all of the Selling Shareholders pursuant to this Agreement and
(iii) waiver by certain other holders of Common Stock of certain
registration rights pursuant to such Registration Rights Agreement, no
consent, approval or waiver is required under any instrument or
agreement to which such Selling Shareholder is a party or by which he
is bound or under which he is entitled to any right or benefit, in
connection with the offering, sale or purchase by the Underwriters of
any of the Common Shares which may be sold by such Selling Shareholder
under this Agreement or the consummation by such Selling Shareholder of
any of the other transactions contemplated hereby.
(h) Disclosure Made by Such Selling Shareholder in the
Prospectus. All information furnished by or on behalf of such Selling
Shareholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date will be, true, correct
and complete in all material respects, and does not, and on the First
Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information
not misleading. Such Selling Shareholder confirms as accurate the
number of shares of Common Stock set forth opposite such Selling
Shareholder's name in the Prospectus under the caption "Principal and
Selling Shareholders" (both prior to and after giving effect to the
sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling
Shareholder has not taken and will not take, directly or indirectly,
any action designed to or that might be
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<PAGE> 15
reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of
the Common Shares.
(j) Confirmation of Company Representations and Warranties.
Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 1(A)
hereof are not true and correct, is familiar with the Registration
Statement and the Prospectus and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement or
the Prospectus which has had or may have a Material Adverse Effect and
is not prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by
such Selling Shareholder to each Underwriter as to the matters covered
thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. Upon the terms herein set forth, (i)
the Company agrees to issue and sell to the several Underwriters an aggregate of
2,500,000 Firm Common Shares and (ii) the Selling Shareholders agree to sell to
the several Underwriters an aggregate of 37,000 Firm Common Shares, each Selling
Shareholder selling the number of Firm Common Shares set forth opposite such
Selling Shareholder's name on Schedule B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Shareholders the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Shareholders shall be $[___] per
share.
The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of Montgomery Securities, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Representatives) at 6:00 a.m. San Francisco time, on ___________, 1997,
or such other time and date not later than 10:30 a.m. San Francisco time, on
[seven days later] , 1997 as the Representatives shall designate by notice to
the Company (the time and date of such closing are called the "First Closing
Date"). The Company and the Selling Shareholders hereby acknowledge that
circumstances under which the Representatives may provide notice to postpone the
First Closing Date as originally scheduled include, but are in no way limited
to, any determination by the Company, the Selling Shareholders or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of Section
10.
The Optional Common Shares; the Second Closing Date. In
addition, on the basis of the representations, warranties and agreements herein
contained, and upon the terms but
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<PAGE> 16
subject to the conditions herein set forth, the Company hereby grants an option
to the several Underwriters to purchase, severally and not jointly, up to an
aggregate of [___] Optional Common Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Common Shares. The option
granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) upon notice by the Representatives to the Company which notice may be
given at any time within 30 days from the date of this Agreement. Such notice
shall set forth (i) the aggregate number of Optional Common Shares as to which
the Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the term "First Closing Date" shall refer to the
time and date of delivery of certificates for the Firm Common Shares and the
Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
opposite the name of such Underwriter bears to the total number of Firm Common
Shares. The Representatives may cancel the option at any time prior to its
exercise or expiration by giving written notice of such cancellation to the
Company.
Public Offering of the Common Shares. The Representatives
hereby advise the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the Common
Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares
to be sold by the Company shall be made at the First Closing Date by wire
transfer of immediately available funds to the order of the Company. Payment for
the Common Shares to be sold by the Selling Shareholders shall be made at the
First Closing Date by wire transfer of immediately available funds to the order
of the Custodian.
It is understood that the Representatives have been
authorized, for their own account and the accounts of the several Underwriters,
to accept delivery of and receipt for, and make payment of the purchase price
for, the Firm Common Shares and any Optional Common Shares the Underwriters have
agreed to purchase. Montgomery Securities, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any
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<PAGE> 17
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay
all stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Common Shares to be sold by such Selling
Shareholder to the several Underwriters, or otherwise in connection with the
performance of such Selling Shareholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Shareholder hereunder and to hold such amounts for the
account of such Selling Shareholder with the Custodian under the Custody
Agreement.
Delivery of the Common Shares. The Company and the Selling
Shareholders shall deliver, or cause to be delivered, to the Representatives for
the accounts of the several Underwriters certificates for the Firm Common Shares
to be sold by them at the First Closing Date, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates for
the Optional Common Shares the Underwriters have agreed to purchase at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Common Shares
shall be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days prior
to the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, the Company shall furnish to the
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<PAGE> 18
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment
or supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission with
respect to the Registration Statement, (ii) of the time and date of any
filing of any post-effective amendment to the Registration Statement or
any amendment or supplement to any preliminary prospectus or the
Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock
from any securities exchange upon which it is listed for trading or
included or designated for quotation, or of the threatening or
initiation of any proceedings for any of such purposes. If the
Commission shall enter any such stop order at any time, the Company
will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule
424(b) were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representatives or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company agrees to promptly prepare (subject to Section
3(A)(a) hereof), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky or
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<PAGE> 19
state securities laws or the Canadian provincial securities laws of
those jurisdictions designated by the Representatives, shall comply
with such laws and shall continue such qualifications, registrations
and exemptions in effect so long as required for the distribution of
the Common Shares. The Company shall not be required to qualify as a
foreign corporation or to take any action that would subject it to
general service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at
the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it substantially in
accordance with its statements under the caption "Use of Proceeds" in
the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending [__________] that satisfies
the provisions of Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act. Additionally, the Company
shall file with the Commission all reports on Form SR as may be
required under Rule 463 under the Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), directly or indirectly, sell, offer, contract
or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Common Shares);
provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to, and may file a registration statement
on Form S-8 with respect to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus, but only
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if the holders of such shares, options, or shares issued upon exercise
of such options, agree in writing not to sell, offer, dispose of or
otherwise transfer any such shares or options during such 180 day
period without the prior written consent of Montgomery Securities
(which consent may be withheld at the sole discretion of the Montgomery
Securities).
(k) Future Reports to the Representatives. During the period
of five years hereafter the Company will furnish to the Representatives
at 600 Montgomery Street, San Francisco, CA 94111: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, shareholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each
proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10-Q, Current Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such
Selling Shareholder will not, without the prior written consent of
Montgomery Securities (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under
Securities Exchange Act of 1934, as amended) by the undersigned, or
publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing
through the close of trading on the date 180 days after the date of the
Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the
Representatives prior to the First Closing Date a properly completed
and executed United States Treasury Department Form W-8 (if the Selling
Shareholder is a non-United States person) or Form W-9 (if the Selling
Shareholder is a United States Person).
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company or any
Selling Shareholder of any one or more of the foregoing covenants.
SECTION 4. PAYMENT OF EXPENSES. The Company and the Selling
Shareholders, jointly and severally, agree to pay in such proportions as they
may agree upon among themselves
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<PAGE> 21
all costs, fees and expenses incurred in connection with the performance of
their obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale of the Common Shares to the Underwriters, (iv) all
fees and expenses of the Company's counsel, independent public or certified
pubic accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky or state securities laws or
the Canadian provincial securities laws, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Shareholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Shareholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely
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<PAGE> 22
performance by the Company and the Selling Shareholders of their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Ernst & Young LLP, independent
public or certified public accountants for the Company, a letter dated
the date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) No Material Adverse Change or Ratings Agency. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) in the judgment of the Representatives there
shall not have occurred any Material Adverse Change; and
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<PAGE> 23
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Womble Carlyle Sandridge & Rice,
PLLC, counsel for the Company, dated as of such Closing Date, the form
of which is attached as Exhibit A (and the Representatives shall have
received an additional [___] conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representatives
shall have received the favorable opinion of Hale and Dorr LLP, counsel
for the Underwriters, dated as of such Closing Date, with respect to
the matters set forth in paragraphs (i), (vii), (viii), (ix), (x),
(xi), (xii) and the next-to-last paragraph of Exhibit A (and the
Representatives shall have received an additional [___] conformed
copies of such counsel's legal opinion for each of the several
Underwriters).
(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) and
(c)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1(A) of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received from Ernst & Young LLP, independent public or certified public
accountants for the Company, a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant
to subsection (a) of this Section 5, except that the specified date
referred to therein for
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the carrying out of procedures shall be no more than three business
days prior to the First Closing Date or Second Closing Date, as the
case may be (and the Representatives shall have received an additional
[___] conformed copies of such accountants' letter for each of the
several Underwriters).
(h) Opinion of Counsel for the Selling Shareholders. On each
of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Womble
Carlyle Sandridge & Rice, PLLC, counsel for the Selling Shareholders,
dated as of such Closing Date, the form of which is attached as Exhibit
B (and the Representatives shall have received an additional [___]
conformed copies of such counsel's legal opinion for each of the
several Underwriters).
(i) Selling Shareholders' Certificate. On each of the First
Closing Date and the Second Closing Date the Representatives shall
received a written certificate executed by the Attorney-in-Fact of each
Selling Shareholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Shareholder set forth in Section 1(B) of this
Agreement are true and correct with the same force and effect
as though expressly made by such Selling Shareholder on and as
of such Closing Date; and
(ii) such Selling Shareholder has complied with all
the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the
Company and the Selling Shareholders shall have furnished for review by
the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Shareholders and such
further information, certificates and documents as the Representatives
may reasonably request.
(k) Lock-Up Agreement from Certain Shareholders of the Company
Other Than Selling Shareholders. On the date hereof, the Company shall
have furnished to the Representatives an agreement in the form of
Exhibit C hereto from each director, officer and each beneficial owner
of Common Stock (as defined and determined according to Rule 13d-3
under the Exchange Act, except that a one hundred eighty-day period
shall be used rather than the sixty-day period set forth therein), and
such agreement shall be in full force and effect on each of the First
Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and
counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of
any of the
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representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10, Section 11 or Section 17, or if the sale to the Underwriters of the
Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Shareholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement
shall not become effective until the later of (i) the execution of this
Agreement by the parties hereto and (ii) notification by the Commission to the
Company and the Representatives of the effectiveness of the Registration
Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Shareholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Each of the Company
and each of the Selling Shareholders, jointly and severally, agrees to
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is
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effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company or the Selling
Shareholders contained herein; or (iv) in whole or in part upon any
failure of the Company or the Selling Shareholders to perform their
respective obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter
in connection with, or relating in any manner to, the Common Stock or
the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon any matter covered by clause (i) or (ii) above,
provided that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined
by a final judgment that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such
expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company and the Selling
Shareholders by the Representatives expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom
the person asserting any loss, claim, damage, liability or expense
purchased Common Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter
pursuant to Section 2 and a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or expense; and provided, further, that the
liability of each Selling
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Shareholder under the foregoing indemnity agreement shall be limited to
an amount equal to the initial public offering price of the Common
Shares sold by such Selling Shareholders, less the underwriting
discount, as set forth on the front cover page of the Prospectus. The
indemnity agreement set forth in this Section 8(a) shall be in addition
to any liabilities that the Company and the Selling Shareholders may
otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Shareholders and each person, if any, who controls the Company or any
Selling Shareholder within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company, or any such director, officer, Selling
Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or
alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or arises out of or is based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement,
any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written
information furnished to the Company and the Selling Shareholders by
the Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer, Selling Shareholder or
controlling person for any legal and other expense reasonably incurred
by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and each of the
Selling Shareholders, hereby acknowledges that the only information
that the Underwriters have furnished to the Company and the Selling
Shareholders expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth (A) as the last
paragraph on the inside front cover page of the Prospectus concerning
stabilization by the Underwriters and (B) in the table in the first
paragraph and the second paragraph under the caption "Underwriting" in
the Prospectus; and the Underwriters confirm that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall
be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against
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an indemnifying party under this Section 8, notify the indemnifying
party in writing of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section
8 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party
(Montgomery Securities in the case of Section 8(b) and Section 9,
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party
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shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement, compromise or consent to the entry of judgment
in any pending or threatened action, suit or proceeding in respect of
which any indemnified party is or could have been a party and indemnity
was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for
in Section 8 is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party, as incurred, as a result of any losses, claims, damages,
liabilities or expenses referred to therein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other hand,
from the offering of the Common Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders, on the one hand, and the Underwriters, on the other
hand, in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Shareholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a
25
<PAGE> 30
claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company or a Selling Shareholder within the meaning of the
Securities Act and the Exchange Act shall have the same rights to contribution
as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Common
Shares and the aggregate number of Common Shares with respect to which such
default occurs exceeds 10% of the aggregate number of Common Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares are not made within 48 hours
after such default, this Agreement shall terminate without liability of any
party to any other party except that the provisions of Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination. In any such case either the Representatives or the Company
26
<PAGE> 31
shall have the right to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company and the Selling Shareholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, North Carolina or California authorities;
(iii) there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 11 shall be without liability
on the part of (a) the Company or the Selling Shareholders to any Underwriter,
except that the Company and the Selling Shareholders shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 4 and 6 hereof, (b) any Underwriter to the Company or the Selling
Shareholders, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Shareholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Shareholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
27
<PAGE> 32
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
RF Micro Devices, Inc.
7625 Thorndike Road
Greensboro, North Carolina 27409-9421
Facsimile: (910)664-0484
Attention: David A. Norbury, President and Chief Financial Officer
with a copy to:
Womble Carlyle Sandridge & Rice, PLLC
1600 BB&T Financial Center
200 West Second Street
Winston-Salem, North Carolina 27101
Facsimile: (910) 733-8371
Attention: Jeffrey C. Howland, Esq.
If to the Selling Shareholders:
------------------------------------
------------------------------------
------------------------------------
Facsimile:
-------------------------
Attention:
-------------------------
28
<PAGE> 33
with a copy to:
Womble Carlyle Sandridge & Rice, PLLC
1600 BB&T Financial Center
200 West Second Street
Winston-Salem, North Carolina 27101
Facsimile: (910) 733-8371
Attention: Jeffrey C. Howland, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (a) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America
located in the City and County of San Francisco or the courts of the
State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is
non-exclusive) of such courts in any such suit, action or proceeding.
Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process
for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any
29
<PAGE> 34
such suit, action or other proceeding brought in any such court has
been brought in an inconvenient forum.
(c) Waiver of Immunity. With respect to any Related
Proceeding, each party irrevocably waives, to the fullest extent
permitted by applicable law, all immunity (whether on the basis of
sovereignty or otherwise) from jurisdiction, service of process,
attachment (both before and after judgment) and execution to which it
might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the
Specified Courts or any other court of competent jurisdiction, and will
not raise or claim or cause to be pleaded any such immunity at or in
respect of any such Related Proceeding or Related Judgment, including,
without limitation, any immunity pursuant to the United States Foreign
Sovereign Immunities Act of 1976, as amended.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS
TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Shareholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Shareholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. In addition, if one or more of the Selling Shareholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Shareholders pursuant to this Agreement at the First
Closing Date, then the Underwriters shall have the right, by written notice from
the Representatives to the Company and the Selling Shareholders, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
30
<PAGE> 35
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company and the Custodian the
enclosed copies hereof, whereupon this instrument, along with all counterparts
hereof, shall become a binding agreement in accordance with its terms.
Very truly yours,
RF MICRO DEVICES, INC.
By:__________________________
[Title]
SELLING SHAREHOLDERS
Jerry D. Neal
William J. Pratt
Powell T. Seymour
By:__________________________
(Attorney-in-fact)
31
<PAGE> 36
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By: ____________________________
Richard A. Smith
Authorized Signatory
32
<PAGE> 37
SCHEDULE A
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
Montgomery Securities
Hambrecht & Quist LLC
Oppenheimer & Co., Inc.
-----------
TOTAL 2,537,000
<PAGE> 38
SCHEDULE B
NUMBER OF FIRM
COMMON SHARES
SELLING SHAREHOLDER TO BE SOLD
Jerry D. Neal 10,000
- ------------------------
- ------------------------
William J. Pratt 20,000
- ------------------------
- ------------------------
Powell T. Seymour 7,000
- ------------------------
- ------------------------
TOTAL 37,000
<PAGE> 39
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of North Carolina.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in ____________________
and in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions (other than the
State of ________________) where the failure to so qualify or to be in
good standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under
the Securities Act) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and, to the best knowledge of such counsel, is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions where the failure to
so qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or, to the best knowledge
of such counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Shareholders) have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge,
have been issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to
<PAGE> 40
evidence the Common Stock is in due and proper form and complies with
all applicable requirements of the articles of incorporation and bylaws
of the Company and the North Carolina Business Corporation Act.
(vii) No shareholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the articles of incorporation or bylaws of the Company or
the North Carolina Business Corporation Actor (ii) to such counsel's
knowledge, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as to those
provisions relating to indemnification and contribution, as to which no
opinion is expressed and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized and, when issued and
delivered by the Company pursuant to the Underwriting Agreement against
payment of the consideration set forth therein, will be validly issued,
fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To such counsel's knowledge, no
stop order suspending the effectiveness of either of the Registration
Statement or the Rule 462(b) Registration Statement, if any, has been
issued under the Securities Act and no proceedings for such purpose
have been instituted or are pending or are contemplated or threatened
by the Commission. Any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the Securities Act has
been made in the manner and within the time period required by such
Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting
schedules included therein or in exhibits to or excluded from the
Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of
the Securities Act.
(xii) The Common Shares have been approved for listing on the
Nasdaq National Market.
(xiii) The statements (i) in the Prospectus under the captions
"Description of Capital Stock," "Certain Relationships and Related
Transactions," and "Shares Eligible for Future Sale," and (ii) in Item
14 and Item 15 of the Registration Statement, insofar
2
<PAGE> 41
as such statements constitute matters of law, summaries of legal
matters, the Company's articles of incorporation or bylaw provisions,
documents or legal proceedings, or legal conclusions, has been reviewed
by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
(xiv) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened which
are required to be disclosed in the Registration Statement, other than
those disclosed therein.
(xv) To such counsel's knowledge, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described
or referred to therein or filed or incorporated by reference as
exhibits thereto.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and consummation of the
transactions contemplated thereby and by the Prospectus, except as
required under the Securities Act, applicable securities or blue sky
laws of any state or other jurisdiction and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its
obligations thereunder (other than performance by the Company of its
obligations under the indemnification and contribution sections of the
Underwriting Agreement, as to which no opinion need be rendered) (i)
will not result in any violation of the provisions of the articles of
incorporation or bylaws of the Company; (ii) will not constitute a
breach of, or Default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to any material Existing
Instrument filed as an exhibit to the Registration Statement; or (iii)
to such counsel's knowledge, will not result in any violation of any
law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xix) Except as disclosed in the Prospectus under the caption
_________________________, to such counsel's knowledge, there are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement,
other than the Selling Shareholders, except for such rights as have
been duly waived.
3
<PAGE> 42
(xx) To such counsel's knowledge, the Company is not in
violation of its articles of incorporation or bylaws or any law,
administrative regulation or administrative or court decree applicable
to the Company nor is it in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
material Existing Instrument filed as an exhibit to the Registration
Statement, except in each such case for such violations or Defaults as
would not, individually or in the aggregate, result in a Material
Adverse Change.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments became effective, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or at the
First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical
data derived therefrom, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than North Carolina
or the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representatives) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
4
<PAGE> 43
EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time this
Agreement is executed.
The opinion of such counsel pursuant to Section 5(h) shall be
rendered to the Representatives at the request of the Company and shall so state
therein. References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding
agreement of, such Selling Shareholder, enforceable in accordance with
its terms, except indemnification and contribution, as to which no
opinion is expressed, and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(ii) To such counsel's knowledge, the execution and delivery
by such Selling Shareholder of, and the performance by such Selling
Shareholder of its obligations under, the Underwriting Agreement and
its Custody Agreement and its Power of Attorney will not contravene or
conflict with, result in a breach of, or constitute a default under,
the articles of incorporation or bylaws, partnership agreement, trust
agreement or other organizational documents, as the case may be, of
such Selling Shareholder, or, to such counsel's knowledge, violate or
contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of any
other agreement or instrument to which such Selling Shareholder is a
party or by which it is bound, or any judgment, order or decree
applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Shareholder.
(iii) To such counsel's knowledge, such Selling Shareholder
has good and valid title to all of the Common Shares which may be sold
by such Selling Shareholder under the Underwriting Agreement and has
the legal right and power, and all authorizations and approvals
required under its articles of incorporation and bylaws, to enter into
the Underwriting Agreement and its Custody Agreement and its Power of
Attorney, to sell, transfer and deliver all of the Common Shares which
may sold by such Selling Shareholder under the Underwriting Agreement
and to comply with its other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of
such Selling Shareholder has been duly authorized, executed and
delivered by such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with
its terms, except as to those provisions relating to indemnification
and contribution, as to which no opinion is expressed, and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
<PAGE> 44
(v) Assuming that the Underwriters are bona fide purchasers
within the meaning of the Uniform Commercial Code as in effect in the
governing jurisdictions, the Underwriters, upon payment therefor in
accordance with the terms of the Underwriting Agreement, will acquire
good and valid title to the Common Shares sold by each Selling
Shareholder free and clear of any security interest, mortgage, pledge,
lien, encumbrance or other claim.
(vi) To such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any
court or governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions
contemplated in the Underwriting Agreement, except as required under
the Securities Act, applicable securities or blue sky laws of any state
or other jurisdiction, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than North
Carolina or the federal law of the United States, to the extent they deem proper
and specified in such opinion, upon the opinion (which shall be dated the First
Closing Date shall be satisfactory in form and substance to the Underwriters,
shall expressly state that the Underwriters may rely on such opinion as if it
were addressed to them and shall be furnished to the Representatives) of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters; provided, however, that such
counsel shall further state that they believe that they and the Underwriters are
justified in relying upon such opinion of other counsel, and (B) as to matters
of fact, to the extent they deem proper, on certificates of the Selling
Shareholders and public officials.
2
<PAGE> 45
EXHIBIT C
, 1997
- --------------------------
Montgomery Securities
Oppenheimer & Co., Inc.
Hambrecht & Quist LLC
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: RF Micro Devices, Inc. (the "Company")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Montgomery
Securities (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock currently or hereafter owned either
of record or beneficially (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date 180 days
after the date of the Prospectus. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
<PAGE> 46
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
- -----------------------------------
Printed Name of Holder
By:
------------------------------
Signature
- -----------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
2
<PAGE> 1
EXHIBIT 4.2
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND NEITHER MAY BE SOLD OR OTHERWISE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (ii) THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER.
RF MICRO DEVICES, INC.
STOCK PURCHASE WARRANT
COMMON STOCK
Warrant No. 1 54,546 Shares
This certifies that, for value received,
ALLEN TELECOM GROUP, INC.
or its assigns, is entitled, subject to the terms and conditions hereinafter
set forth, at any time after the Exercise Date but in any event at or before
3:00 o'clock P.M., Greensboro, North Carolina time, on August 6, 2000, but not
thereafter, to purchase up to 54,546 shares of Common Stock, no par value
("Common Stock"), of RF Micro Devices, Inc., a North Carolina corporation (the
"Company"), such number of shares being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant. The purchase price
payable upon the exercise of this Warrant shall be $2.75 per share, said amount
being subject to adjustment upon the occurrence of the contingencies set forth
in this Warrant (the "Warrant Price").
Upon delivery of this Warrant duly executed, together with
payment of the Warrant Price for the shares of Common Stock thereby purchased,
at the principal office of the Company or at such other address as the Company
may designate by notice in writing to the registered holder hereof, the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock issued upon the exercise of this Warrant will, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with respect
thereto.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
1. Exercise of Warrant. This Warrant may be exercised
in whole, or in part from time to time, at any time after the Exercise Date but
in any event at or prior to 3:00 o'clock P.M., Greensboro, North Carolina time,
on August 6, 2000, but not thereafter, as to all or any part of the number of
54,546 whole shares of Common Stock then subject hereto. The Term "Exercise
Date" as used herein shall mean the earlier of the 90th day following the date
this Warrant was issued or the closing date of a Financing as provided in
paragraph 2 below. In case of any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor and date for the
balance of the shares of Common Stock purchasable hereunder.
2. Number of Shares and Purchase Price. The number of
shares of Common Stock which may be purchased upon the exercise of this Warrant
shall, prior to the 90th day following the first advance made under the Note
described below, for all purposes be deemed to be 36,364 (rather than 54,546)
shares (i.e., two-thirds of the amount on the face hereof). If at any time
prior to the 90th day following the date this Warrant was issued, the Company
shall issue additional shares of Common Stock or any securities convertible
into Common Stock at a price per share different than the Warrant Price per
share at such time, in a single transaction or series of Related Transactions
(as hereinafter defined) that result in the receipt by the Company of cash
proceeds (before deduction of expenses or any discounts or selling commissions)
of at least $1,000,000 (the "Financing"), then, provided the Company shall pay
all outstanding principal, interest and other amounts due under the Note (as
hereinafter defined), the Warrant Price upon the closing of the Financing shall
be reduced or increased, as the case may be, as of the opening of business on
the date of such closing, to that price equal to the aggregate consideration
received by the Company in the Financing for the total number of additional
shares of Common Stock so issued in the Financing divided by the number of
additional shares of Common Stock so issued. As used in this paragraph, the
term "Related Transactions" means sales of the Company's equity securities
within a 30-day period on the same terms and for the same type of
consideration. The term "Note" shall mean that certain subordinated promissory
note of the Company in the principal amount of up to $2 million issued to the
original holder of this Warrant. For the purpose of this paragraph, in the
case of the issue of shares for a consideration other than cash, the
consideration received by the Company therefor shall be deemed to be the fair
value of such consideration as determined in good faith by its Board of
Directors. The issuance of any warrants, options or other subscription rights
with respect to Common Stock and the issuance of any securities convertible
into Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible securities) shall be deemed to be an issuance at
such time of Common Stock.
3. Adjustment of Warrant Price and Number of Shares
Purchasable Hereunder. The Warrant Price and the number of shares purchasable
hereunder shall be subject to further adjustment from time to time in
accordance with the following provisions:
(a) The Company shall notify, in the manner provided in
paragraph 5 below, the registered holder of this Warrant at least 30
days prior to the making of any payment of any cash dividend or
distribution of property by the Company
-2-
<PAGE> 3
otherwise than out of earned surplus, either tangible or intangible
(other than distributions of Common Stock), to the holders of the
Common Stock, in which event the Warrant Price for the shares of
Common Stock then subject to this Warrant shall be reduced by the per
share amount of such dividend or distribution unless and until the
Warrant Price is equal to zero. If and when the Warrant Price is
reduced to zero, the registered holder of this Warrant shall be
entitled to receive, concurrently with the holders of the Common Stock
then outstanding, the per share amount of any such dividend or
distribution with respect to the number of shares of Common Stock then
purchasable upon exercise of this Warrant in the same manner and to
the same extent as if the registered holder of this Warrant were then
the registered owner of such number of shares of Common Stock. For
purposes of this subparagraph (a), the per share amount of any
distribution of property shall be the fair market value thereof as
determined by the Board of Directors in good faith in the resolutions
authorizing any such distribution.
(b) In case the Company shall at any time subdivide the
outstanding shares of its Common Stock, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately
decreased, and in case the Company shall at any time combine the
outstanding shares of its Common Stock, the Warrant Price in effect
immediately prior to such combination shall be proportionately
increased, effective from and after the record date of such
subdivision or combination, as the case may be.
(c) Upon any adjustment in the Warrant Price per share
pursuant to paragraph 2 or subparagraph (b) above, the registered
holder of this Warrant shall thereafter be entitled to purchase, at
the adjusted Warrant Price, the number of shares of Common Stock,
calculated to the nearest full share obtained by (X) multiplying the
number of shares of Common Stock purchasable hereunder immediately
prior to such adjustment by the Warrant Price in effect immediately
prior to such adjustment, and (Y) dividing the product thereof by the
Warrant Price resulting from such adjustment. No such adjustment in
the number of shares that may be purchased upon exercise of this
Warrant shall be required in the event of an adjustment in the Warrant
Price per share pursuant to subparagraph (a).
(d) In the event of the issuance of additional shares of
Common Stock of the Company as a dividend on the Common Stock, from
and after the day which is the record day for the determination of
shareholders entitled to such dividend the registered holder of this
Warrant shall (until another adjustment) be entitled to purchase the
number of shares of Common Stock, calculated to the nearest full
share, obtained by multiplying the number of shares of Common Stock
purchasable hereunder immediately prior to said record date by the
percentage which the number of additional shares constituting any such
dividend is of the total number of shares of Common Stock outstanding
immediately prior
-3-
<PAGE> 4
to said record date plus the number of shares of Common Stock issuable
upon conversion of the outstanding convertible securities or upon
exercise of any outstanding warrants, options or rights (including
those with respect to convertible securities) and adding the result so
obtained to the number of shares of Common Stock purchasable hereunder
immediately prior to said record date.
Upon each adjustment pursuant to this subparagraph (d), the
Warrant Price in effect immediately prior to such adjustment shall be
reduced to an amount determined by dividing (X) the product obtained
by multiplying such Warrant Price by the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment by
(Y) the number of shares of Common Stock purchasable hereunder
immediately following such adjustment.
4. Reorganization, Reclassification, Consolidation or
Merger. If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the Common Stock of the Company (other
than a subdivision or combination of shares provided for in paragraph 3 above),
or any consolidation or merger of the Company with another corporation, the
holder of this Warrant shall thereafter be entitled to receive, during the term
hereof and upon payment of the Warrant Price, the number of shares of stock or
other securities or property of the Company or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which a
holder of the Common Stock of the Company, deliverable upon the exercise of
this Warrant, would have been entitled upon such reorganization,
reclassification, consolidation or merger if this Warrant had been exercised
immediately prior to such reorganization, reclassification, consolidation or
merger; and in any such case, appropriate adjustment (as determined by the
Board of Directors of the Company) shall be made in the application of the
provisions herein set forth with respect to the rights and interest thereafter
of the holder of this Warrant to the end that the provisions set forth herein
(including the adjustment of the Warrant Price and the number of shares
issuable upon the exercise of this Warrant) shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise hereof.
5. Notice of Adjustments. Upon any adjustment of the
Warrant Price and any increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of this Warrant, then, and in each such
case, the Company, within 30 days after a Holder's request, shall give written
notice thereof to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company, which notice shall state the
Warrant Price as adjusted and the increased or decreased number of shares
purchasable upon the exercise of this warrant, setting forth in reasonable
detail the method of calculation of each.
6. Charges, Taxes and Expenses. The issuance of
certificates for shares of Common Stock upon any exercise of this Warrant shall
be made without charge to the holder hereof for any tax or other expense in
respect to the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the
-4-
<PAGE> 5
name of, or in such name or names as may be directed by, the holder of this
Warrant; provided, however, that in the event that certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Warrant, this Warrant when surrendered for exercise shall be accompanied
by an instrument of transfer in form satisfactory to the Company, duly executed
by the holder hereof in person or by an attorney duly authorized in writing and
the holder shall pay all stock transfer taxes payable upon issuance of such
stock certificate.
7. Registration Rights. The holder of this Warrant
shall have such rights to have registered under any federal or state securities
laws the shares of Common Stock issuable upon exercise hereof upon the same
basis and subject to the same terms and conditions (including indemnification)
as provided in that certain Registration Rights Agreement dated December 1,
1993, as amended, between the Company and the investors named therein.
8. Certain Obligations of the Company. The Company
agrees that it will not establish or increase the par value of the shares of
any Common Stock which are at the time issuable upon exercise of this Warrant
above the then prevailing Warrant Price hereunder and that, before taking any
action which would cause an adjustment reducing the Warrant Price hereunder
below the then par value, if any, of the shares of any Common Stock issuable
upon exercise hereof, the Company will take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and non assessable shares of Common Stock at the
Warrant Price as so adjusted.
9. Miscellaneous.
(a) The Company covenants that it will at all times reserve
and keep available, solely for the purpose of issue upon the exercise
hereof, a sufficient number of shares of Common Stock to permit the
exercise hereof in full.
(b) The terms of this Warrant shall be binding upon and
shall inure to the benefit of any successors or assigns of the Company
and of the holder or holders hereof and of the Common Stock issued or
issuable upon the exercise hereof.
(c) No holder of this Warrant, as such, shall be entitled
to vote or receive dividends (except as provided in paragraph 2(a)
hereof) or be deemed to be a shareholder of the Company for any
purpose.
(d) This Warrant may be divided into separate Warrants
covering one share of the Common Stock or any whole multiple thereof,
for the total number of shares of Common Stock then subject to this
Warrant at any time, or from time to time, upon the request of the
registered holder of this Warrant and the surrender of the same to the
Company for such purpose. Such subdivided Warrants shall be issued
promptly by the Company following any such request
-5-
<PAGE> 6
and shall be of the same form and tenor as this Warrant, except for
any requested change in the name of the registered holder stated
herein.
(e) Except as otherwise provided herein, this Warrant and
all rights hereunder are transferrable by the registered holder hereof
in person or by duly authorized attorney on the books of the Company
upon surrender of this Warrant, properly endorsed, to the Company.
The Company may deem and treat the registered holder of this Warrant
at any time as the absolute owner hereof for all purposes and shall
not be affected by any notice to the contrary.
(f) Notwithstanding any provision herein to the contrary,
the holder hereof may not sell, transfer or otherwise assign this
Warrant unless the Company is provided with an opinion of counsel
satisfactory in form and substance to the Company, to the effect that
such sale, transfer or assignment does not violate the Securities Act
of 1933 or applicable state securities laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officers and its corporate seal to be affixed
hereto.
Dated August 7, 1995.
RF MICRO DEVICES INC.
By:
-----------------------------------------
David A. Norbury
President and Chief Executive Officer
-6-
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND NEITHER MAY BE SOLD OR OTHERWISE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER.
RF MICRO DEVICES, INC.
STOCK PURCHASE WARRANT
COMMON STOCK
Warrant No. 2 27,272 Shares
This certifies that, for value received,
ALLEN TELECOM GROUP, INC.
or its assigns, is entitled, subject to the terms and conditions hereinafter
set forth, at any time after the Exercise Date but in any event at or before
3:00 o'clock P.M., Greensboro, North Carolina time, on November 9, 2000, but
not thereafter, to purchase up to 27,272 shares of Common Stock, no par value
("Common Stock"), of RF Micro Devices, Inc., a North Carolina corporation (the
"Company"), such number of shares being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant. The purchase price
payable upon the exercise of this Warrant shall be $2.75 per share, said amount
being subject to adjustment upon the occurrence of the contingencies set forth
in this Warrant (the "Warrant Price").
Upon delivery of this Warrant duly executed, together with
payment of the Warrant Price for the shares of Common Stock thereby purchased,
at the principal office of the Company or at such other address as the Company
may designate by notice in writing to the registered holder hereof, the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock issued upon the exercise of this Warrant will, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with respect
thereto.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
1. Exercise of Warrant. This Warrant may be exercised
in whole, or in part from time to time, at any time after the Exercise Date but
in any event at or prior to 3:00 o'clock P.M., Greensboro, North Carolina time,
on November 9, 2000, but not thereafter, as to all or any part of the number of
27,272 whole shares of Common Stock then subject hereto. The Term "Exercise
Date" as used herein shall mean the earlier of the 90th day following the date
this Warrant was issued or the closing date of a Financing as provided in
paragraph 2 below. In case of any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor and date for the
balance of the shares of Common Stock purchasable hereunder.
2. Number of Shares and Purchase Price. If at any time
prior to the 90th day following the date this Warrant was issued, the Company
shall issue additional shares of Common Stock or any securities convertible
into Common Stock at a price per share different than the Warrant Price per
share at such time, in a single transaction or series of Related Transactions
(as hereinafter defined) that result in the receipt by the Company of cash
proceeds (before deduction of expenses or any discounts or selling commissions)
of at least $1,000,000 (the "Financing"), then, provided the Company shall pay
all outstanding principal, interest and other amounts due under the Note (as
hereinafter defined), the Warrant Price upon the closing of the Financing shall
be reduced or increased, as the case may be, as of the opening of business on
the date of such closing, to that price equal to the aggregate consideration
received by the Company in the Financing for the total number of additional
shares of Common Stock so issued in the Financing divided by the number of
additional shares of Common Stock so issued. As used in this paragraph, the
term "Related Transactions" means sales of the Company's equity securities
within a 30-day period on the same terms and for the same type of
consideration. The term "Note" shall mean that certain subordinated promissory
note of the Company in the principal amount of up to $2 million issued to the
original holder of this Warrant. For the purpose of this paragraph, in the
case of the issue of shares for a consideration other than cash, the
consideration received by the Company therefor shall be deemed to be the fair
value of such consideration as determined in good faith by its Board of
Directors. The issuance of any warrants, options or other subscription rights
with respect to Common Stock and the issuance of any securities convertible
into Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible securities) shall be deemed to be an issuance at
such time of Common Stock.
3. Adjustment of Warrant Price and Number of Shares
Purchasable Hereunder. The Warrant Price and the number of shares purchasable
hereunder shall be subject to further adjustment from time to time in
accordance with the following provisions:
(a) The Company shall notify, in the manner provided in
paragraph 5 below, the registered holder of this Warrant at least 30
days prior to the making of any payment of any cash dividend or
distribution of property by the Company otherwise than out of earned
surplus, either tangible or intangible (other than distributions of
Common Stock), to the holders of the Common Stock, in which event the
Warrant Price for the shares of Common Stock then subject to this
-2-
<PAGE> 3
Warrant shall be reduced by the per share amount of such dividend or
distribution unless and until the Warrant Price is equal to zero. If
and when the Warrant Price is reduced to zero, the registered holder
of this Warrant shall be entitled to receive, concurrently with the
holders of the Common Stock then outstanding, the per share amount of
any such dividend or distribution with respect to the number of shares
of Common Stock then purchasable upon exercise of this Warrant in the
same manner and to the same extent as if the registered holder of this
Warrant were then the registered owner of such number of shares of
Common Stock. For purposes of this subparagraph (a), the per share
amount of any distribution of property shall be the fair market value
thereof as determined by the Board of Directors in good faith in the
resolutions authorizing any such distribution.
(b) In case the Company shall at any time subdivide the
outstanding shares of its Common Stock, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately
decreased, and in case the Company shall at any time combine the
outstanding shares of its Common Stock, the Warrant Price in effect
immediately prior to such combination shall be proportionately
increased, effective from and after the record date of such
subdivision or combination, as the case may be.
(c) Upon any adjustment in the Warrant Price per share
pursuant to paragraph 2 or subparagraph (b) above, the registered
holder of this Warrant shall thereafter be entitled to purchase, at
the adjusted Warrant Price, the number of shares of Common Stock,
calculated to the nearest full share obtained by (X) multiplying the
number of shares of Common Stock purchasable hereunder immediately
prior to such adjustment by the Warrant Price in effect immediately
prior to such adjustment, and (Y) dividing the product thereof by the
Warrant Price resulting from such adjustment. No such adjustment in
the number of shares that may be purchased upon exercise of this
Warrant shall be required in the event of an adjustment in the Warrant
Price per share pursuant to subparagraph (a).
(d) In the event of the issuance of additional shares of
Common Stock of the Company as a dividend on the Common Stock, from
and after the day which is the record day for the determination of
shareholders entitled to such dividend the registered holder of this
Warrant shall (until another adjustment) be entitled to purchase the
number of shares of Common Stock, calculated to the nearest full
share, obtained by multiplying the number of shares of Common Stock
purchasable hereunder immediately prior to said record date by the
percentage which the number of additional shares constituting any such
dividend is of the total number of shares of Common Stock outstanding
immediately prior to said record date plus the number of shares of
Common Stock issuable upon conversion of the outstanding convertible
securities or upon exercise of any outstanding warrants, options or
rights (including those with respect to convertible
-3-
<PAGE> 4
securities) and adding the result so obtained to the number of shares
of Common Stock purchasable hereunder immediately prior to said record
date.
Upon each adjustment pursuant to this subparagraph (d), the Warrant
Price in effect immediately prior to such adjustment shall be reduced
to an amount determined by dividing (X) the product obtained by
multiplying such Warrant Price by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment by (Y) the
number of shares of Common Stock purchasable hereunder immediately
following such adjustment.
4. Reorganization, Reclassification, Consolidation or
Merger. If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the Common Stock of the Company (other
than a subdivision or combination of shares provided for in paragraph 3 above),
or any consolidation or merger of the Company with another corporation, the
holder of this Warrant shall thereafter be entitled to receive, during the term
hereof and upon payment of the Warrant Price, the number of shares of stock or
other securities or property of the Company or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which a
holder of the Common Stock of the Company, deliverable upon the exercise of
this Warrant, would have been entitled upon such reorganization,
reclassification, consolidation or merger if this Warrant had been exercised
immediately prior to such reorganization, reclassification, consolidation or
merger; and in any such case, appropriate adjustment (as determined by the
Board of Directors of the Company) shall be made in the application of the
provisions herein set forth with respect to the rights and interest thereafter
of the holder of this Warrant to the end that the provisions set forth herein
(including the adjustment of the Warrant Price and the number of shares
issuable upon the exercise of this Warrant) shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise hereof.
5. Notice of Adjustments. Upon any adjustment of the
Warrant Price and any increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of this Warrant, then, and in each such
case, the Company, within 30 days after a Holder's request, shall give written
notice thereof to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company, which notice shall state the
Warrant Price as adjusted and the increased or decreased number of shares
purchasable upon the exercise of this warrant, setting forth in reasonable
detail the method of calculation of each.
6. Charges, Taxes and Expenses. The issuance of
certificates for shares of Common Stock upon any exercise of this Warrant shall
be made without charge to the holder hereof for any tax or other expense in
respect to the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of, or in such name or names as may be directed by, the holder of this Warrant;
provided, however, that in the event that certificates for shares of Common
Stock are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise shall be accompanied by an
instrument of transfer in form satisfactory to the Company,
-4-
<PAGE> 5
duly executed by the holder hereof in person or by an attorney duly authorized
in writing and the holder shall pay all stock transfer taxes payable upon
issuance of such stock certificate.
7. Registration Rights. The holder of this Warrant
shall have such rights to have registered under any federal or state securities
laws the shares of Common Stock issuable upon exercise hereof upon the same
basis and subject to the same terms and conditions (including indemnification)
as provided in that certain Registration Rights Agreement dated December 1,
1993, as amended, between the Company and the investors named therein.
8. Certain Obligations of the Company. The Company
agrees that it will not establish or increase the par value of the shares of
any Common Stock which are at the time issuable upon exercise of this Warrant
above the then prevailing Warrant Price hereunder and that, before taking any
action which would cause an adjustment reducing the Warrant Price hereunder
below the then par value, if any, of the shares of any Common Stock issuable
upon exercise hereof, the Company will take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and non assessable shares of Common Stock at the
Warrant Price as so adjusted.
9. Miscellaneous.
(a) The Company covenants that it will at all times
reserve and keep available, solely for the purpose of issue upon the
exercise hereof, a sufficient number of shares of Common Stock to
permit the exercise hereof in full.
(b) The terms of this Warrant shall be binding upon and
shall inure to the benefit of any successors or assigns of the Company
and of the holder or holders hereof and of the Common Stock issued or
issuable upon the exercise hereof.
(c) No holder of this Warrant, as such, shall be entitled
to vote or receive dividends (except as provided in paragraph 2(a)
hereof) or be deemed to be a shareholder of the Company for any
purpose.
(d) This Warrant may be divided into separate Warrants
covering one share of the Common Stock or any whole multiple thereof,
for the total number of shares of Common Stock then subject to this
Warrant at any time, or from time to time, upon the request of the
registered holder of this Warrant and the surrender of the same to the
Company for such purpose. Such subdivided Warrants shall be issued
promptly by the Company following any such request and shall be of the
same form and tenor as this Warrant, except for any requested change
in the name of the registered holder stated herein.
(e) Except as otherwise provided herein, this Warrant and
all rights hereunder are transferrable by the registered holder hereof
in person or by duly
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<PAGE> 6
authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and
treat the registered holder of this Warrant at any time as the
absolute owner hereof for all purposes and shall not be affected by
any notice to the contrary.
(f) Notwithstanding any provision herein to the contrary,
the holder hereof may not sell, transfer or otherwise assign this
Warrant unless the Company is provided with an opinion of counsel
satisfactory in form and substance to the Company, to the effect that
such sale, transfer or assignment does not violate the Securities Act
of 1933 or applicable state securities laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officers and its corporate seal to be affixed
hereto.
Dated November 10, 1995.
RF MICRO DEVICES INC.
By:
-------------------------------------
David A. Norbury
President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 4.4
NEITHER THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE NOR THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND NEITHER
THIS NOTE NOR SUCH SECURITIES MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS UNLESS RF
MICRO DEVICES, INC. RECEIVES AN OPINION OF COUNSEL, WHICH MAY BE IN- HOUSE
COUNSEL OF HOLDER, REASONABLY ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT
REQUIRED.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$10,000,000.00 Greensboro, North Carolina June 6, 1996
FOR VALUE RECEIVED, the undersigned, RF MICRO DEVICES, INC., a
North Carolina corporation ("Maker"), promises to pay to the order of TRW INC.
("Payee"; Payee and any subsequent holder[s] hereof individually and
collectively referred to as the "Holder"), the sum of up to TEN MILLION and
NO/100 DOLLARS ($10,000,000.00), or so much thereof as shall have been advanced
from time to time and remain unpaid, together with interest thereon, all as
hereinafter provided.
1. Principal Advances; Interest and Principal Payments.
Provided no Event of Default (as hereinafter defined) shall have occurred and be
continuing, Maker shall be entitled, at any time and from time to time prior to
December 6, 1997, to request advances of principal under this Note exclusively
(unless Holder otherwise agrees in writing) for use in funding the planning and
construction and the operational, working capital and related requirements of
the Foundry to be used to manufacture Licensed Products described in the License
and Technical Assistance Agreement dated of even date herewith (the "License
Agreement") between Payee and Maker (the "Permitted Uses"). Each request for an
advance of principal hereunder shall (i) be in writing and addressed to Holder
at Holder's principal corporate office as shown in paragraph 7 below, or at such
other place as Holder may designate to Maker in writing, (ii) be delivered to
Holder in accordance with the notice provisions of paragraph 7 not less than two
business days prior to the date of the requested advance, and (iii) specify
(with appropriate wire transfer instructions) the amount of the advance and the
account of Maker to which such advance should be deposited. Every request for
advance shall contain or be accompanied by the following:
(a) A letter, signed by the President or Chief Financial
Officer of Maker describing in reasonable detail the intended use of
the proceeds of such advance (which use must be a Permitted Use);
(b) An officer's certificate signed by the President and Chief
Financial Officer of Maker certifying that there has been no default of
this Note or any event which, with notice or lapse of time, or both,
would constitute such a default; and
(c) Such additional information, certificates and other
documents as may be reasonably required by Holder for making such
advance.
<PAGE> 2
Not later than 2:00 p.m., Greensboro, North Carolina time, on the date specified
for the advance in Maker's written notice, the Holder shall transfer or cause to
be transferred the amount of the requested advance for deposit, in immediately
available funds, to Maker's account as specified in Maker's written notice.
Maker agrees that Payee shall be authorized to complete Schedule A attached
hereto and incorporated herein by reference to evidence advances made under this
Note.
The unpaid principal amount of this Note shall bear simple
interest from the date of advance until paid at the rate of six percent (6%) per
annum.
Subject to the prior conversion of this Note in accordance
with paragraph 3, all principal and accrued interest on this Note is payable in
full in a lump sum on June 6, 2003 (the "Maturity Date").
Subject to the prior conversion of this Note in accordance
with paragraph 3, or if an Event of Default (as defined herein) occurs and is
continuing (in which case the amounts due will be accelerated), all principal
and accrued interest shall be made in lawful money of the United States of
America and shall be made to Holder at Holder's principal corporate office as
shown in paragraph 7 or at such other place as Holder may designate to Maker in
writing.
Regardless of any other provision of this Note or in any
documents otherwise relating hereto, no Holder of this Note shall ever be
entitled to receive, collect or apply as interest on the principal of this Note
any amount in excess of the maximum rate of interest allowable under applicable
law, and if any Holder of this Note ever receives, collects or applies as
interest hereon any such excess, such amount that would be excessive interest
shall be deemed a partial prepayment of principal and shall be treated as such,
and if the principal is paid in full, any remaining excess shall forthwith be
paid to Maker. In determining whether the interest paid or payable on the
principal outstanding under this Note exceeds the maximum rate of interest
allowable under applicable law, Maker and Payee shall, to the maximum extent
permitted under applicable law, (a) characterize any nonprincipal payment as an
expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof and (c) spread the total amount of interest
throughout the entire contemplated term hereof; provided that if the
indebtedness evidenced hereby is paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received for the actual
period of existence thereof exceeds the maximum rate of interest allowable under
applicable law, Payee shall either apply or refund to Maker the amount of such
excess as herein provided, and in such event, Payee shall not be subject to any
penalties provided by any laws for contracting for, charging or receiving
interest in excess of the maximum rate of interest allowable under applicable
law.
2. Prepayments. This Note may be prepaid prior to the Payment
Date, at the option of Maker, as a whole at any time, or in part from time to
time (in multiples of $10,000), without premium or penalty. Maker shall give
notice of its intent to prepay this Note by giving written notice thereof to the
Holder not less than five nor more than 20 days prior to the date fixed for such
prepayment in such notice and shall specify the amount to be prepaid and the
date fixed for such prepayment. Upon the giving of notice of any prepayment,
Maker will prepay (unless Holder has exercised the conversion rights granted in
paragraph 3 below) on the date therein fixed for prepayment the amount to be
prepaid as specified in the notice. Any prepayment received by Holder shall be
applied first to interest accrued to the date of prepayment and then to
principal. Upon any partial prepayment or conversion (as provided in paragraph 3
below) of this Note, this Note shall, at the option of the Holder thereof, be
either (i) surrendered to Maker in exchange for a new Note
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<PAGE> 3
in a principal amount equal to the principal amount remaining unpaid on the Note
surrendered (and for purposes of the foregoing provisions of this paragraph to
be deemed to be the same Note and not a novation of the indebtedness represented
thereby), or (ii) made available to Maker at the principal office of the Holder
of such Note for notation thereon of the portion of the principal so prepaid,
except that, so long as the Payee shall hold this Note, Maker agrees that the
Payee may make notation of any portion of the principal so paid on the back of
this Note.
3. Conversion of Note.
(a) General. The Holder shall have the right at such Holder's
option, at any time and from time to time up to and including December
31, 1998, to convert, from time to time, subject to the terms and
provisions of this paragraph 3, all or any portion of the then
outstanding principal of this Note into RFMD Shares (as defined below)
at the price of $9.00 per share; or, in case an adjustment of such
price has taken place pursuant to the provisions of paragraph 3(c),
then at the price as last adjusted (referred to herein as the
"Conversion Price") upon surrender of this Note, the principal of which
(or any portion thereof) is so to be converted, to Maker at any time
during usual business hours together with written notice (hereinafter
referred to as "Conversion Notice"), that Holder elects to convert this
Note into such RFMD Shares in accordance with the provisions of this
paragraph 3, and specifying the name or names in which the RFMD Shares
issuable upon conversion shall be registered, together with the
addresses of the persons so named, and, if so required by Maker,
accompanied by a written instrument or instruments of transfer in form
satisfactory to Maker duly executed by the registered Holder or its
attorney duly authorized in writing. Notwithstanding the foregoing,
Holder agrees that prior to delivery of the Conversion Notice it shall
comply with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). Maker shall be
prohibited from making any prepayments hereunder until five days
following the earlier of the date any waiting period imposed by the HSR
Act terminates or lapses or Holder withdraws its Conversion Notice as
provided below. If action is taken by the Federal Trade Commission or
the United States Department of Justice to enjoin Holder's exercise of
the conversion privilege provided in this paragraph 3, Maker agrees to
reasonably cooperate with Holder, at Holder's request and expense, to
contest such enjoinment. Holder may, at any time prior to the final
settlement in its favor of any action to prevent the exercise of its
conversion rights, withdraw the Conversion Notice. Subject to the
foregoing, Holder shall convert this Note in full immediately prior to
the closing of a Public Offering (as defined below) in which the per
share price to the public is at least $12.
The term "RFMD Shares" shall mean, (i) if the proposed
conversion date is prior to the closing of a Public Offering (as
hereinafter defined), shares of a class or series of Maker's
convertible preferred stock to be created (in accordance with the
provisions of Article 2 of the Maker's Articles of Incorporation) with
an original issue price of $9.00 per share (the "New Preferred
Shares"), which New Preferred Shares shall have preferences,
limitations and relative rights, including dividend, liquidation,
conversion, voting, redemption and other rights, preferences and
limitations which are substantially identical to, and ranking on a
parity with, the preferences, limitations and relative rights,
including dividend, liquidation, conversion, voting, redemption and
other rights, preferences and limitations of (i) the class of the
Maker's Preferred Stock the shares of which were issued immediately
prior to the first to occur of (x) any conversion of all or any portion
of the principal amount of this Note or (y) the exercise in whole or in
part of Maker's Warrant No. 3, provided that
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<PAGE> 4
such shares were issued in a bona fide transaction or series of related
transactions, the aggregate gross proceeds from which payable to the
Maker were at least $5,000,000 or (ii) if such proceeds were less than
$5,000,000, then shares of Maker's Class C Convertible Preferred Stock,
except that in either event the dividend, liquidation and redemption
amounts of the New Preferred Stock may be different insofar as such
differences are based solely on the relative differences in original
issue prices of such stock and the New Preferred Stock or (ii) after a
Public Offering, shares of Maker's Common Stock, no par value ("Common
Stock"). "Public Offering" means an underwritten public offering
pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale to the public of
Common Stock resulting in gross proceeds to Maker (before deduction of
underwriters' commissions and expenses) of not less than $15,000,000
and at a price per share to the public which implies a pre-financing
fully diluted valuation of Maker of at least $75,000,000.
(b) Procedures. As promptly as practicable after the
surrender, as herein provided, of this Note for conversion, in whole or
in part, and the receipt of the Conversion Notice relating thereto,
Maker shall deliver to Holder certificates representing the number of
fully paid and nonassessable RFMD Shares into which this Note may be
converted in accordance with the provisions of this paragraph 3 and, if
such conversion was partial, deliver to Holder a new Note as provided
in paragraph 2 above. Subject to the following provisions of this
paragraph 3(b), such conversion shall be deemed to have been made at
the close of business on the date that this Note shall have been
surrendered for conversion together with the Conversion Notice, so that
the rights of the Holder of this Note as a Noteholder shall cease at
such time and the person or persons entitled to receive the RFMD Shares
upon conversion of this Note shall be treated for all purposes as
having become the record holder or holders of such RFMD Shares at such
time and such conversion shall be at the Conversion Price in effect at
such time and all accrued but unpaid interest on the principal amount
so converted shall be forgiven. Notwithstanding the foregoing, no such
surrender on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person or persons
entitled to receive the RFMD Shares upon such conversion as the record
holder or holders of such RFMD Shares on such date, but such surrender
shall be effective to constitute the person or persons entitled to
receive such RFMD Shares as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on
which such stock transfer books are open and such conversion shall be
at the Conversion Price in effect at the close of business on such next
succeeding day. If the last day for the exercise of the conversion
right shall not be a business day, then such conversion right may be
exercised on the next succeeding business day.
(c) Adjustments. The provisions of this paragraph 3(c) shall,
except as provided in paragraph 3(c)(i) below, apply only in the event
the RFMD Shares to be issued upon conversion of this Note are shares of
Common Stock.
(i) If Maker shall at any time (a) make a subdivision
of shares of Common Stock outstanding or (b) pay a dividend or
make a distribution in shares of Common Stock, the Conversion
Price in effect immediately prior to such action shall be
proportionately decreased, and in case Maker shall at any time
reduce the number of shares of Common Stock outstanding, by
combination or otherwise, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased. If the RFMD Shares
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<PAGE> 5
are New Preferred Shares and Maker takes any action described
in the foregoing sentence, the Conversion Price in effect
immediately prior to each of such events will be adjusted
proportionately to reflect such event; provided, however, that
such proportionate adjustment may instead be made pursuant to
the terms of the New Preferred Shares. Any adjustment made
pursuant to this paragraph 3(c)(i) shall, in the case of a
subdivision or combination, become effective as of the
effective date thereof, and shall, in the case of a dividend
or distribution, become effective as of the close of business
on the record date for the determination of shareholders
entitled thereto.
(ii) In the event Maker at any time or from time to
time shall make or issue, or fix a record date for the
determination of holders of shares of Common Stock entitled to
receive, a dividend or other distribution payable in
securities of Maker other than shares of Common Stock, then
and in each such event provision shall be made so that Holder
shall receive upon conversion hereof in addition to the number
of shares of Common Stock receivable hereupon, the amount of
securities of Maker that it would have received had this Note
been converted into shares of Common Stock on the date of such
event and had thereafter, during the period from the date of
such event to and including the conversion date, retained such
securities receivable by it as aforesaid during such period,
giving application to all other adjustments called for during
such period under this paragraph 3(c) with respect to the
rights of Holder.
(iii) If the shares of Common Stock issuable upon the
conversion of this Note shall be changed into the same or a
different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares
or stock dividend provided for in paragraph 3(c)(i) above, or
a reorganization, merger, consolidation or sale of assets
provided for in paragraph 3(c)(iv) below), then and in each
such event Holder shall have the right thereafter to convert
this Note into the kind and amounts of shares of stock and
other securities and property receivable upon such
reorganization, reclassification or other change, by holders
of the number of shares of Common Stock into which this Note
might have been converted immediately prior to such
reorganization, reclassification or change, all subject to
further adjustment as provided herein.
(iv) If at any time or from time to time there shall
be a capital reorganization of the shares of Common Stock
(other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this paragraph
3(c)) or a merger or consolidation of Maker with or into
another corporation, or the sale of all or substantially all
Maker's properties and assets to any other person, then, as a
part of such reorganization, merger, consolidation or sale,
provision shall be made so that Holder shall thereafter be
entitled to receive upon conversion of this Note, the number
of shares of stock or other securities or property of Maker,
or of the successor corporation resulting from such merger or
consolidation or sale, to which a
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<PAGE> 6
holder of that number of shares of Common Stock deliverable
upon conversion of this Note would have been entitled on such
capital reorganization, merger, consolidation or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph 3(c) with
respect to the rights of Holder after the reorganization,
merger, consolidation or sale to the end that the provisions
of this paragraph 3(c) (including adjustment of the Conversion
Price then in effect and the number of shares issuable upon
conversion of this Note) shall be applicable after that event
as nearly equivalent as may be practicable.
(d) Computation. In each case of an adjustment or readjustment
of the Conversion Price or the number of RFMD Shares or other
securities issuable upon conversion of this Note, Maker shall, at its
expense, cause its independent certified public accountants to compute
such adjustment or readjustment in accordance herewith and to prepare a
certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to the Holder
of this Note as provided in paragraph 7 below within 30 days after such
adjustment occurs. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
(e) Issuance of Stock. The Company agrees that at all times it
will have a sufficient number of authorized but unissued shares to
permit conversion of this Note and will reserve 1,111,111 shares of its
Common Stock for such purposes. The Company covenants that all RFMD
Shares which shall be issued upon exercise of Holder's rights under
this paragraph 3 shall be duly and validly issued, fully-paid and
non-assessable.
(f) Certificates. The issuance of certificates for RFMD Shares
upon the conversion of this Note shall be made without charge to the
converting Holder for any tax in respect of the issuance of such
certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, Holder; provided,
however, that Maker shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the
Holder and Maker shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to Maker the amount of such tax or
shall have established to the satisfaction of Maker that such tax has
been paid.
(g) Termination. Notwithstanding anything in this Note to the
contrary, at such time as the total number of RFMD Shares into which
portions of the outstanding principal amount hereof have then been
converted, plus the number of RFMD Shares purchased upon exercise of
Maker's Warrant No. 3, equals 1,111,111 (subject to adjustment as
provided in paragraph 3(c)), the Holder shall no longer have the right
to convert any remaining balance of this Note into RFMD Shares.
4. Subordination Provisions.
(a) Applicable Provisions. Maker covenants and agrees, and
Payee and each subsequent Holder of this Note by acceptance hereof
likewise covenants and agrees, that, anything in this Note to the
contrary notwithstanding, the payment of all indebtedness
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<PAGE> 7
evidenced by this Note is subordinated to certain indebtedness of Maker
in accordance with the terms and conditions of and to the extent and in
the manner set forth in paragraphs 4(b) through (g).
(b) Subordination in General. Notwithstanding anything in this
Note to the contrary, the payment of all indebtedness evidenced by this
Note is subordinated to all Senior Indebtedness (as hereinafter
defined) of Maker, whether such Senior Indebtedness is outstanding on
the date hereof or is hereafter created, and all extensions, renewals
or refundings of such Senior Indebtedness, unless, by the terms of the
instrument creating or evidencing such Senior Indebtedness, it is
specifically provided that such Senior Indebtedness is not superior in
right of payment to the indebtedness evidenced by this Note. For
purposes of this Note, the term "Senior Indebtedness" shall mean (i)
indebtedness of Maker for money heretofore, now or hereafter borrowed
by Maker from Silicon Valley Bank and any of its affiliates or
divisions, its successors and assigns ("SVB") or any other commercial
lender in an amount up to $25 million in the aggregate, (ii)
indebtedness of Maker for money heretofore, now or hereafter borrowed
by Maker ("Foundry Debt") from SVB or any other lender in excess of the
amount set forth in (i) used solely for the planning and construction
and the operational, working capital and related requirements of the
Foundry to be used to manufacture Licensed Products described in the
License Agreement, (iii) any modifications, renewals, extensions or
refundings of indebtedness of the kind described in clauses (i) and
(ii) preceding in an amount up to $25 million in the aggregate, plus
any amount of Foundry Debt, and (iv) such other indebtedness of Maker
as may be consented to in writing by the Holder of this Note.
(c) Subordination Upon Distribution of Assets. Upon any
distribution of the assets of Maker in any dissolution, winding up,
liquidation or reorganization of Maker (whether in bankruptcy,
insolvency or receivership proceedings, or upon an assignment for the
benefit of creditors, or any other marshaling of the assets and
liabilities of Maker or otherwise), the holders of all Senior
Indebtedness shall first be entitled to receive payment in full, in
accordance with the terms of such Senior Indebtedness, of the principal
thereof (and premium, if any) and the interest and all other amounts
due thereon, or with respect thereto (including without limitation all
interest accruing after the commencement by Maker of any bankruptcy,
insolvency or similar proceedings) before any Holder of this Note is
entitled to receive any payment upon the principal (and premium, if
any) or interest on indebtedness evidenced by this Note; and, upon any
such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets of Maker of any kind or character,
whether in cash, property or securities (other than shares of stock of
Maker as reorganized or adjusted or readjusted or securities of Maker
or any other entity provided for by its plan of reorganization or
readjustment, the payment of which is subordinate to the payment of all
Senior Indebtedness that may at the time be outstanding and which are
provided for by a plan or reorganization or readjustment that does not
alter the rights of the holders of Senior Indebtedness at the time
outstanding and under which such other entity, if any, assumes all
Senior Indebtedness at the time outstanding), to which the Holder of
this Note would be entitled except for the provisions of this paragraph
4(c) shall be made by the liquidating trustee or agent or other persons
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders
of Senior Indebtedness or their representative or representatives or to
the trustee or trustees under any indenture under which such
instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on
account
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<PAGE> 8
of the principal of (and premium, if any) and interest and other
amounts due on the Senior Indebtedness held or represented by each, to
the extent necessary to pay in full all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness.
Notwithstanding the foregoing, if, upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution
of assets of Maker of any kind or character, whether in cash, property
or securities (other than shares of stock of Maker as reorganized or
readjusted or securities of Maker or any other entity provided for by
its plan of reorganization or readjustment, the payment of which is
subordinate to the payment of all Senior Indebtedness that may at the
time be outstanding and which are provided for by a plan of
reorganization or readjustment that does not alter the rights of the
holders of Senior Indebtedness at the time outstanding and under which
such other entity, if any, assumes all Senior Indebtedness at the time
outstanding), shall be received by a Holder of this Note before all
Senior Indebtedness is paid in full, such payment or distribution shall
be paid over to the holders of such Senior Indebtedness or their
representative or representatives or to the trustee under any indenture
under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, for application to the
payment of all Senior Indebtedness remaining unpaid until all of such
Senior Indebtedness shall have been paid in full, after giving effect
to the concurrent payment or distribution (or provision therefor) to
the holders of any of such Senior Indebtedness. In addition, if Holder
receives a payment or distribution as provided above at a time when it
has actual knowledge that it is obligated to pay over such amount, it
shall upon receipt use its best efforts to segregate the proceeds
thereof during the time they are in the possession of Holder.
(d) Maturity of Other Indebtedness. Upon the maturity of any
Senior Indebtedness by lapse of time, acceleration or otherwise, all
principal of, and interest on, all such matured Senior Indebtedness
shall first be paid in full before any payment on account of principal
of or interest on this Note is made.
(e) Default on Senior Indebtedness. Upon a default in the
payment of principal or interest with respect to any Senior
Indebtedness (including a default in the payment of principal and
interest upon stated maturity), or upon the happening of any event of
default with respect to any Senior Indebtedness, as defined in the
instrument under which the same is outstanding, permitting the holder
or holders thereof to accelerate the maturity thereof, then, during the
continuance of any such default and for a period not to exceed one
hundred twenty (120) days from the date of such default, no amount
shall be paid by Maker, and the Holder of this Note shall not be
entitled to receive, any amount in respect of the principal of, or
interest on, this Note unless and until (i) such default shall have
been remedied or waived, or (ii) expiration of the period of one
hundred twenty (120) days from the date of such default, whichever
shall first occur.
Nothing contained in this paragraph 4 of this Note shall
affect the obligation of Maker to make, or prevent Maker from making,
payment (or any prepayments permitted hereunder) of principal of, or
interest on, this Note, except under the conditions described in the
provisions of paragraphs 4(c) or (d) or this paragraph 4(e).
Notwithstanding any other provision of this Note, no payment of any
kind (including, without limitation, prepayments) shall be made under
this Note if the making of such payment would cause any event of
default to occur under the Senior Indebtedness.
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<PAGE> 9
(f) Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Holder of this Note shall be subrogated to the rights
of the holders of all Senior Indebtedness to receive payments or
distributions of assets of Maker applicable to the Senior Indebtedness
until this Note shall be paid in full and none of the payments or
distributions to holders of the Senior Indebtedness to which the Holder
or this Note would be entitled except for the provisions of the
foregoing paragraphs 4(c) through (d) of this Note shall, as between
Maker, its creditors, and the Holders of this Note, be deemed to be a
payment by Maker to, or on account of, Senior Indebtedness of Maker; it
being understood that the subordination provisions of this Note are and
are intended solely for the purpose of defining the relative rights of
the Holder of this Note, on the one hand, and the holders of the Senior
Indebtedness on the other hand, and nothing contained in this Note is
intended to or shall impair, as between Maker, its creditors, and the
Holders of this Note, the obligation of Maker, which is unconditional
and absolute, to pay to the Holder of this Note the principal of, and
interest on, this Note as and when the same shall become due and
payable in accordance with its terms, or to affect the relative rights
of the Holder of this Note and creditors of Maker other than holders of
Senior Indebtedness, nor shall anything herein or therein prevent the
Holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder, subject to the rights, if any,
under the subordination provisions of this Note, of the holders of
Senior Indebtedness in respect of cash, property or securities of Maker
received on the exercise of any such remedy.
(g) Reliance by Holders of Senior Indebtedness. Each Holder of
this Note agrees that each holder of Senior Indebtedness, whether
outstanding at the date of this Note or incurred hereafter, shall have
purchased or accepted or will purchase or accept such Senior
Indebtedness in reliance upon the subordination provisions contained in
this Note. In the event of any legal action by the holder of any Senior
Indebtedness to enforce its rights hereunder, such holder shall be
entitled to recover, in addition to such other relief as may be
granted, all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in such action.
(h) Specific Provisions in Favor of SVB. Without limiting the
generality of the foregoing provisions, the Holder of this Note agrees
to the following provisions in favor of SVB:
(i) The Holder of this Note shall promptly deliver to
SVB in the form received (except for endorsements or
assignment by the holder of this Note where required by SVB)
for application to its Senior Indebtedness any payment,
distribution, security or proceeds received by the Holder of
this Note with respect to its subordinated debt other than in
accordance with the subordination provisions contained herein.
In addition, if Holder receives a payment or distribution as
provided above at a time when it has actual knowledge that it
is obligated to pay over such amount, it shall upon receipt
use its best efforts to segregate the proceeds thereof during
the time they are in the possession of Holder.
(ii) If, at any time within two years after payment
in full of its Senior Indebtedness, any payments of the Senior
Indebtedness must be disgorged by SVB for any reason
(including, without limitation, the bankruptcy of Maker), the
subordination provisions herein provided and the
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<PAGE> 10
relative rights and priorities set forth herein shall be
reinstated as to all such disgorged payments as though such
payments had not been made and the Holder of this Note shall
immediately pay over to SVB all payments received with respect
to this Note to the extent that such payments would have been
prohibited hereunder.
(iii) At any time and from time to time, without
notice to the Holder of this Note, SVB may take such actions
(other than increasing the maximum principal amount) with
respect to its Senior Indebtedness as SVB, in its sole
discretion, may deem appropriate, including, without
limitation, terminating advances to Maker, extending the time
of payment, increasing applicable interest rates, renewing,
compromising or otherwise amending the terms of any documents
affecting the Senior Indebtedness and any collateral securing
the Senior Indebtedness, and enforcing or failing to enforce
any rights against Maker or any other person. No such action
or inaction or delay shall impair or otherwise affect SVB's
rights hereunder. The Holder of this Note waives, but only to
the extent of SVB's claims with respect to Senior
Indebtedness, the benefits, if any, of any statutory or common
law rule that may permit a subordinating creditor to assert
any defenses of a surety or guarantor, and the Holder of this
Note agrees that it shall not assert any such defenses.
5. Covenants. The Maker covenants and agrees that at all times
until this Note shall be repaid in full, it shall
(a) comply in all material respects with all applicable laws;
(b) use the proceeds hereof only for the planning and construction
and the operational, working capital and related requirements
of the Foundry to be used to manufacture Licensed Products
described in the License Agreement;
(c) maintain a sufficient number of authorized RFMD Shares to
allow for the full conversion of this Note;
(d) pay and promptly discharge, when due, all taxes, assessments,
governmental charges and claims for labor, materials and
supplies incurred in the ordinary course of business, except
in those instances where the validity or amount thereof is
being contested in good faith and by appropriate legal or
administrative proceedings, and an adequate reserve therefor
has been established on its books;
(e) maintain books of account in accordance with generally
accepted accounting principles, consistently applied, provide
Holder upon reasonable notice the opportunity to inspect
Maker's financial records and deliver to Holder within 15 days
after receipt by Maker all audited financial statements of
Maker;
(f) preserve and keep in full force and effect its corporate
existence and take all reasonable steps to maintain its
property in good order and repair;
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<PAGE> 11
(g) not incur any indebtedness (i.e. liability for money borrowed
and specifically excluding capital lease obligations) in
excess of an aggregate amount of $25 million except for
Foundry Debt; and
(h) not authorize, declare or pay any cash dividends until such
time as the Foundry described in (b) above is an Operational
Foundry (as defined in the License Agreement).
6. Events of Default. The occurrence or existence of any one
of the following events or conditions shall constitute an "Event of Default":
(a) Maker shall fail to pay the principal of, or interest on,
this Note when the same becomes due and payable in accordance with the
terms hereof;
(b) Maker shall fail to perform any covenant or agreement made
herein (other than payment as provided in (a) above) and such failure
shall continue for a period of thirty (30) days after receipt from
Holder of a written notice requesting Holder to cure such failure; or
(c) Maker makes a general assignment for the benefit of its
creditors or applies to any tribunal for the appointment of a trustee
or receiver of a substantial part of the assets of Maker, or commences
any proceedings relating to Maker under any bankruptcy, reorganization
arrangement, insolvency, readjustment of debts, dissolution or other
liquidation law of any jurisdiction; or any such application is filed,
or any such proceedings are commenced against Maker and Maker indicates
its consent to such proceedings, or an order or decree is entered by a
court of competent jurisdiction appointing such trustee or receiver, or
adjudicating Maker bankrupt or insolvent, or approving the petition in
any such proceedings, and such order or decree remains unstayed and in
effect for sixty (60) days; or
(d) The acceleration of any indebtedness aggregating
$1,000,000 because of a default that has not been cured within 30 days.
Maker covenants and agrees that it will notify the Payee if it
becomes aware of the occurrence of any Event of Default.
7. Remedies. If an Event of Default occurs and is continuing,
the Holder of this Note may, by notice in writing to Maker, declare the entire
unpaid principal of the Note to be due and payable immediately, and upon any
such declaration the principal and unpaid interest of the Note shall become and
be immediately due and payable, and the Holder of this Note may thereupon
proceed to enforce the payment of this Note or to enforce any other legal or
equitable right of such Holder. In the event this Note is placed in the hands of
an attorney for collection or for enforcement, or in the event that Holder
incurs any costs incident to the collection of any indebtedness evidenced
hereby, Maker agrees to pay all reasonable attorneys' fees actually incurred,
all court and other costs and the reasonable costs of any other collection
efforts. Forbearance to exercise the remedies set forth herein with respect to
any failure or breach of Maker shall not constitute a waiver by Payee of any of
such remedies. Maker further waives, to the fullest extent permitted by law, the
right to plead any and all statutes of limitation as a defense to any
acceleration of this Note.
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<PAGE> 12
8. Notices; Miscellaneous. All notices, requests, consents and
other communications required or permitted under this Note shall be in writing
and shall be deemed to have been delivered on the date mailed, postage prepaid,
by certified mail, return receipt requested, or on the date personally
delivered, or on the day following the date delivered to an overnight courier
such as Federal Express, Airborne, Emery or similar reputable national courier
with guaranteed overnight delivery, or on the date of facsimile transmission:
(i) If to Payee, to:
TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
Attention: Secretary
With copies to:
TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
Attention: Treasurer
and
TRW Inc.
TRW Space & Electronics Group
One Space Park
Redondo Beach, CA 90278
Attention: V.P., Finance
Facsimile Number: (310) 812-7838
(ii) If to Maker, to:
RF Micro Devices, Inc.
7431-D W. Friendly Avenue
Greensboro, North Carolina 27410
Attention: President
Facsimile Number: (910) 299-9809
(iii) If to any other holder other than Payee, to
such address (or facsimile number as the case may be) as may
have been designated by notice given Maker by such holder.
Maker, Payee or any other holder hereof may designate a
different address or facsimile number by notice given in accordance with the
foregoing.
From time to time, without affecting the obligations of Maker
or its legal representatives, successors or assigns to pay the outstanding
principal balance or interest of this Note and observe the covenants of Maker
contained herein and in the documents and instruments related hereto, without
giving notice to or obtaining the consent of Maker, or its legal
representatives,
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<PAGE> 13
successor or assigns, and without liability on the part of Holder, Holder may,
at the option of Holder (but subject to at least 5 days prior written notice to
SVB), extend the time for payment of said outstanding principal balance or any
part thereof, reduce the payments thereon, release anyone liable on any of said
outstanding principal balance, accept a renewal of this Note, modify the terms
and time of payment of said outstanding principal balance or join in any
extension or subordination agreement, and agree in writing with Maker to modify
the rate of interest or period of amortization of this Note or change the amount
of the payments hereunder. No one or more of such actions shall constitute a
novation or otherwise affect or impair the indebtedness evidenced hereby. No
amendment may be made to paragraph 4 of this Note without the prior written
consent of SVB. The subordination provisions hereinabove contained shall bind
any successors or assignees of the Holder of this Note and shall benefit any
successors or assigns of any holder of Senior Indebtedness, and, if Maker
refinances all or any portion of Senior Indebtedness with a new lender, such new
lender shall be deemed a successor of the holder of such Senior Indebtedness for
all purposes hereof.
A director, officer, employee or stockholder, as such, of
Maker shall not have any liability for any obligations of Maker under the Note
or for any claim based on, in respect of or by reason of such obligations or
their creation. Each Holder by accepting this Note waives and releases all such
liability, other than for fraud or willful misconduct in connection with the
issuance of this Note or the procuring of funds pursuant hereto.
This Note and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted in accordance
with, the laws of the State of North Carolina (without regard to principles of
conflicts of laws) and applicable Federal law.
RF MICRO DEVICES, INC.
By:
-------------------------------------------
David A. Norbury
President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1
RF MICRO DEVICES, INC.
1992 STOCK OPTION PLAN
RF Micro Devices, Inc., a North Carolina corporation (the
"Corporation"), hereby establishes this 1992 Stock Option Plan for the benefit
of the Corporation and its stockholders and Key Employees:
Article I. -- General Provisions
Section 1.1 Purpose. this RF Micro Devices, Inc. 1992 Stock
Option Plan (the "Plan") is intended to secure for RF Micro Devices, Inc. and
its stockholders the benefits arising from ownership of the Corporation's
common stock by those selected Key Employees of the Corporation who will be
responsible for its future growth. The Program is designed to help attract and
retain superior personnel for positions of substantial responsibility with the
Corporation, and to provide Key Employees with an additional incentive to
contribute to the success of the Corporation. It is also intended that the
Plan shall satisfy the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934.
Section 1.2 Definitions.
(a) "Board of Directors" means the Board of Directors of the
Corporation.
(b) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(c) "Committee" means the Committee appointed by the Board of
Directors of the Corporation to administer the Plan.
(d) "Common Stock" means the common stock, no par value per share,
of the Corporation to be issued pursuant to the Plan.
(e) "Corporation" means RF Micro Devices, Inc.
(f) "Disabled" means the inability of an Optionee to engage in his
or her profession by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which is to last or can
be expected to last for a continuous period of not less than six months, as
determined by the Committee in its sole discretion upon certification thereof
by a qualified physician selected by the Committee after such physician
examines the Optionee.
(g) "Fair Market Value" means the average of the closing bid and
asked prices for the Common Stock in the over-the-counter market as reported by
the National Association of Securities Dealers Automated Quotation "NASDAQ"
System if the common stock is not listed on a national securities exchange or
the NASDAQ National Market System; or the closing price of the Common Stock if
the Common Stock is listed on a national securities exchange or traded on the
NASDAQ National Market System; or the fair value thereof determined in good
faith by the Board of Directors if the Common Stock is not listed on a national
securities exchange or quoted in the NASDAQ National Market System or the
over-the-counter market.
<PAGE> 2
(h) "Incentive Stock Option" means an Option granted by the
Corporation to a Key Employee which is intended to qualify as an Incentive
Stock Option under Section 422 of the Code.
(i) "Initial Public Offering" means closing of our underwritten
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, covering the offer and sale to the public of Common
Stock resulting in gross proceeds to the Corporation of not less than
$10,000,000 and at a price per share to the public of not less than $4.614 (as
appropriately adjusted in the event of stock splits, stock dividends or similar
capital adjustments or recapitalizations.)
(j) "Key Employee" means an active full time employee of the
Corporation who contributes to the growth and financial success of the
Corporation including officers and other employees of the Corporation.
(k) "Option" means the right granted by the Corporation pursuant
to the Plan to a Key Employee to purchase shares of Common Stock.
(l) "Optionee" means the individual granted an Option.
(m) "Plan" means the RF Micro Devices, Inc. 1992 Stock Option
Plan.
(n) "Stock Option Agreement" means a formal written agreement
between the Corporation and an Optionee in such form and containing such
provisions not inconsistent with the provisions of the Plan as the Committee
shall from time to time approve setting forth the terms and conditions of the
grant of an Option to purchase shares of Common Stock pursuant to the Plan.
(o) "Eligible Individual" means a non-employee Director of the
Company, an advisor or consultant to the Company, and other individual
performing services for or on behalf of the Company.
Article II -- Administration
Section 2.1 Appointment of Committee. The Plan shall be
administered by a committee of the Board of Directors of the Corporation (as
defined in Section 1.2(c) above, the "Committee"). Following registration by
the Corporation of a class of securities under Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Committee (i) shall be
comprised solely of "non-employee directors" as such term is defined in Rule
16b-3 promulgated under the 1934 Act or any successor rule, and (ii) shall be
comprised of no fewer than the minimum number of non-employee directors as may
be required by Rule 16b-3. No member of the Committee or member of the Board
of Directors shall be liable for any action or determination made in good faith
with respect to the Plan or to any option granted thereunder.
Section 2.2 Authority of The Committee. Subject to the other
provisions of the Plan and with a view to effecting its purpose, the Committee
shall have sole authority in its absolute discretion: (i) to construe and
interpret the Plan; (ii) to define the terms used herein; (iii) to prescribe,
amend, and rescind rules and regulations relating to the Program; (iv) to
determine the Key Employees of the Corporation to whom Options shall be
granted; (v) to determine the time or times when Options shall be granted; (vi)
to determine the price or prices at which Options shall be granted; (vii) to
determine the option periods;
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(viii) to determine the number of shares to be subject to each Option; and (ix)
to make any other determinations necessary or advisable for the administration
of the Plan and to do everything necessary or appropriate to administer the
Plan. All decisions, determinations, and interpretations made by the Committee
shall be binding and conclusive for all purposes upon all persons including,
without limitation, the Corporation, the Committee and each of the members
thereof, the directors, officers and employees of the Corporation, the
Optionee, and their respective successors in interest.
Section 2.3 Committee Administration. The members of the
Committee shall serve at the pleasure of the Board of Directors, which may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute
a quorum, and all actions of the Committee shall be taken by a majority of its
members. Any action of the Committee evidenced by a written instrument, signed
by a majority of its members, shall be fully as effective as if it had been
taken by a vote of a majority of its members at a meeting duly called and held.
The Committee shall (i) appoint a secretary, who may be but need not be a
member of the Committee, (ii) keep minutes of its meetings, and (iii) make such
rules and regulations for the conduct of its business as it shall deem
advisable.
Section 2.4 Privileges of Stock Ownership. No person entitled to
exercise any option granted under the Plan shall have any of the rights or
privileges of a shareholder of the Corporation in respect of any shares of
stock issuable upon exercise of such option until certificates representing
such shares shall have been issued and delivered. No shares shall be required
to be issued and delivered upon exercise of any option under the Plan unless
and until all of the requirements of law and of all regulatory agencies having
jurisdiction over the issuance and delivery of the securities shall have been
fully complied with. No adjustment shall be made for dividends or any other
distributions for which the record date is prior to the date on which such
stock certificate is issued.
Section 2.5 Reservation of Shares of Common Stock. The
Corporation, during the term of this Plan, will at all times reserve and keep
available such number of shares of its Common Stock as shall be sufficient to
satisfy the requirements of the Plan. In addition, the Corporation will from
time to time, as is necessary to accomplish the purposes of this Plan, seek to
obtain from any regulatory agency having jurisdiction any requisite authority
in order to issue and sell shares of Common Stock hereunder. The inability of
the Corporation to obtain from any regulatory agency having jurisdiction the
authority deemed by the Corporation's counsel to be necessary to the lawful
issuance and sale of any shares of its stock hereunder shall relieve the
Corporation of any liability in respect of the non-issuance or sale of the
stock as to which the requisite authority shall not have been obtained.
Section 2.6 Tax Withholding. The exercise of any option granted
under the Plan other than an Incentive Stock Option is subject to the condition
that if at any time the Corporation shall determine, in its discretion, that
the satisfaction of withholding tax or other withholding liabilities under any
state or federal law is necessary or desirable as a condition of, or in any
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in such event, the exercise of the Option shall not be effective
unless such withholding tax or other withholding liabilities shall have been
satisfied in a manner acceptable to the Corporation. In the event of the
disposition by an Optionee of shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted pursuant to the Plan within two
years of the granting of the Incentive Stock Option or within one year after
the exercise
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<PAGE> 4
of the Incentive Stock Option, the Corporation shall have the right to require
that the Optionee pay to the Corporation or have withheld from the Optionee's
compensation any amounts necessary to satisfy the Corporation's withholding
liabilities with respect to such disposition.
Article III -- Options
Section 3.1 Eligibility. In determining the Key Employees to
whom Options will be granted and the number of shares to be covered by each
Option, the Committee shall take into account the duties of the respective
employees, their present and potential contributions to the success of the
Corporation, the anticipated number of years of effective service remaining,
and such other factors as they shall deem relevant in connection with
accomplishing the purposes of the Plan. Subject to the limits set forth in
this Plan, a Key Employee who has been granted an Option may be granted an
additional Option or Options if the Committee shall so determine.
Section 3.2 Stock Subject to Option. Subject to adjustment as
provided in Section 3.8 hereof, shares to be issued upon the exercise of
Options shall be authorized but unissued shares of Common Stock or issued
shares of Common Stock of the Corporation, and the aggregate amount of Common
Stock which may be issued upon exercise of all Options under the Plan shall not
exceed 1,426,000 of such shares. If any Option granted under the Plan shall
expire or terminate for any reason, without having been exercised in full, the
shares covered by the Option but not purchased shall again be available for
Options to be granted under the Plan.
Section 3.3 Granting of Options; Option Prices.
(a) Following the selection by the Committee of a Key Employee to
whom an Option shall be granted, the Corporation shall tender for a signature a
Stock Option Agreement. The date on which an Option shall be granted shall be
the date of the Committee's authorization of such grant, or such later date as
may be determined by the Committee at the time such grant is authorized.
(b) The purchase price of the Common Stock under each Option shall
be determined by the Committee.
Section 3.4 Exercise Option. An Option may be exercised by
written notice to the Corporation at its offices at 7341-D West Friendly
Avenue, Greensboro, North Carolina 27410, or such other address to which the
office may be relocated, which notice shall (i) be signed by the Optionee or by
the Optionee's successors, as hereinafter described in Section 9, (ii) state
the number of shares with respect to which the Option is being exercised, and
(iii) contain the representation that it is the Optionee's present intention to
acquire the shares being purchased for investment and not for resale and such
other representations as the Committee may require. Payment in full of the
option price of said shares shall be made at the time of the exercise of the
Option (i) in cash or by check payable to the order of the Corporation, (ii) by
delivery of shares of Common Stock of the Corporation already owned by, and in
the possession of, the Optionee, or (iii) if authorized by the Committee or if
specified in the Option being exercised, by a promissory note made by the
Optionee in favor of the Corporation, upon the terms and conditions determined
by the Committee and secured by the shares issuable upon exercise, complying
with applicable law (including, without limitation, state corporate and federal
margin requirements, or any combination thereof. Shares of Common Stock
previously held by the Optionee and surrendered
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<PAGE> 5
in accordance with rules and regulations adopted by the Committee for the
purpose of making full or partial payment of the option price, shall be valued
for such purpose at the Fair Market Value thereof on the date the Option is
exercised. As soon as practicable after said notice and the option price have
been received by the Corporation, the Corporation shall deliver to the Optionee
a stock certificate registered in the Optionee's name representing the Option
shares.
Except as provided in Section 3.6 hereof, at the time of the exercise
of an Option, the Optionee must be an employee of or in service to the
Corporation.
Except as otherwise provided herein, the Optionee shall not have any
rights of a shareholder of the Corporation with respect to the shares covered
by the Option except to the extent that, and until, one or more certificate for
shares shall have been delivered to the Optionee upon the due exercise of the
Option.
Section 3.5 Term of Option. Options granted hereunder shall be
exercisable in whole or in part or in installments, from time to time, during
the option period determined by the Committee and set forth in the Stock Option
Agreement. Any exercise of an Option for less than the total number of shares
of Common Stock identified in the Option shall be deemed to be an exercise in
part and the Option may again be exercised in accordance with the terms of this
Plan at such time or times determined by the Optionee, provided that at each
such time the Option is still exercisable under the terms of the Stock Option
Agreement and the Plan. Except as provided in Section 3.6 and 3.8 hereof or in
an individual Stock Option Agreement, no Option granted under the Plan shall be
exercisable within six months of the date the Option is granted.
Section 3.6 Termination of Employment or Service. Except as may
be provided in an individual Stock Option Agreement, if the employment or
service of any person to whom an Option has been granted is terminated for any
reason, the Optionee or his or her personal representative may exercise his or
her Option to the extent that he or she was entitled to exercise it as of the
date of said termination but only within thirty (30) days after said
termination and in no event after the expiration of ten years from the date of
such Option was granted.
Section 3.7 The Right of the Corporation to Terminate Employment.
Nothing contained in the Plan or in any Option granted pursuant to the Plan
shall confer upon any Optionee any right to be continued in the employment of
the Corporation, or shall interfere in any way with the right of the
Corporation to terminate his or her employment at any time for any reason.
Section 3.8 Adjustments Upon Changes in Capitalization;
Acceleration of Exercise Rights.
(a) The total amount of shares on which Options may be granted
under the Plan and options rights (both as to the number of shares and the
option exercise price per share) shall be appropriately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from payment of a stock dividend on the Common Stock, a subdivision
or combination of shares of the Common Stock or from a reclassification of the
Common Stock, and (in accordance with the provisions contained in the next
following paragraph) in the event of a merger or consolidation.
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<PAGE> 6
(b) After the merger of one or more corporations into the
Corporation, any merger of the Corporation into another corporation, any
consolidation of the Corporation and one or more other corporations, or any
other corporate reorganization of any form involving the Corporation as a party
thereto involving any exchange, conversion, adjustment or other modification of
the outstanding shares of the Common Stock, each Optionee at the time of such
corporate reorganization shall, at no additional cost, be entitled, upon any
exercise of his Option, to receive, in lieu of the number of shares as to which
such Option shall then be so exercised, the number and class of shares of stock
or other securities or such other property to which such Optionee would have
been entitled pursuant to the terms of the agreement of merger or consolidation
if at the time of such merger or consolidation such Optionee had been a holder
of record of a number of shares of Common Stock equal to the number of shares
which then remain exercisable under such Option. Comparable rights shall
accrue to each Optionee in the event of successive mergers or consolidations of
the character described above.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an Option.
(c) In the event of (i) the adoption of a plan of merger or
consolidation of the Corporation with any other corporation as a result of
which the holders of the voting capital stock of the Corporation as a group
would receive less than 50% of the voting capital stock of the surviving or
resulting corporation or (ii) the approval by the Board of Directors of an
agreement providing for the sale or transfer (other than as security for
obligations of the Corporation) of substantially all the assets of the
Corporation, then any Option granted hereunder shall become immediately
exercisable in full, subject to any appropriate adjustments in the number of
shares subject to the Option and the option exercise price per share, and shall
remain exercisable for the remaining term of such Option, regardless of whether
such Option has been outstanding for six months or of any provision contained
in the Stock Option Agreement with respect thereto requiring that the Option or
any portion thereof be outstanding for a minimum amount of time prior to
exercise, subject to all of the terms hereof and the Stock Option Agreement
with respect thereto not inconsistent with this paragraph.
(d) Anything contained herein to the contrary notwithstanding,
upon the dissolution or liquidation of the Corporation each Option granted
under the Plan shall terminate; provided, however, that following the adoption
of a plan of dissolution or liquidation, and in any event prior to such
dissolution or liquidation (and as provided above regarding certain mergers and
consolidations), each Option granted hereunder shall be exercisable in full,
regardless of whether such Option has been outstanding for six months or of any
provision contained in the Stock Option Agreement with respect thereto
requiring that the Option or any portion thereof be outstanding for a minimum
amount of time prior to exercise, subject to all of the terms hereof and of the
Stock Option Agreement with respect thereto not inconsistent with this
paragraph.
The grant of an Option pursuant to this Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or to dissolve, liquidate or sell, or
transfer all or part of its business or assets.
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<PAGE> 7
Section 3.9 Non-Transferability of Options. No Option granted
under the Plan shall be transferable by the Optionee.
Section 3.10 Granting Options to Eligible Individuals.
Notwithstanding any other provision of the Plan, effective on and after
November 4, 1996, the Committee may grant an Option to an Eligible Individual.
Such Option shall be granted in accordance with the provisions of Article III
applicable to Options granted to Key Employees, except that Sections 3.6 and
3.7 shall be applied to Eligible Individuals with respect to their service to
the Company rather than service as employees. Once an Option is granted to an
Eligible Individual, such Eligible Individual shall be treated as an Optionee
for all purposes under the Plan.
Article IV -- Incentive Stock Options
Section 4.1 Committee Discretion. The Committee may in its sole
discretion designate certain Options granted pursuant to the Plan as Incentive
Stock Options. Incentive Stock Options shall be subject to Section 4.2 hereof
and all other terms and conditions of the Plan, except to the extent that such
terms and conditions conflict with the provisions of Section 4.2 hereof, in
which case section 4.2 shall control.
Section 4.2 Additional Conditions Applicable to Incentive Stock
Options.
(a) Incentive Stock Options shall not be granted more than 10
years after the effective date of the Plan, and shall not be exercisable after
the expiration of ten years from the date the Incentive Stock Option was
granted.
(b) The Option Price for the purchase of Common Stock under each
Incentive Stock Option shall not be less than the Fair Market Value of the
Common Stock on the date of grant of the Incentive Stock Option.
(c) No person may be granted an Incentive Stock Option in any
calendar year if the aggregate Fair Market Value (determined as of the time the
Option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by such employee during any calendar year,
under this and all other incentive stock option plans (as defined in Section
422 of the Code) of the Corporation would exceed $100,000.
(d) Except as provided in Section 4.3 hereof, no person shall be
eligible to receive an Incentive Stock Option if such person would beneficially
own, directly or indirectly, capital stock of the Corporation possessing more
than ten percent of the total combined voting power of all classes of capital
stock of the Corporation. For purposes of the preceding sentence, the rules of
Section 424(d) f the Code shall apply, and capital stock of the Corporation
which an employee may purchase under outstanding options shall be treated as
stock owned by such employee.
Section 4.3 Ten Percent Shareholders. Notwithstanding the
provisions of Section 4.2(c) regarding the ineligibility of certain ten percent
owners of the Corporation's capital stock, any Key Employee deemed to be
ineligible pursuant to the provisions of Section 4.2(c) hereof may be granted
an Option hereunder which (i) provides for an option price of at least 110% of
the Fair Market Value of
7
<PAGE> 8
the stock at the time of the granting of the Option, (ii) is not exercisable
after the expiration of five years from the date such Option is granted, and
(iii) is subject to all of the other terms and conditions of the Plan.
Section V -- Miscellaneous Provisions
Section 5.1 Amendment and Termination. The Plan may be amended
or terminated by the Board of Directors without shareholder approval as deemed
in the best interests of the Corporation, provided that the Board of Directors
shall submit any amendments to the shareholders for approval to the extent
necessary to maintain compliance with the requirements of Rule 16b-3 of the
Securities and Exchange Act of 1934, as amended.
Section 5.2 Effective Date of the Plan. Effectiveness of the
Plan is subject to approval by the shareholders of the Corporation within 12
months from the date the Plan is adopted by the Board of Directors.
Notwithstanding any other provision hereof, options may be granted under the
Plan prior to obtaining stockholder approval, however no Option granted
hereunder may be exercised prior to approval of the Plan by the shareholders of
the Corporation and, in the event the shareholders do not approve the Plan
within one year from the effective date of the Plan, all Options granted
hereunder shall be void.
ATTEST: RF MICRO DEVICES, INC.
/s/ Powell T. Seymour By: /s/ William J. Pratt
- ------------------------- -------------------------------
Secretary William J. Pratt, President
[CORPORATE SEAL]
8
<PAGE> 1
EXHIBIT 10.7
RF MICRO DEVICES, INC.
1,818,783 Shares of Class C
Convertible Preferred Stock
------------------------
STOCK PURCHASE AGREEMENT
------------------------
November 22, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEFINITIONS..............................................................................................1
-----------
2. AUTHORIZATION OF ISSUANCE OF PREFERRED STOCK.............................................................3
--------------------------------------------
3. PURCHASE AND SALE OF SECURITIES..........................................................................4
-------------------------------
4. CONDITIONS OF CLOSING....................................................................................4
---------------------
(a) Consent of Third Parties, etc...................................................................4
-----------------------------
(b) Authorization and Reservation...................................................................4
-----------------------------
(c) Financial Information...........................................................................4
---------------------
(d) Certain Agreements..............................................................................5
------------------
(e) Amendment to Articles of Incorporation..........................................................5
--------------------------------------
(f) Opinion of Counsel..............................................................................5
------------------
(g) Delivery of Closing Documents...................................................................5
-----------------------------
(h) Delivery of Purchase Price......................................................................7
--------------------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................7
---------------------------------------------
(a) Organization and Good Standing..................................................................7
------------------------------
(b) Affiliations....................................................................................7
------------
(c) Authorized and Issued Capital...................................................................7
-----------------------------
(d) Authorization...................................................................................8
-------------
(e) Good Title to All Properties....................................................................8
----------------------------
(f) Litigation......................................................................................9
----------
(g) Taxes...........................................................................................9
-----
(h) Other Contracts.................................................................................9
---------------
(i) Articles of Incorporation and Bylaws............................................................9
------------------------------------
(j) Financial Statements; Certain Changes...........................................................9
-------------------------------------
(k) Offering of Preferred Stock....................................................................10
---------------------------
(l) Governmental Approval..........................................................................10
---------------------
(m) Untrue Statements..............................................................................10
-----------------
(n) Patents, Licenses, Trademarks, etc.............................................................11
----------------------------------
(o) Compliance with Law............................................................................11
-------------------
(p) Brokerage Fees.................................................................................11
--------------
(q) No Crimes, etc.................................................................................12
--------------
(r) Related Transactions...........................................................................13
--------------------
(s) Leased Real Property...........................................................................13
--------------------
(t) Noncompetition Agreements......................................................................13
-------------------------
(u) Registration Exemption.........................................................................14
----------------------
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.........................................................14
-----------------------------------------------
(a) Investment Purpose.............................................................................14
------------------
(b) Exemptions.....................................................................................14
----------
(c) Rule 144.......................................................................................14
--------
(d) No Broker......................................................................................15
---------
(e) Investment Decision............................................................................15
-------------------
(f) Accredited Investor............................................................................15
-------------------
(g) Restriction on Sale or Transfer................................................................15
-------------------------------
(h) Legend.........................................................................................15
------
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
(i) Authorization..................................................................................16
-------------
7. AFFIRMATIVE COVENANTS...................................................................................16
---------------------
(a) Conversion of Preferred Stock..................................................................16
-----------------------------
(b) Redemption of Preferred Stock..................................................................16
-----------------------------
(c) Use of Proceeds................................................................................16
---------------
(d) Payment of Redemption Notes....................................................................17
---------------------------
(e) Preparation and Approval of Budgets, Etc.......................................................17
----------------------------------------
(f) Taxes and Liens................................................................................17
---------------
(g) Insurance......................................................................................17
---------
(h) Financial Statements...........................................................................18
--------------------
(i) Other Information; Examination.................................................................19
------------------------------
(j) Meetings.......................................................................................20
--------
(k) Executive Personnel............................................................................20
-------------------
(l) Books of Account...............................................................................21
----------------
(m) Corporate Existence............................................................................21
-------------------
(n) Comply with Laws...............................................................................21
----------------
(o) Maintain Property..............................................................................21
-----------------
(p) Notice of Default..............................................................................21
-----------------
(q) Amend Bylaws...................................................................................21
------------
(r) Director Liability.............................................................................21
------------------
(s) SBA Repurchase Obligation......................................................................21
-------------------------
8. NEGATIVE COVENANTS OF THE COMPANY.......................................................................22
---------------------------------
(a) Dividends and Redemption of Stock..............................................................22
---------------------------------
(b) Loans to, Investments in, and Liabilities of Others............................................22
---------------------------------------------------
(c) Disposal of Assets.............................................................................23
------------------
(d) Subsidiary Corporation.........................................................................23
----------------------
(e) Character of Business..........................................................................23
---------------------
(f) Payment for Services or Property Not Delivered.................................................23
----------------------------------------------
(g) Sale and Leaseback.............................................................................23
------------------
(h) Capital Expenditures and Leasehold Obligations.................................................23
----------------------------------------------
(i) Discount or Sale of Notes and Accounts Receivable..............................................24
-------------------------------------------------
(j) Conflict of Interest Transactions With Restricted
-------------------------------------------------
Persons........................................................................................24
-------
(k) No Amendments to Bylaws or Noncompetition Agreements...........................................24
----------------------------------------------------
(l) Setting or Changing Compensation...............................................................24
--------------------------------
(m) Indebtedness...................................................................................24
------------
(n) "Off Balance Sheet Financing...................................................................24
----------------------------
(o) Assignment of Rights...........................................................................25
--------------------
(p) Employee Benefit Plans.........................................................................25
----------------------
(q) Stock Option Plans.............................................................................25
------------------
9. GENERAL.................................................................................................25
-------
(a) Entire Agreement...............................................................................25
----------------
(b) Survival of Agreements and Representations and
----------------------------------------------
Warranties.....................................................................................25
----------
(c) No Waiver......................................................................................26
---------
(d) Binding Effect.................................................................................26
--------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
(e) Initial Holders................................................................................26
---------------
(f) Cumulative Powers..............................................................................26
-----------------
(g) Loss of Securities; Reissuance in Lesser Denominations.........................................26
------------------------------------------------------
(h) Communications.................................................................................27
--------------
(i) Governing Law..................................................................................27
-------------
(j) Headings.......................................................................................27
--------
(k) Multiple Originals.............................................................................27
------------------
(l) Amendment or Waiver............................................................................27
-------------------
(m) Obligations of Company to Certain Investors....................................................28
-------------------------------------------
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of this 22nd day of November,
1995, by and among RF MICRO DEVICES, INC. (the "Company"), and the persons named
in Exhibit 1 hereto (individually, an "Investor" and collectively, the
"Investors").
WHEREAS, certain of the Investors have previously purchased certain
shares of the Company's Class A-1 Convertible Preferred Stock, the Company's
Class A-2 Convertible Preferred Stock and the Company's Class B Convertible
Preferred Stock; and
WHEREAS, such Investors (with the exception of Brantley Venture
Partners, II, L.P. and Norwest Equity Partners IV) and, in addition, certain
additional Investors desire to purchase certain shares of the Company's Class C
Convertible Preferred Stock; and
WHEREAS, the Company and the Investors have reached certain agreements
with regard to the purchase of such Class C Convertible Preferred Stock, all
upon the terms and conditions more particularly described herein; and
WHEREAS, the parties desire to set forth their agreements and
understandings in writing, in consideration of the promises, covenants, matters
and things hereinafter set forth, the parties mutually covenant, contract and
agree, each with the other, as follows:
1. DEFINITIONS.
For the purpose of this Agreement, the following terms shall have the
following meanings:
(a) An "Affiliate" of the Company or any Subsidiary means any person
that, directly or indirectly, owns or controls, or is owned or controlled by, or
is under common control with, the Company or such Subsidiary, or is an officer,
director or employee of the Company or such Subsidiary or of any company which
is an Affiliate thereof, or any spouse or other relative of such person who is
an officer, director or employee of the Company, Subsidiary or Affiliate
company, or is any customer or supplier of the Company or such Subsidiary, or
any officer, director or employee thereof (or spouse or other relative of any
such officer, director or employee).
(b) "Environmental Laws" shall mean any and all federal, state and
local laws, duties, legal obligations (including obligations of common law),
rules, regulations, ordinances, codes and orders governing, establishing,
limiting or otherwise affecting the discharge of Hazardous Materials. For
purposes of this definition, "Hazardous Materials" shall mean (i) "solid waste"
(as that term is defined under the Resource Conservation
<PAGE> 6
and Recovery Act, 42 U.S.C. ss. 6901, et seq., and the regulations adopted
pursuant to that Act), (ii) "hazardous waste" (as that term is defined under the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq., and the
regulations adopted pursuant to that Act), (iii) "hazardous substances" (as that
term is defined in the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 6901, et seq., and the regulations adopted pursuant
to that Act) and (iv) other pollutants, including without limitation any solid,
liquid, gaseous or thermal irritant or contaminant, such as smoke, vapor, soot,
fumes, acids, alkalis or chemicals.
(c) "Financial Statements" has the meaning set forth in Section 5(j)
hereof.
(d) "Intellectual Property Rights" means all industrial, commercial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trade names, service marks, copyrights,
computer programs, certificates of public convenience and necessity, franchises,
licenses, trade secrets, proprietary processes, formulae, circuit designs and
masks.
(e) "Stock Purchase Agreement" or "Agreement" means and includes this
Stock Purchase Agreement (including any Exhibits or Schedules hereto) and any
amendments thereto authorized in the manner provided herein.
(f) "Key Employee" means (i) each officer of the Company, (ii) each
employee of the Company whose annual salary exceeds $50,000, (iii) each employee
of the Company generating revenues or expenses for or on behalf of the Company
of $50,000 or more per annum, or who manages or supervises a group or area of
employees of the Company involving the generation of revenues or expenses in the
per annum amount of $50,000 or more, (iv) each employee of the Company
considered by the Board of Directors to possess significant decision-making
authority and (v) each employee of the Company considered by the Board of
Directors to be a key engineer.
(g) "Noncompetition Agreements" means, collectively, the Noncompetition
and Confidentiality Agreements between the Company and each of William J. Pratt,
Powell T. Seymour, Jerry D. Neal, William A. Priddy and David A. Norbury.
(h) "Officer's Certification" means a certificate executed by the
Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
President, a Vice President, or the Secretary or the Treasurer of the Company.
(i) "Person" includes both the singular and the plural and shall means
any individual, partnership, corporation, trust, unincorporated organization, or
government or department or agency thereof.
2
<PAGE> 7
(j) "Preferred Stock" means the Company's Class A-1 Convertible
Preferred Stock, the Company's Class A-2 Convertible Preferred Stock, the
Company's Class B Convertible Preferred Stock and the Company's Class C
Convertible Preferred Stock.
(k) "Public Offering" shall mean closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale to the public of Common Stock resulting in
gross proceeds to the Company (before deduction of underwriters' commissions and
expenses) of not less than $15,000,000 and at a price per share to the public
which implies a pre-financing fully diluted valuation of the Company of at least
$75,000,000.
(l) "Redemption Notes" has the meaning set forth in Article 2, Section
D, Paragraph (6) of the Articles of Incorporation.
(m) "Required Investors" means those Investors holding an aggregate
ownership interest of sixty percent (60%) of the securities of the Company held
by all Investors. For purposes of this definition, the ownership interest of
each Investor shall include (i) the number of shares of Common Stock held by
such Investor, (ii) the number of shares of Common Stock issuable to such
Investor pursuant to the conversion of the Preferred Stock held by such
Investor, and (iii) following the redemption of an Investor's Preferred Stock,
the number of shares of Common Stock that would have been issuable to such
Investor if such Investor had converted its Preferred Stock immediately prior to
redemption; provided, however, that the ownership interest of an Investor
determined pursuant to this clause (iii) shall be deemed to be reduced
proportionately in accordance with the repayment of the Redemption Note held by
such Investor.
(n) "Securities Act" means the Securities Act of 1933, 15 U.S.C. ss.
77a et seq., as from time to time amended.
(o) "Subsidiary" means any corporation with respect to which the
Company owns, directly or indirectly, a majority of the voting shares, or shares
or other interests entitling the Company to elect a majority of the Board of
Directors.
(p) To the extent not specifically defined herein, any accounting term
used herein has the meaning ordinarily accorded to it under generally accepted
accounting principles consistent with those followed in the preparation of the
financial statements of the Company.
2. AUTHORIZATION OF ISSUANCE OF PREFERRED STOCK.
The Company has authorized the issuance to the Investors of 1,804,823
shares of Class C Convertible Preferred Stock, no par value per share (the
"Class C Preferred Stock"), which Class C Preferred Stock shall have the rights
and preferences set forth
3
<PAGE> 8
on Exhibit 2 attached hereto and incorporated herein by reference.
3. PURCHASE AND SALE OF SECURITIES.
Subject to the terms and conditions herein set forth, and in reliance
upon the representations and warranties of the Company contained herein, upon
the closing of this Agreement the Company shall sell to the Investors and the
Investors shall purchase from the Company a total of 1,818,783 shares of Class C
Preferred Stock at an aggregate purchase price of $11,000,000. The purchase
price of the Class C Preferred Stock shall be paid by delivery to the Company of
immediately available funds; provided that the purchase price of the shares to
be issued to Allen Telecom Group, Inc. shall be paid by delivery to the Company
of the Company's Subordinated Promissory Note dated August 4, 1995 payable to
Allen Telecom Group, Inc. (the "Note"), duly endorsed for cancellation and
marked "Paid". The number of shares of Class C Preferred Stock to be purchased
by each Investor and the amount of consideration to be paid therefor is set
forth on Exhibit 1 attached hereto and incorporated herein by reference.
4. CONDITIONS OF CLOSING.
The Investors' obligation to purchase and pay for the Class C Preferred
Stock as set forth under Section 3 above is subject to the satisfaction (or
waiver, in the Investors' sole discretion), on or before the date hereof of the
following conditions:
(a) Consent of Third Parties, etc. The Company shall have presented
evidence reasonably satisfactory to the Investors and their special counsel to
the effect that (i) all consents and waivers required in connection with the
consummation of the transactions related to this investment have been obtained,
(ii) the transactions related to this investment shall not violate, or
constitute or trigger the occurrence of an event of default with respect to, any
lease, promissory note, loan agreement or any other agreement or understanding
with respect to which the Company is a party, and (iii) the Company is not in
violation of or default under or with respect to any lease, promissory note,
loan agreement or any other agreement or understanding to which it is a party.
(b) Authorization and Reservation. The Company shall have taken all
necessary actions in order to authorize and reserve for issuance up to 1,818,783
shares of its Common Stock to be issued upon the conversion of the Class C
Preferred Stock.
(c) Financial Information. The Company shall have provided the
Investors with such financial information relative to the Company's consolidated
financial condition which may be reasonably requested by the Investors, which
information shall include, at a minimum, (i) audited financial statements of the
Company
4
<PAGE> 9
consisting of its balance sheet as of April 1, 1995 and its statements of income
and retained earnings and cash flow for the fiscal year ended April 1, 1995,
(ii) the Company's internally prepared financial statements consisting of its
balance sheet as at August 26, 1995 and its statements of income and retained
earnings and cash flow for the five-month period ended August 26, 1995, and
(iii) projected statements of operations, projected balance sheets and projected
statements of cash flow for each fiscal quarter through the fiscal quarter
ending approximately March 30, 1997 and for each fiscal year thereafter up to
and including the fiscal year ending approximately March 30, 2000.
(d) Certain Agreements. The following agreements shall have been
entered into by the appropriate parties and shall be in full force and effect:
(i) Amended and Restated Registration Rights Agreement in the
form of Exhibit 4(d)(i) hereto (the "Registration Rights Agreement");
and
(ii) Amended and Restated Shareholders' Agreement in the form
of Exhibit 4(d)(ii) hereto (the "Shareholders' Agreement").
(e) Amendment to Articles of Incorporation. The Company shall have
amended its Articles of Incorporation to include the terms set forth in Exhibit
2 hereto.
(f) Opinion of Counsel. The Investors shall have received from Womble
Carlyle Sandridge & Rice, P.L.L.C., legal counsel for the Company, a favorable
opinion as of the date hereof in form and substance satisfactory to the
Investors and their special counsel and to the effect set forth on Exhibit 4(f).
(g) Delivery of Closing Documents. The Investors shall have received
the following closing documents, in form and substance satisfactory to the
Investors and their special counsel:
(1) Two executed counterparts of this Stock Purchase Agreement,
including all Exhibits and Schedules hereto.
(2) Certificates representing the shares of Class C Preferred Stock
being purchased by the Investors.
(3) Two executed counterparts of the Registration Rights Agreement.
(4) Two executed counterparts of the Shareholders' Agreement.
(5) The opinion of counsel in the form described in subsection 4(f)
hereof.
5
<PAGE> 10
(6) Certificate of the Secretary of State of North Carolina
as to the good standing of the Company in such
jurisdiction as of a recent date.
(7) Copy of the Articles of Incorporation of the Company, as
amended to date, certified by the Secretary of State of North
Carolina to be true and correct.
(8) Copy of the Bylaws of the Company, as amended to date,
certified by the Secretary of the Company to be true
and correct.
(9) Copies of resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement,
which resolutions shall have been certified by the Secretary
of the Company to be true and correct.
(10) A copy or copies of the consents and waivers to be
obtained by the Company pursuant to the provisions of
subsection 4(a) hereof, if any.
(11) A copy of the financial information to be provided by
the Company pursuant to the provisions of subsection
4(c) hereof, which financial statements shall be
certified by the chief executive officer or the chief
financial officer of the Company to be true and correct
and to have been prepared in accordance with generally
accepted accounting principles, consistently applied.
(12) Incumbency Certificates with respect to the Company's
officers and directors.
(13) A true copy of all stock option plans and related arrangements
reserving shares for issuance to executives and employees of
the Company, all of which plans are described in Schedule 5(c)
attached hereto.
(14) A true copy of all agreements in which the Company has
granted or agreed to grant a security interest, pledge,
mortgage, deed of trust, encumbrance, lien or charge on
any of its property or assets, whether now owned or
hereafter acquired, all of which agreements are listed
on Schedule 5(h) attached hereto; provided, however,
that the Company shall not be required to provide the
Investors with a copy of the capital leases listed on
Schedule 5(h) attached hereto.
(15) A true copy of all leases of real property naming the Company
as either lessor or lessee, all of which leases are listed on
Schedule 5(s) attached hereto.
(16) To the extent not otherwise provided for herein, and if
requested by an Investor, such Investor shall have
6
<PAGE> 11
received a true copy of all material contracts to which the
Company is a party, all of which contracts are listed on
Schedule 5(h) attached hereto; provided, however, that the
Company shall not be required to deliver contracts which
contain competitively sensitive information to Investors that
are customers or suppliers of the Company.
(17) Any and all other documents, certificates, and assurances
which may be reasonably requested by the Investors in
connection with their commitments as set forth herein.
(h) Delivery of Purchase Price. Each of the Investors shall have
transferred to the trust account of Smith Helms Mulliss & Moore, L.L.P., special
counsel for the Investors, the cash portion of the purchase price for the Class
C Preferred Stock shown on Exhibit 1 attached hereto.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investors that, as of
the date hereof:
(a) Organization and Good Standing. The Company is a corporation
duly organized and validly existing under the laws of the State of North
Carolina, and is in good standing under such laws. The Company is qualified and
authorized to do business in, and is in good standing as a foreign corporation
in, all other states in which such qualification or authorization is necessary
for the conduct of the business in which the Company is now engaged, and has all
necessary licenses and permits required by all governmental authorities to carry
on such business. A complete list of all states in which the Company (i) owns or
leases property or has employees and (ii) has qualified to do business, is set
forth at Schedule 5(a) hereto.
(b) Affiliations. The Company has no Subsidiaries. The
Company does not own or control any shares of stock or any other
investments in any other Person.
(c) Authorized and Issued Capital. The authorized capital stock
of the Company consists of 9,000,000 shares of Common Stock, no par value per
share, of which 585,000 shares are issued and outstanding; 1,000,000 shares of
Class A-1 Preferred Stock, of which 975,000 shares are issued and outstanding;
1,100,000 shares of Class A-2 Preferred Stock, of which 1,034,091 shares are is
sued and outstanding; and 3,700,000 shares of Class B Preferred Stock, of which
3,300,000 shares are issued and outstanding, and 1,900,000 shares of Class C
Preferred Stock, of which no shares are issued and outstanding. Set forth on
Schedule 5(c) is a list of all shareholders of the Company and the number of
shares held by each. There are no further subscriptions, contracts or
agreements for the issuance or
7
<PAGE> 12
purchase of any other or additional shares of the Company's capital stock,
either in the form of stock option or purchase agreements, warrants, calls or
convertible debentures, other than (i) the Class C Preferred Stock to be issued
pursuant to the terms hereof, (ii) the Common Stock to be issued upon the
conversion of the Preferred Stock, (iii) 652,500 shares of Common Stock reserved
for issuance pursuant to the stock option plan described in Schedule 5(c), and
(iv) the options and other arrangements described in Schedule 5(c). The number
of shares of its Common Stock reserved for issuance as set forth in Schedule
5(c) is not subject to adjustment by reason of the issuance of the Class C
Preferred Stock or the issuance of the Common Stock pursuant to the 1992 Stock
Option Plan or upon the conversion of any of the Preferred Stock. Except as
disclosed in Schedule 5(c), there are no preemptive or similar rights to
purchase or otherwise acquire shares of the Company's capital stock pursuant to
any provision of law, the Articles of Incorporation or Bylaws of the Company, or
any agreement to which the Company is a party, or otherwise.
(d) Authorization. The execution and delivery of this Stock Purchase
Agreement, the Registration Rights Agreement and the Shareholders' Agreement and
the issuance to the Investors of the Class C Preferred Stock, as herein
provided, have been duly authorized by all necessary corporate action of the
Company so that when issued and delivered (i) the Class C Preferred Stock will
be validly authorized and issued, fully paid and nonassessable, (ii) the
Agreement, the Registration Rights Agreement and the Shareholders' Agreement,
will constitute the legal, valid and binding agreements of the Company
enforceable against it in accordance with their respective terms and (iii)
neither the execution and delivery of this Agreement, the Registration Rights
Agreement and the Shareholders' Agreement, nor the issuance of the Preferred
Stock or, upon conversion thereof, the Common Stock, will be in contravention of
law or of any order, rule or regulation applicable to the Company or of its
Articles of Incorporation, Bylaws or, except as set forth on Schedule 5(d), any
other contract, agreement or instrument to which the Company is a party.
(e) Good Title to All Properties. The Company has good title to all the
properties and assets used in its businesses or reflected in the Financial
Statements, and to all patents, trademarks, trademark rights, trade names,
copyrights or licenses either developed by or assigned to the Company for its
use, subject to no lien, mortgage, pledge, security interest, encumbrance or
charge of any kind, except for: (a) inchoate liens for current taxes not yet
delinquent, (b) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (c) liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, (d) minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property, (e) those
8
<PAGE> 13
reflected in the Financial Statements and (f) such matters as described on
Schedule 5(e) attached hereto and by reference made a part hereof.
(f) Litigation. Except as described on Schedule 5(f) attached hereto
and by reference made a part hereof, there is no litigation or other proceeding
before any court, commission or other administrative authority pending, or, to
the knowledge of the Company, threatened, against or affecting the Company or
its officers or directors, which involves the possibility of any judgment or
liability which may materially and adversely affect any of the property and
assets of the Company or the right of the Company to conduct its businesses as
now engaged. To the best knowledge of the Company, none of the officers or
employees of the Company is subject to any contract, prohibition, non-compete,
trade secret or any other restrictive agreement which would impair his ability
to provide services to the Company. To the best knowledge of the Company, no
third party may assert any valid claim under any agreement or arrangement or any
laws governing unfair competition, trade secrets or proprietary information
against the Company, or its employees, that might have the effect of prohibiting
the Company or such employees from using such information.
(g) Taxes. The Company has filed all Federal, state and local tax
returns which are required by law to be filed as of the date hereof, and has
paid all taxes which have become due pursuant to such returns or relating to any
assessments, if any.
(h) Other Contracts. The Company has furnished to each of the Investors
copies or access to copies of all material contracts and agreements of the
Company, all of which are listed on Schedule 5(h) attached hereto and by
reference made a part hereof. The Company is not a party to any other contract
or agreement which in the judgment and opinion of the Company would materially
or adversely affect the business, properties, assets or financial condition of
the Company. The Company is not in default of any such material contracts and
agreements.
(i) Articles of Incorporation and Bylaws. The Articles of
Incorporation, as amended pursuant to Section 4(e) hereof, and Bylaws of the
Company, copies of which have been furnished to the Investors, are in full force
and effect, without further changes, amendments or modifications.
(j) Financial Statements; Certain Changes.
(i) The Company has furnished to the Investors the financial
statements described in subsection 4(c) hereof (the "Financial
Statements"). The Financial Statements are true and correct and were
prepared in accordance with generally accepted accounting principles,
consistently applied, except that interim financial statements are
subject to routine year-end adjustments and do not contain footnotes.
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<PAGE> 14
(ii) In addition, except as set forth on Schedule 5(j), and except
for the amendment to the Articles of Incorporation required pursuant to
subsection 4(e) hereof and the amendment to the Bylaws required to
comply with Article V of the Shareholders' Agreement, since August 26,
1995, the Company has conducted its business in the ordinary course in
a manner consistent with its past practices, and has not (a) issued or
sold, or contracted to sell, any of its stock, notes, bonds or other
securities, or any option, warrant or other right to purchase the same,
or entered into any agreement with respect thereto; (b) amended its
Articles of Incorporation or Bylaws; (c) declared, set aside or paid
any dividend or other distribution in respect of its capital stock; (d)
redeemed, repurchased or otherwise acquired any of its capital stock or
securities convertible into or exchangeable for its capital stock or
entered into any agreement to do so; (e) made any capital expenditures
or commitments for the acquisition or construction of any single item
of property, plant or equipment in excess of $5,000; (f) incurred any
damage, destruction or similar loss of property in an amount exceeding
$5,000, whether or not covered by insurance; (g) experienced any
materially adverse change in its business, operations, assets, earnings
or financial condition; (h) made any sale of accounts receivable or any
accrual of liabilities not in the ordinary course of business; (i)
purchased or disposed of, or contracted to purchase or dispose of, or
granted or received an option to purchase or sell, any properties or
assets, except in the ordinary course of business; (j) disposed of any
inventories other than in the ordinary course of business; (k) except
for increases resulting from the application of existing formulas or
policies under existing plans, agreements or policies relating to
employee compensation, increased the rate of compensation payable or to
become payable to any of its employees or officers or increased the
amounts paid or payable to such employees or officers under any bonus,
insurance, pension or other benefit plan, or any arrangements therefor
made for or with any of said employees or officers; or (l) changed any
accounting principle, procedure or practice or the method of applying
such principle, procedure or practice.
(k) Offering of Preferred Stock. Neither the Company nor any agent
acting on its behalf has taken any action which would require the issuance or
sale of the Class C Preferred Stock to be registered under the provisions of
Section 5 of the Securities Act.
(l) Governmental Approval. No consent or approval of any governmental
agency or authority is required in the making or performance of this Agreement
by the Company.
(m) Untrue Statements. Neither this Agreement nor any other agreements,
Financial Statements, reports, certificates, or
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any other documents furnished to the Investors by the Company in connection
herewith contains any untrue or misleading statement of material fact or omits
to state a fact material to the business of the Company or necessary to make the
statements contained therein not misleading.
(n) Patents, Licenses, Trademarks, etc. Set forth on Schedule 5(n)
attached hereto and by reference made a part hereof is a list of all
Intellectual Property Rights in which the Company has an interest. With respect
thereto:
(i) the Company possesses all Intellectual Property Rights
which are necessary to conduct its respective business as now conducted
or as contemplated to be conducted, without conflict with any patent,
license, trademark, trade name, copyright or other Intellectual
Property Right of any other Person;
(ii) no royalties, honorariums or fees are payable by the
Company to other Persons by reason of the ownership or use of the
Intellectual Property Rights;
(iii) no product manufactured, marketed or sold by the Company
will, to the best knowledge of the Company, violate any license or
infringe any Intellectual Property Rights or assumed name of another;
and
(iv) there is no pending or, to the best knowledge of the
Company, threatened claim or litigation against the Company (nor, to
the best knowledge of the Company, does there exist any basis therefor)
contesting the validity or right to use of any of the foregoing. The
Company has not received any notice that any of the Intellectual
Property Rights or the operation or proposed operation of its business
conflicts, or will conflict, with the asserted rights of others, and to
the best knowledge of the Company, there exists no basis for any such
conflict.
(o) Compliance with Law. Except as set forth on Schedule 5(o)
attached hereto and incorporated herein by reference, the Company is not in
violation of any law, regulation, authorization, or order of any public
authority including, without limitation any Environmental Laws relevant to the
ownership of its properties or the carrying on of its present or contemplated
business.
(p) Brokerage Fees. There are no claims against the Company or
any of its officers for brokerage commissions, finders' fees or other similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company, or
such officer. Neither the Company nor any of its officers has employed any
broker or finder in connection with the transactions contemplated by this
Agreement.
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(q) No Crimes, etc. Neither the Company nor, to the best
knowledge of the Company, any of its current executive officers or directors,
nor any of its promoters currently connected with it in any capacity, has since
October 1, 1985:
(i) filed a petition, or had a petition filed against it or
them, under the Federal bankruptcy laws or any state insolvency law, or
had a receiver, fiscal agent or similar officer appointed by a court
for its or their business or property, or for any partnership in which
it or they were a general partner or any corporation or business
association of which it or they were an executive officer at or within
two years before such filing;
(ii) been arrested, indicted or convicted in a criminal
proceeding or been named the subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(iii) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining it or them from, or
otherwise limiting the following activities:
(A) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading
Commission ("CFTC"), or an associated person of any of the
foregoing, an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(B) engaging in any type of business practice; or
(C) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or state securities law or
Federal commodities law;
(iv) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State
authority barring, suspending or otherwise limiting its or their right
to engage in any activity described in (iii) above, or to be associated
with persons engaged in any such activity;
(v) been found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission
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<PAGE> 17
(the "Commission") or CFTC or any state securities administrator or
commissioner to have violated any Federal or state securities law or
Federal commodities law, and the judgment in such civil action or
finding by the Commission or the CFTC or any state securities
administrator or commissioner has not been subsequently reversed,
suspended or vacated; or
(vi) filed a registration statement which is the subject of a
currently effective stop order entered pursuant to any state's law.
(r) Related Transactions. Except as disclosed on Schedule 5(r) attached
hereto and by reference made a part hereof, no "Conflict of Interest
Transactions" with "Restricted Persons" of the Company, as such terms are
defined in subsection 8(j) hereof, have occurred within the past twelve months.
(s) Leased Real Property. Schedule 5(s) attached hereto and by
reference made a part hereof sets forth a list of all leases or subleases of all
real property or interests therein currently leased by the Company (the "Real
Property Leases"). Complete and correct copies of all such Real Property Leases
have been delivered to the Investors. Except as set forth in Schedule 5(s), no
alterations are being made or are planned with respect to any of the real
property covered by the Real Property Leases. Each Real Property Lease is legal,
valid and binding and the Company is a tenant in good standing, free of any
default or breach whatsoever and quietly enjoys the premises provided for
therein. Each rental and other payment due under each Real Property Lease has
been duly made; each act required to be performed which, if not performed, would
constitute a material breach thereof has been duly performed; and no act
forbidden to be performed has been performed thereunder which, if performed,
would constitute a material breach thereof. The Company has the legal right
(without the consent or other approval of any other party) to possess and
quietly enjoy each of the premises and properties under each of the Real
Property Leases. All real property covered by the Real Property Leases is zoned
for the purposes for which each of such properties is currently being used. None
of the real property covered by the Real Property Leases has been condemned or
otherwise taken by any public authority, and, to the best knowledge of the
Company, no condemnation or taking is threatened or contemplated. None of the
real property is subject to any claim, contract or law which might affect its
use or value for the purposes now made of it during the terms of the respective
Real Property Leases.
(t) Noncompetition Agreements. To the best knowledge of the Company, no
individual party thereto is in default of his respective Noncompetition
Agreement and such Noncompetition Agreements remain in full force and effect.
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<PAGE> 18
(u) Registration Exemption. Based upon the representations contained in
Section 6 hereof, the issuance by the Company of the Class C Preferred Stock
and, upon conversion thereof, the Common Stock so obtained, is exempt from the
registration requirements under the securities laws of the United States and the
State of North Carolina and any other applicable state securities laws.
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each of the Investors severally (but not jointly) represents and
warrants to the Company as follows:
(a) Investment Purpose. In making the purchases contemplated herein, it
is specifically understood and agreed that the Investor is acquiring the Class C
Preferred Stock for the purpose of investment for its own account, not as a
nominee or agent, and not with a view towards the sale or distribution thereof
within the meaning of the Securities Act; provided, however, that the
disposition of the Investor's property shall at all times be and remain within
its control. The Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant a participation in to
such person, or to any third person, the Class C Preferred Stock or the Common
Stock issuable upon conversion thereof except, as to Investors other than
individual Investors, upon the liquidation or dissolution of the Investor or
earlier following a Public Offering. No Investor has any immediate plans to
liquidate or dissolve or effect any other transaction the effect of which would
be to distribute the Class C Preferred Stock to its equity holders.
(b) Exemptions. The Investor understands that the Class C Preferred
Stock will not be registered under the Securities Act or any applicable state
securities law, by reason of its issuance by the Company in a transaction exempt
from the registration requirements of the Securities Act and such laws, and that
it must hold the Class C Preferred Stock, and any shares of the Company's Common
Stock obtained by conversion of Class C Preferred Stock, indefinitely unless a
subsequent disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt from registration.
(c) Rule 144. The Investor understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to the
Investor) promulgated by the Commission under the Securities Act depends on the
satisfaction of various conditions, including the requirement that the Company
has been subject to the reporting requirements of Section 13 or Section 15 of
the Securities Exchange Act of 1934 for at least 90 days, and that, if
applicable, Rule 144 affords the basis for sales only in limited amounts and
that the Company does not now qualify under Rule 144 and may not ever qualify.
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(d) No Broker. The Investor has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(e) Investment Decision. The Investor is experienced in evaluating and
investing in recently organized companies such as the Company, is able to fend
for itself in the transactions contemplated by this Agreement, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment, and has the ability to bear
the economic risks of an entire loss of its investment. The Investor has been
furnished with or has had access to the information it has requested from the
Company and has had an opportunity to discuss with management of the Company the
business and financial affairs of the Company; provided, however, that the
foregoing shall in no way affect, diminish or derogate from the representations
and warranties made by the Company hereunder or the right of the Investor to
rely thereon and to seek indemnification hereunder.
(f) Accredited Investor. The Investor is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act; provided, however, that this representation is not applicable to
any Investor who has informed the Company that it is not an accredited investor.
(g) Restriction on Sale or Transfer. The Investor agrees that in no
event will it sell, transfer or otherwise dispose of any of the Class C
Preferred Stock or Common Stock issuable upon conversion thereof (other than
pursuant to an effective registration statement under the Securities Act and any
applicable state securities laws), unless and until the Investor or its proposed
transferee shall have furnished to the Company an opinion, reasonably
satisfactory to the Company, of counsel reasonably satisfactory to the Company,
prepared at the expense of the Investor or its transferee, to the effect that
such transfer may be made without registration under the Securities Act and all
applicable state securities laws.
(h) Legend. All certificates evidencing the Class C Preferred Stock and
any Common Stock issued upon conversion thereof shall bear a legend
substantially to the following effect until the same is no longer required under
the Securities Act:
"These securities have not been registered under the
Securities Act of 1933, as amended, or any applicable state
securities laws. They may not be sold, offered for sale,
pledged, hypothecated or otherwise disposed of absent
registration of such securities under said Act and said laws
unless the Company receives an opinion of counsel satisfactory
to the Company that such registration is not required."
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<PAGE> 20
The certificates evidencing the Class C Preferred Stock and any
Common Stock issued upon conversion thereof shall also bear any legend required
by any applicable state securities law. In addition, the Company shall make a
stop transfer notation regarding the foregoing restrictions on transfer in its
records, and the Class C Preferred Stock and any Common Stock issued upon
conversion thereof shall be transferred on the books of the Company only if
transferred or sold pursuant to an effective registration statement under the
Securities Act covering such shares or pursuant to and in compliance with the
provisions of subsection 6(g) hereof.
(i) Authorization. The execution and delivery of this Agreement, the
Registration Rights Agreement and the Shareholders' Agreement have been duly
authorized by all necessary action of the Investor, do not conflict with or
result in a breach of any of the Investor's governing documents or any agreement
to which the Investor is a party or is subject or any judgment, order, writ,
injunction, decree, rule or regulation of any court or administrative agency,
and constitute legal, valid and binding agreements of the Investor enforceable
against it in accordance with their respective terms.
(j) Additional Representations. Those Investors listed on Exhibit 6
hereto hereby represent that the statements contained in Exhibit 6 are true and
correct as of the date hereof.
7. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, prior to the occurrence of a
Public Offering, for so long as (i) any of the Investors owns any Preferred
Stock or Common Stock into which the Preferred Stock has been converted or (ii)
any part of the principal or interest on the Redemption Notes remains unpaid:
(a) Conversion of Preferred Stock. The Company shall at all times
maintain a sufficient number of authorized but unissued shares of its Common
Stock to allow for the full conversion by the Investors of the Preferred Stock,
and shall promptly accomplish such conversion upon the request of any of the
Investors and the presentation of such Investor's shares of Preferred Stock in
accordance with the terms and conditions set forth in Exhibit 2 hereto.
(b) Redemption of Preferred Stock. The Company will duly and punctually
redeem the Preferred Stock in accordance with the provisions of Articles of
Incorporation, as such Articles of Incorporation may from time to time be
amended.
(c) Use of Proceeds. The Company shall utilize the proceeds received by
it from the sale of the Class C Preferred Stock for general working capital
purposes and in accordance with the budgets delivered pursuant to subsections
4(c) and 7(e) hereof.
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(d) Payment of Redemption Notes. The Company will duly and punctually
pay the principal and interest on the Redemption Notes on the dates and in the
manner provided therein.
(e) Preparation and Approval of Budgets, Etc. The Company will, no
later than 30 days before the commencement of each of its fiscal years, prepare
and submit to its Board of Directors and each of the Investors, and will obtain
the approval of the Required Investors with respect thereto, consolidated
capital and operating expense budgets, projections of sources and applications
of funds, balance sheets and profit and loss projections, all for each month of
such fiscal year, all itemized in reasonable detail (including itemization of
provisions for officers' compensation). Each Investor shall, in addition, be
furnished any material revisions made in the budgets, projections or other
information furnished pursuant to this subsection, within 10 days after the
adoption of such revisions. All financial statements and reports furnished to
the Investors pursuant to subsection 7(h) and pursuant to the preceding sentence
with respect to which a budget, projections or other information has been
submitted shall set forth, to the extent practicable, in comparative form,
figures for such budget, projection or other information for the applicable
preceding accounting period.
(f) Taxes and Liens. The Company will pay and promptly discharge, when
due, all lawful claims, including taxes, assessments, governmental charges and
claims for labor, materials and supplies incurred in the ordinary course of
business, except in those instances where the validity or amount thereof is
being contested in good faith and by appropriate legal or administrative
proceedings, and an adequate reserve therefor has been established on its books.
(g) Insurance. The Company will maintain (i) all of its assets which
are of an insurable character fully insured against loss or damage by fire,
flood, theft, explosion, sprinklers and all other hazards and risks ordinarily
insured against under all risk policies in use in the jurisdiction where such
assets are located, (ii) insurance against claims for general comprehensive
liability relating to bodily injury, death or property damage in amounts as
shall be satisfactory to the Investors in their reasonable judgment and are
consistent with the type and amounts of insurance customarily carried by similar
companies, (iii) insurance under the workers' compensation laws of the states in
which the Company conducts business and (iv) life insurance, in the minimum
amount of at least $1,000,000 each, on the lives of William J. Pratt and David
A. Norbury. The Company shall provide the Investors with copies of all such
policies upon request, which policies shall be issued by financially sound and
reputable insurers acceptable to the Investors in their reasonable discretion.
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<PAGE> 22
(h) Financial Statements. The Company will deliver to the
Investors:
(i) within 30 days after the end of each month, a balance sheet of
the Company as of the end of such month, statements of income
and retained earnings and statements of cash flows of the
Company for the current month just ended and for the period
from the beginning of the current fiscal year to the end of
such month, all in reasonable detail and satisfactory in form
and scope to the Investor, and prepared in accordance with
generally accepted accounting principles, consistently
applied. With respect to each such financial statement, the
Company will deliver to the Investors (A) a comparison of
actual financial results to budgeted figures, for the month to
which the financial statements pertain for the fiscal year to
date and (B) an Officer's Certification from the chief
executive officer or chief financial officer of the Company
stating in effect that, to the best of his knowledge and
belief, such financial statements are true and correct and
have been prepared in accordance with generally accepted
accounting principles, consistently applied, subject to
changes resulting from year-end adjustments;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year, a balance sheet of the Company as of
the end of such fiscal year, and a statement of income and
retained earnings and a statement of cash flows of the Company
for such year, setting forth in each case in comparative form
corresponding figures from the preceding year, and a
comparison of actual consolidated financial results to
budgeted figures for the fiscal year in question, all in
reasonable detail and satisfactory in form and scope to the
Investors and certified by and containing an unqualified
report thereon satisfactory to the Investors of Ernst & Young
or another firm of independent certified public accountants
acceptable to the Investors, which financial statements shall
have been prepared in accordance with generally accepted
accounting principles, consistently applied;
(iii) within 30 days after the end of each month, a management
summary prepared by the Company's chief executive officer
(which management summary should not customarily exceed two
type-written pages in length) setting forth in narrative form
all significant operational and financial events and
activities affecting the Company during such month, and
stating that the chief executive officer has reviewed the
obligations of the Company under this Agreement and the
related documents and, to his best knowledge and
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<PAGE> 23
belief, no breach by the Company of this Agreement has
occurred, or disclosing any breach of which he has obtained
knowledge and setting forth what action, if any, has been
initiated or taken by the Company towards the curing of such
breach;
(iv) as soon as available and to the extent requested by the
Investors, copies of all statements, reports and other
documents relating to the financial condition of the Company
and its business operations as required to be furnished to any
lender of the Company pursuant to the terms of any loan
documentation, as the same may be amended, supplemented or
modified from time to time;
(v) promptly upon transmission thereof, and in any event no later
than 10 days after the date of such transmission, copies of
all financial statements, reports and returns as the Company
shall send to its stockholders and any governmental
department, bureau, commission or agency having regulatory
authority over the Company and including, but not limited to,
all communications to and from applicable regulatory
authorities regarding notice of enforcement proceedings,
complaints, inspections and related matters;
(vi) promptly upon the effectiveness thereof, certified copies of
all amendments to the Articles of Incorporation and Bylaws of
the Company;
(vii) with reasonable promptness, such additional financial or other
data as the Investors may reasonably request; and
(viii) following the occurrence of a Public Offering and
notwithstanding the introductory clause of this Section 7,
promptly upon being filed, a copy of each 10-K, 10-Q and 8-K
filed by the Company.
(i) Other Information; Examination. The Company will furnish to
the Investors from time to time and with reasonable promptness (i) detailed
information with respect to proposed material events relating to the operations
of the Company (including, without limitation, matters relating to any public
offering of securities, financing arrangements, material litigation, either
filed against or on behalf of the Company, and contracts for substantial amounts
of the Company's products and contracts for any related services), and (ii)
copies of all material documents filed with any court with respect to any
material litigation in which the Company is a party. The Company will further
permit representatives of the Investors to visit and inspect the premises of the
Company and to examine its insurance certificates and records, books of account
and other records at such reasonable times and as often as the Investors may
reasonably request, but only under circumstances as would not
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unreasonably interfere with the conduct of the Company's business. The Company
will also permit representatives of the Investors to visit with the Company's
accountants, and this Agreement shall constitute the Company's authorization to
said accountants to discuss with such representatives the Company's affairs,
finances and accounts. The foregoing notwithstanding, nothing in this subsection
7(i) shall entitle an Investor that is a customer or supplier of the Company to
receive or be provided access to competitively sensitive information.
(j) Meetings.
(i) The Company will have regular meetings of its Board of
Directors at least every calendar quarter (and more frequently if felt
to be necessary by the Required Investors) and of its shareholders at
least once a year, as provided for in the Company's Bylaws, and minutes
of such meetings shall be prepared and maintained as a part of the
permanent records of the Company. The Company will provide the
Investors with written notice of all proposed agendas (which shall not,
however, limit the matters which may be acted upon in the event a
majority of the directors or shareholders, as appropriate, present at
the meeting vote to discuss or act upon any other matter) for all
meetings of the shareholders and Board of Directors of the Company at
least two weeks in advance (except in the case of special meetings of
the Board of Directors, in which case such notice shall be as prompt as
practicable).
(ii) Each of the Investors owning not less than 80,000 shares
of Preferred Stock and not otherwise directly represented on the Board
of Directors shall be entitled to have a representative present at each
regular and special meeting of the Board of Directors in a nonvoting
observer capacity; provided, however, that such representative shall
agree to hold in trust and act in a fiduciary capacity with respect to
all information provided at such meetings and provided further that the
Company may exclude such representatives at any meeting of which
attendance by such representative could adversely affect the
attorney-client privilege between the Company and its counsel; and
provided, further, that the representative of an Investor that is a
customer or supplier of the Company (A) shall not be entitled to attend
meetings of the Board of Directors at which the principal agenda items
are competitively sensitive information with respect to the Investor or
its affiliate and (B) may be excluded from any portion of a meeting of
the Board of Directors during which competitively sensitive information
with respect to the Investor or its affiliate is to be discussed.
(k) Executive Personnel. Set forth on Schedule 7(k) attached hereto and
incorporated herein by reference is a list of the officers and other Key
Employees of the Company. The Company
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will use its best efforts to retain the same executive personnel and management
as it has as of the date hereof; provided, however, that nothing herein shall
give any officer or Key Employee of the Company any rights greater than he would
otherwise have under any existing agreement with the Company. With respect to
future Key Employees, the Company will enter into appropriate inventions and
confidentiality agreements on terms and conditions reasonably satisfactory to
the Board of Directors.
(l) Books of Account. The Company will maintain books of account in
accordance with generally accepted accounting principles, consistently applied.
(m) Corporate Existence. The Company will do all things necessary to
preserve and to keep in full force and effect its corporate existence, rights
and franchises granted by law or otherwise.
(n) Comply with Laws. The Company will comply in all material respects
with all laws of the United States and each state and subdivision thereof which
may be applicable to it, and with all rules and regulations promulgated by
agencies, commissions and other instrumentalities of the United States and any
state or subdivision thereof having rule-making or regulatory authority over the
Company.
(o) Maintain Property. The Company will take all reasonable steps to
maintain its property in good order and repair.
(p) Notice of Default. The Company will, within five days of its
discovery of any default under this Agreement, or any default under any other
agreement executed in connection herewith, or under any other loan or material
lease pursuant to which the Company is obligated to any third party, furnish the
Investor with a copy of any notification of default (in the case such
notification is received with respect to obligations owing to third parties) and
an Officer's Certification providing a written explanation of the circumstances
involved.
(q) Amend Bylaws. The Company will amend its Bylaws to the extent
necessary to avoid or eliminate a conflict with the terms of this Agreement.
(r) Director Liability. The Company will, as from time to time made
necessary by a change in applicable law, amend its Bylaws or Articles of
Incorporation to the extent necessary to limit the liability of directors and to
provide for the indemnification of directors, in both instances, to the maximum
amount allowed by law.
(s) SBA Repurchase Obligation. If the Company uses the proceeds
received from the sale of the Class C Convertible Preferred Stock to an SBIC
Purchaser in violation of the rules
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and regulations promulgated by the Small Business Administration (the "SBA") it
shall give each Investor that is a small business investment company (as
determined by the SBA, an "SBIC Purchaser") the right in its sole and absolute
discretion to demand, upon 30 days' notice, that the Company repurchase, at the
price paid hereunder by such SBIC Purchaser to the Company, the Class C
Convertible Preferred Stock purchased by such SBIC Purchaser hereunder. All
amounts due hereunder shall be paid to such SBIC Purchaser by certified check,
cashier's check or wire transfer in immediately available funds. Notwithstanding
the foregoing, to the extent that SBA regulations permit the Company to cure any
default under this Section 7(s), the Company may cure such default prior to the
expiration of the 30-day notice period above, and in such case the rights of
such SBIC Purchaser under this Section 7(s) shall cease with respect to such
default. Any such cure shall in no way be deemed to limit such SBIC Purchaser's
right under this Section 7(s) with respect to any subsequent default. Nothing in
this Section 7(s) shall be construed to restrict or otherwise limit any SBIC
Purchaser's right to seek all other remedies available to it as provided
hereunder, or at law or in equity. The provisions of this Section 7(s) shall
expire with respect to any SBIC Purchaser upon evidence satisfactory to such
SBIC Purchaser that the Company has utilized the proceeds received pursuant to
this Agreement in a manner that is consistent with their use reported to the SBA
on SBA Form 1031.
8. NEGATIVE COVENANTS OF THE COMPANY.
The Company covenants and agrees that, prior to the occurrence of a
Public Offering, for so long as (i) any of the Investors owns any Preferred
Stock or Common Stock into which the Preferred Stock has been converted or (ii)
any part of the principal or interest on the Redemption Notes remains unpaid,
the Company will not, without obtaining the prior written permission and consent
of the Required Investors, do any of the following:
(a) Dividends and Redemption of Stock. Authorize, declare or pay any
dividend, whether in cash, properties or securities, or make any distribution
upon any class of its capital stock, except for the redemption of Preferred
Stock in accordance with the Articles of Incorporation.
(b) Loans to, Investments in, and Liabilities of Others. Make or permit
to remain outstanding any loan or advance to, or pledge or encumber its assets
for the benefit of, or assume or guarantee the payment or performance of any
liability or obligations of, or own, purchase or acquire any stock or securities
of, or guarantee, endorse or otherwise be or become contingently or absolutely
liable in connection with the obligations, stock or dividends of, any other
Person except for: (a) the endorsement of negotiable instruments for deposit or
collection in the normal course of business; (b) the investment in direct
obligations of the United States of America or generally accepted
22
<PAGE> 27
short-term money market instruments which by independent credit ratings by
Standard & Poors or Moody's are considered nonspeculative, or in bank
certificates of deposit; (c) the extension of credit in the ordinary course of
business in connection with the sale of its products and services; (d) the
investment in, or purchase of shares of open-end investment companies investing
in high-grade money market instruments; (e) the making of advances to employees
and consultants for expenses incurred in the ordinary course of business; (f)
the making of deposits in the ordinary course of business with vendors,
suppliers of services, and other entities; or (g) as provided for in the budget
delivered in accordance with subsection 4(c) hereof or proposed and approved in
accordance with subsection 7(e) hereof.
(c) Disposal of Assets. Sell, exchange, convey, assign, transfer, lease
or otherwise dispose of all or any portion of its assets other than dispositions
which (i) result in proceeds to the Company of $50,000 or less, (ii) are for
adequate value and (iii) are in the normal course of the Company's business
operations.
(d) Subsidiary Corporation. Create or acquire in any manner a
Subsidiary corporation, or acquire any equity interest in any other Person.
(e) Character of Business. Change the general character of the business
of the Company as conducted at the date hereof, or engage in any type of
business not reasonably related to the business of the Company as presently
conducted.
(f) Payment for Services or Property Not Delivered. Enter into or be a
party to any contract for the purchase of materials, supplies or other property
or for the provision of services if such contract requires that payment for such
materials, supplies or other property or services shall be made regardless of
whether or not delivery is ever made of such materials, supplies or other
property or whether or not performance of such services is ever accomplished.
(g) Sale and Leaseback. Enter into any arrangement, directly or
indirectly, whereby the Company shall sell or transfer any real or personal
property, whether now or hereafter acquired, used or useful in the business of
the Company and thereafter rent or lease such property, or other property, which
the Company shall intend to use for substantially the same purpose as the
property sold or transferred.
(h) Capital Expenditures and Leasehold Obligations. Make or enter into
(a) any capital expenditures of the Company or expenses for research and
development mask sets and productions mask sets which exceed the amount provided
for in the budget delivered in accordance with subsection 4(c) hereof or
prepared and approved in accordance with subsection 7(e) hereof, (b) any
23
<PAGE> 28
leasehold obligations of the Company with respect to which the total of such
rentals and other payments owing over the life of such leases is in excess of
the amount provided for in the budget delivered in connection with subsection
4(c) hereof or prepared and approved in accordance with subsection 7(e) hereof
or (c) any contract that would reasonably be expected to result in expenditures
by the Company in excess of $50,000 in any fiscal year.
(i) Discount or Sale of Notes and Accounts Receivable. Discount or
sell, with recourse, or sell for less than the face amount thereof, any of the
notes or accounts receivable of the Company.
(j) Conflict of Interest Transactions With Restricted Persons. Enter
into any transaction with a Restricted Person of the Company, except on terms
that would be usual and customary in a similar transaction between Persons who
are not Affiliates, or enter into a Conflict of Interest Transaction with such
Restricted Person. For purposes of this Agreement, a Restricted Person shall
consist of an employee, a shareholder, director or officer of the Company, or a
relative of any such individual, or a customer or supplier of the Company, and a
Conflict of Interest Transaction shall include, but not be limited to, the sale
of merchandise or the provision of services by the Company for less than fair
market value, or the purchase of merchandise or supplies in transactions
involving rebates to or from a Restricted Person, or the payment of fees or
salaries in excess of the legitimate and documentable fair market value of the
services rendered for such fees or salaries.
(k) No Amendments to Bylaws or Noncompetition Agreements. Make any
amendments to the Company's Bylaws or, without the approval of the Board of
Directors, amend any of the Noncompetition Agreements.
(l) Setting or Changing Compensation. Without the approval of the
Compensation Committee of the Board of Directors, set or change the compensation
(including salary, bonuses, stock options and benefits) of the chief executive
officer or any officer who reports directly to the chief executive officer.
(m) Indebtedness. Except for the indebtedness disclosed in the
Financial Statements delivered pursuant to subsection 4(c) hereof or described
on Schedule 5(j) hereto or provided for in budgets proposed and approved in
accordance with subsection 7(e) hereof, incur, create, assume or permit to exist
any liability for borrowed money, or any other liability evidenced by notes,
bonds, debentures or similar obligations.
(n) "Off Balance Sheet Financing." Create any financial obligations
which are not reported as liabilities or obligations to pay to their full extent
on the audited balance sheet of the financial statements of the Company, whether
such obligations be
24
<PAGE> 29
leases, lease-purchases, non-recourse financing or any other means or methods
commonly referred to as "off balance sheet financing."
(o) Assignment of Rights. Assign any rights or obligations under this
Agreement or any of the other agreements contemplated in this transaction.
(p) Employee Benefit Plans. Without the approval of the Board of
Directors, adopt or amend any employee benefit plans, other than stock option
plans.
(q) Stock Option Plans. Adopt any stock option plan or enter into any
stock option agreement or amend any existing stock option plan or related
agreement if such plan or agreement, as adopted, entered into or amended, would
(i) provide the employee with a vesting or exercise schedule more favorable than
the schedule currently in effect under the agreements entered into between the
Company and certain of its employees pursuant to the Company's 1992 Stock Option
Plan or (ii) contain repurchase provisions less favorable to the Company than
the repurchase provisions currently in effect under the agreements entered into
between the Company and certain of its employees pursuant to the Company's 1992
Stock Option Plan.
9. GENERAL.
As further and special provisions set forth under this Agreement, the
parties hereto further warrant, covenant, contract and agree each with the other
as follows:
(a) Entire Agreement. This Agreement, the Exhibits and Schedules hereto
and other documents referred to herein constitute the entire understanding among
the parties as to the subject matter specifically referred to herein or therein.
The affirmative and negative covenants contained in Sections 7 and 8 of this
Agreement supersede the affirmative and negative covenants contained in Sections
7 and 8 of the Stock Purchase Agreement dated December 1, 1993 (the "Prior
Agreement") by and among the Company and the Investors named therein, which
Agreement otherwise remains in full force and effect (unless and to the extent
that the Prior Agreement conflicts with the terms of this Agreement with respect
to the sale of the Class C Preferred Stock, in which case this Agreement shall
control).
(b) Survival of Agreements and Representations and Warranties. All
agreements and all representations and warranties contained herein or made in
writing by the Company in connection herewith, to the extent applicable, shall
survive the execution and delivery of this Agreement and other documents
referred to herein and shall continue so long as (i) any of the Investors owns
any Preferred Stock or Common Stock into which the Preferred Stock has been
converted or (ii) any interest and principal of the Redemption Notes remains
unpaid.
25
<PAGE> 30
(c) No Waiver. No delay by or on behalf of the Investors in exercising
any rights conferred hereunder, and no course of dealing between the Investors
and the Company, shall operate as a waiver of any right granted hereunder,
unless expressly waived in writing by the party whose waiver is alleged.
(d) Binding Effect. All covenants, representations, warranties and
other stipulations in this Agreement and other documents referred to herein,
given by or on behalf of any of the parties hereto, shall bind and inure to the
benefit of the respective successors, heirs, personal representatives and
assigns of the parties hereto.
(e) Initial Holders. The Company shall be entitled to treat and deal
with the Investors, and shall not be required to recognize any other Person as
the holder of the Preferred Stock, the Common Stock or the Redemption Notes,
except after production of the stock certificates representing the Preferred
Stock or the Common Stock or the Redemption Notes, duly endorsed for transfer,
together with such documentation as the Company may reasonably require
concerning compliance with Federal or state securities laws, or after receipt by
the Company of written notice from the Person theretofore entitled to be treated
as the holder advising the Company of the transfer of such stock certificates
representing the Preferred Stock or the Common Stock or of the Redemption Notes
or any portion thereof to such other Person and stating the latter's address,
together with such documentation as the Company may reasonably require
concerning compliance with Federal or state securities laws.
(f) Cumulative Powers. No remedy herein conferred upon the Investors is
intended to be exclusive of any other remedy, and each such remedy shall be
cumulative and in addition to every other remedy given hereunder or now or
hereafter existing at law, or in equity or by statute or otherwise.
(g) Loss of Securities; Reissuance in Lesser Denominations. Upon:
(i) receipt of evidence satisfactory to the Company of loss,
theft, mutilation or destruction of a stock certificate or a Redemption
Note; and
(ii) in the case of any such loss, theft, or destruction, upon
delivery of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon
surrender and cancellation of such stock certificate or such Redemption
Note,
the Company will make and deliver a new certificate or a new Redemption Note of
like tenor, in lieu of such lost, stolen, mutilated or destroyed certificate or
Redemption Note. In addition, upon request of any holder of a stock certificate
or
26
<PAGE> 31
Redemption Note or other securities of the Company now or hereafter issued by
the Company to the Investors, and upon surrender of such certificate or
Redemption Note or other securities to the Company and compliance with any
restrictive legends, the Company will reissue, in lesser denominations to
parties designated by such holder, new certificates or Redemption Notes or other
securities in the equivalent amounts of such other securities surrendered.
(h) Communications. All communications and notices provided for
hereunder shall be sent by registered or certified mail, via a courier service,
or by telephonic notice, telecopy, telegram or Telex (except for communications
pursuant to subsection 7(h) hereof, which may be delivered by regular,
first-class mail) to the Investors and the Company at their respective addresses
set forth on Schedule 9(i) hereto, or to such other address with respect to any
party as such party shall notify the other parties hereto in writing. Any notice
required to be given hereunder by one party to another shall be deemed to have
been given when deposited in certified or registered form in the United States
mail, properly addressed to such other party and with proper first-class postage
and postage for certification or registration affixed thereto (or, in the case
of notice by courier service, telephonic notice, telecopy, telegram or Telex,
where the receipt of such message is verified by return). Except as otherwise
provided for herein, all requests for disclosure or other provision of
information to be made or otherwise given by the Company shall be completed no
later than 10 days following the giving of a written request therefor in the
manner described in this subsection.
(i) Governing Law. This Agreement shall be governed in all respects by
the laws of the State of North Carolina.
(j) Headings. The descriptive section headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
(k) Multiple Originals. This Agreement may be executed simultaneously
in multiple counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
(l) Amendment or Waiver. This Agreement may be amended only by the
written agreement of (i) the Company and (ii) those Investors holding an
aggregate ownership interest of sixty percent (60%) of the Preferred Stock held
by all Investors. For the purposes of the previous sentence, the ownership
interest of an Investor with respect to Preferred Stock shall be (i) the number
of shares of Common Stock held by the Investors which were obtained by
conversion of shares of Preferred Stock, (ii) the number of shares of Common
Stock issuable to the Investor
27
<PAGE> 32
pursuant to the conversion of shares of such class of Preferred Stock held by
the Investor, and (iii) following the redemption of the Investor's Preferred
Stock, the number of shares of Common Stock that would have been issuable to the
Investor if the Investor had converted its Preferred Stock immediately prior to
redemption; provided, however, that the ownership interest of an Investor
determined pursuant to this clause (iii) shall be deemed to be reduced
proportionately in accordance with the repayment of the Redemption Note held by
the Investor. The Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, if the Company shall
obtain the written consent of the Required Investors to such action or omission
to act. Neither this subsection 9(m) nor the definition of "Required Investors"
set forth in Section 1 hereof may be amended without the prior written consent
of all Investors. Any such consent to any such action or omission to act may be
granted prior to or after such action or omission to act. Each holder of the
Preferred Stock, the Common Stock obtained upon conversion of Preferred Stock
and the Redemption Notes, at the time or times thereafter outstanding, shall be
bound by any consent authorized by this section, whether or not the stock
certificates or the Redemption Notes shall have been marked to indicate such
consent. Any provision contained herein to the contrary notwithstanding, this
Agreement may not be waived, modified or amended without the written consent of
the holders of sixty percent (60%) of a class of Preferred Stock if such waiver,
modification or amendment would have an adverse effect on the rights and
privileges of such class of Preferred Stock that is materially and adversely
different from the effect of such amendment on the holders of other classes of
Preferred Stock.
(m) Obligations of Company to Certain Investors. The Company shall be
deemed to have fulfilled its obligation to each Investor if (i) it provides to
the Related Investor of such Investor the information and notices required to be
provided in subsections 7(e), 7(h), 7(i), 7(j) and 7(p) or pursuant to the
Registration Rights Agreement or the Shareholders' Agreement and (ii) it allows
the Related Investor of such Investor Affiliate to make the inquiries, visits
and inspections allowed by subsection 7(i). For the purposes hereof, (i) ATG
shall be the Related Investor for the following Investors: Robert G. Paul,
Philip W. Colburn, Robert A. Youdelman and Erik H. van der Kaay and (ii) ATV
shall be the Related Investor for the following Investors: Royce Diener, Robert
Easton, Peter Flanigan, Steward S. Flaschen Revocable Investment Trust, Flaschen
Family Trust, Robert F. Sproull, Richard J. Testa and Jasper Welch. Nothing
contained in this subsection 9(n) shall relieve the Company of any obligation
imposed by law to provide any of the Investors with notices or other
information.
28
<PAGE> 33
IN WITNESS WHEREOF, the corporations party hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers, their respective seals to be hereunto affixed, all by authority of
their respective Board of Directors, the partnerships party hereto have caused
this Agreement to be duly executed and delivered by a general partner thereof,
and the individuals party hereto have set their hands, all as of the day and
year first above written.
COMPANY:
ATTEST: RF MICRO DEVICES, INC.
By:
- --------------------- -----------------------------------
Secretary David A. Norbury, Chief Executive
- ---------- Officer and President
[CORPORATE SEAL]
INVESTORS:
KITTY HAWK CAPITAL LIMITED PARTNERSHIP
II
By: KITTY HAWK PARTNERS LIMITED
PARTNERSHIP, General Partner
By:
-----------------------------------
Walter H. Wilkinson, Jr.,
General Partner
----------------------------------(SEAL)
Walter H. Wilkinson, Jr.*
* Executed solely for the purpose of confirming the accuracy
of the representations on Exhibit 6 made as to himself
individually.
<PAGE> 34
ADVANCED TECHNOLOGY VENTURES III, L.P.
By: ATV ASSOCIATES III, L.P.,
General Partner
By:
--------------------------------
Albert E. Paladino,
General Partner
(SEAL)
-----------------------------------
Albert E. Paladino *
* Executed solely for the purpose of confirming the accuracy
of the representations on Exhibit 6 made as to himself
individually.
ALLEN TELECOM GROUP, INC.,
By:
------------------------------------
McDara P. Folan, III
Vice President
BRANTLEY VENTURE PARTNERS, II, L.P.
By:
----------------------------------
Raymond J. Rund,
General Partner
(SEAL)
---------------------------------------
Raymond J. Rund *
<PAGE> 35
* Executed solely for the purpose of confirming the accuracy
of the representations on Exhibit 6 made as to himself
individually.
THE NORTH CAROLINA ENTERPRISE FUND, L.P.
By: THE NORTH CAROLINA ENTERPRISE
CORPORATION, General Partner
By:
-----------------------------
Joseph A. Velk,
Vice President
CAROLINAS CAPITAL LIMITED PARTNERSHIP
By: CAROLINAS CAPITAL INVESTMENT
CORPORATION, General Partner
By:
-----------------------------
Edward S. Goode,
President
NORWEST EQUITY PARTNERS IV, a Minnesota
Limited Partnership
By: ITASCA PARTNERS, General Partner
By:
-------------------------
Ernest Parizeau,
General Partner
NORWEST EQUITY PARTNERS V, a Minnesota
Limited Partnership
By: ITASCA PARTNERS, General Partner
By:
--------------------------
Ernest Parizeau,
General Partner
<PAGE> 36
(SEAL)
----------------------------------
Robert C. Fleming *
* Executed solely for the purpose of confirming the accuracy
of the representations on Exhibit 6 made as to himself
individually.
(SEAL)
----------------------------------
Robert G. Paul
(SEAL)
----------------------------------
Philip W. Colburn
(SEAL)
----------------------------------
Robert A. Youdelman
(SEAL)
----------------------------------
Erik H. van der Kaay
(SEAL)
----------------------------------
Royce Diener
<PAGE> 37
(SEAL)
----------------------------------
Robert J. Easton
(SEAL)
----------------------------------
Peter Flanigan
STEWARD S. FLASCHEN REVOCABLE INVESTMENT
TRUST
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
FLASCHEN FAMILY TRUST
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
(SEAL)
----------------------------------
Robert F. Sproull
(SEAL)
----------------------------------
Richard J. Testa
(SEAL)
----------------------------------
Jasper Welch, Jr.
SSANG YONG CEMENT (SINGAPORE) LIMITED
<PAGE> 38
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
ALLIANCE TECHNOLOGY VENTURES, L.P.
By: ___________________________________
Stephen Fleming
SVE STAR VENTURES ENTERPRISES NO. II GbR
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SVE STAR VENTURES ENTERPRISES NO. III
GbR
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SVE STAR VENTURES ENTERPRISES NO. IIIa
GbR
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
NATIONSBANC CAPITAL CORPORATION
By:
-------------------------------
Robert H. Korman, II,
Senior Vice President
QUALCOMM INCORPORATED
<PAGE> 39
By:
-----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.8
SECURITIES PURCHASE AGREEMENT
BETWEEN
RF MICRO DEVICES, INC.
AND
TRW INC.
JUNE 6, 1996
<PAGE> 2
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS
Section Page
<S> <C> <C>
1. DEFINITIONS..............................................................................................1
-----------
2. AUTHORIZATION OF ISSUANCE OF PURCHASER SECURITIES........................................................4
-------------------------------------------------
3. PURCHASE AND SALE OF SECURITIES..........................................................................4
-------------------------------
4. CONDITIONS OF CLOSING....................................................................................5
---------------------
(a) Consent of Third Parties, etc...................................................................5
-----------------------------
(b) Authorization and Reservation...................................................................5
-----------------------------
(c) Financial Information...........................................................................5
---------------------
(d) Certain Agreements..............................................................................5
------------------
(e) Amendment to Amended and Restated Articles of Incorporation.....................................6
-----------------------------------------------------------
(f) Amendment to Bylaws.............................................................................6
-------------------
(g) Amendment to Stock Option Plan..................................................................6
------------------------------
(h) Opinion of Counsel..............................................................................6
------------------
(i) Delivery of Closing Documents...................................................................6
-----------------------------
(j) Delivery of Purchase Price and Initial Advance Under the Loan...................................8
-------------------------------------------------------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................8
---------------------------------------------
(a) Organization and Good Standing..................................................................8
------------------------------
(b) Affiliations....................................................................................8
------------
(c) Authorized and Issued Capital...................................................................8
-----------------------------
(d) Authorization...................................................................................9
-------------
(e) Good Title to All Properties....................................................................9
----------------------------
(f) Litigation......................................................................................9
----------
(g) Taxes..........................................................................................10
-----
(h) Other Contracts................................................................................10
---------------
(i) Articles of Incorporation and Bylaws...........................................................10
------------------------------------
(j) Financial Statements; Certain Changes..........................................................10
-------------------------------------
(k) Offering of Purchaser Securities...............................................................11
--------------------------------
(l) Governmental Approval..........................................................................11
---------------------
(m) Untrue Statements..............................................................................11
-----------------
(n) Patents, Licenses, Trademarks, etc.............................................................11
----------------------------------
(o) Compliance with Law............................................................................12
-------------------
(p) Brokerage Fees.................................................................................12
--------------
(q) No Crimes, etc.................................................................................12
--------------
(r) Related Transactions...........................................................................13
--------------------
(s) Leased Real Property...........................................................................13
--------------------
(t) Noncompetition Agreements......................................................................13
-------------------------
(u) Registration Exemption.........................................................................14
----------------------
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................14
-----------------------------------------------
(a) Investment Purpose.............................................................................14
------------------
(b) Exemptions.....................................................................................14
----------
(c) Rule 144.......................................................................................14
--------
(d) No Broker......................................................................................14
---------
(e) Investment Decision............................................................................14
-------------------
(f) Accredited Investor............................................................................15
-------------------
(g) Restriction on Sale or Transfer................................................................15
-------------------------------
(h) Legend.........................................................................................15
------
(i) Authorization..................................................................................15
-------------
7. AFFIRMATIVE COVENANTS...................................................................................16
---------------------
(a) Conversion.....................................................................................16
----------
(b) Redemption of Preferred Stock..................................................................16
-----------------------------
(c) Use of Proceeds................................................................................16
---------------
(d) Payment of Redemption Notes....................................................................16
---------------------------
(e) Payment of Convertible Note....................................................................16
---------------------------
(f) Preparation and Approval of Budgets, Etc.......................................................16
----------------------------------------
(g) Taxes and Liens................................................................................17
---------------
(h) Insurance......................................................................................17
---------
(i) Financial Statements...........................................................................17
--------------------
(j) Other Information; Examination.................................................................19
------------------------------
(k) Meetings.......................................................................................19
--------
(l) Executive Personnel............................................................................20
-------------------
(m) Books of Account...............................................................................20
----------------
(n) Corporate Existence............................................................................20
-------------------
(o) Comply with Laws...............................................................................20
----------------
(p) Maintain Property..............................................................................20
-----------------
(q) Notice of Default..............................................................................20
-----------------
(r) Amend Bylaws...................................................................................20
------------
(s) Director Liability.............................................................................20
------------------
(t) SBA Repurchase Obligation......................................................................20
-------------------------
8. NEGATIVE COVENANTS OF THE COMPANY.......................................................................21
---------------------------------
(a) Dividends and Redemption of Stock..............................................................21
---------------------------------
(b) Loans to, Investments in, and Liabilities of Others............................................21
---------------------------------------------------
(c) Disposal of Assets.............................................................................22
------------------
(d) Subsidiary Corporation.........................................................................22
----------------------
(e) Character of Business..........................................................................22
---------------------
(f) Payment for Services or Property Not Delivered.................................................22
----------------------------------------------
(g) Sale and Leaseback.............................................................................22
------------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
(h) Capital Expenditures and Leasehold Obligations.................................................22
----------------------------------------------
(i) Discount or Sale of Notes and Accounts Receivable..............................................22
-------------------------------------------------
(j) Conflict of Interest Transactions With Restricted Persons......................................22
---------------------------------------------------------
(k) No Amendments to Bylaws or Noncompetition Agreements...........................................23
----------------------------------------------------
(l) Setting or Changing Compensation...............................................................23
--------------------------------
(m) Indebtedness...................................................................................23
------------
(n) "Off Balance Sheet Financing...................................................................23
----------------------------
(o) Assignment of Rights...........................................................................23
--------------------
(p) Employee Benefit Plans.........................................................................23
----------------------
(q) Stock Option Plans.............................................................................23
------------------
9. GENERAL.................................................................................................24
-------
(a) Entire Agreement...............................................................................24
----------------
(b) Survival of Agreements and Representations and Warranties......................................24
---------------------------------------------------------
(c) No Waiver......................................................................................24
---------
(d) Binding Effect.................................................................................24
--------------
(e) Initial Holder.................................................................................24
--------------
(f) Cumulative Powers..............................................................................25
-----------------
(g) Loss of Securities; Reissuance in Lesser Denominations.........................................25
------------------------------------------------------
(h) Communications.................................................................................25
--------------
(i) Governing Law..................................................................................25
-------------
(j) Headings.......................................................................................25
--------
(k) Multiple Originals.............................................................................26
------------------
(l) Amendment or Waiver............................................................................26
-------------------
(m) Third Party Beneficiaries......................................................................26
-------------------------
(n) Obligations of Company to Certain Investors....................................................27
-------------------------------------------
(o) Obligations of Purchaser to Pay Its Expenses...................................................27
--------------------------------------------
</TABLE>
iii
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of this 6th day of June,
1996, by and between RF MICRO DEVICES, INC. (the "Company"), and TRW INC. (the
"Purchaser").
WHEREAS, the Purchaser desires to purchase certain securities of the
Company as herein provided (the "Purchaser Securities"); and
WHEREAS, the Company and the Purchaser have reached certain agreements
with regard to the purchase of the Purchaser Securities, all upon the terms and
conditions more particularly described herein; and
WHEREAS, the parties desire to set forth their agreements and
understandings in writing, in consideration of the promises, covenants, matters
and things hereinafter set forth, the parties mutually covenant, contract and
agree, each with the other, as follows:
1. DEFINITIONS.
For the purpose of this Agreement, the following terms shall have the
following meanings:
(a) An "Affiliate" of the Company or any Subsidiary means any Person
that, directly or indirectly, owns or controls, or is owned or controlled by, or
is under common control with, the Company or such Subsidiary, or is an officer,
director or employee of the Company or such Subsidiary or of any company which
is an Affiliate thereof, or any spouse or other relative of such Person who is
an officer, director or employee of the Company, Subsidiary or Affiliate
company, or is any customer or supplier of the Company or such Subsidiary, or
any officer, director or employee thereof (or spouse or other relative of any
such officer, director or employee).
(b) "Class C Preferred Stock" means the Company's Class C Convertible
Preferred Stock, no par value.
(c) "Common Stock" means the Company's common stock, no par value.
(d) "Convertible Note" means the Company's subordinated convertible
promissory note in the form of Exhibit 1(d) hereto.
(e) "Deficit Warrant" means the warrant to purchase shares of Common
Stock or Preferred Stock (the class of which is determined by reference to the
timing of a Public Offering) in the form of Exhibit 1(e) hereto.
(f) "Environmental Laws" means any and all federal, state and local
laws, duties, legal obligations (including obligations of common law), rules,
regulations, ordinances, codes and orders governing, establishing, limiting or
otherwise affecting the discharge of Hazardous Materials. For
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purposes of this definition, "Hazardous Materials" shall mean (i) "solid waste"
(as that term is defined under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., and the regulations adopted pursuant to that Act),
(ii) "hazardous waste" (as that term is defined under the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., and the regulations adopted
pursuant to that Act), (iii) "hazardous substances" (as that term is defined in
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 6901, et seq., and the regulations adopted pursuant to that Act)
and (iv) other pollutants, including without limitation any solid,
liquid, gaseous or thermal irritant or contaminant, such as smoke, vapor, soot,
fumes, acids, alkalis or chemicals.
(g) "Financial Statements" has the meaning set forth in Section 5(j)
hereof.
(h) "Investors" means those Persons listed on Exhibit 1(h) hereto and
the Purchaser, collectively. Investor means any of the Investors individually.
(i) "Intellectual Property Rights" means all industrial, commercial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trade names, service marks, copyrights,
computer programs, certificates of public convenience and necessity, franchises,
licenses, trade secrets, proprietary processes, formulae, circuit designs and
masks.
(j) "Key Employee" means (i) each officer of the Company, (ii) each
employee of the Company whose annual salary exceeds $50,000, (iii) each employee
of the Company generating revenues or expenses for or on behalf of the Company
of $50,000 or more per annum, or who manages or supervises a group or area of
employees of the Company involving the generation of revenues or expenses in the
per annum amount of $50,000 or more, (iv) each employee of the Company
considered by the Board of Directors to possess significant decision-making
authority and (v) each employee of the Company considered by the Board of
Directors to be a key engineer.
(k) "Noncompetition Agreements" means, collectively, the Noncompetition
and Confidentiality Agreements between the Company and each of William J. Pratt,
Powell T. Seymour, Jerry D. Neal, William A. Priddy and David A. Norbury.
(l) "Officer's Certification" means a certificate executed by the
Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
President, a Vice President, or the Secretary or the Treasurer of the Company.
(m) "Person" includes both the singular and the plural and shall means
any individual, partnership, corporation, trust, unincorporated organization, or
government or department or agency thereof.
(n) "Preferred Stock" means the Company's Class A-1 Convertible
Preferred Stock, no par value, the Company's Class A-2 Convertible Preferred
Stock, no par value, the Company's Class B Convertible Preferred Stock, no par
value, the Company's Class C Preferred Stock and any
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other class of the Company's convertible preferred stock issued upon conversion
of the Convertible Note or the Deficit Warrant.
(o) "Public Offering" shall mean closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale to the public of Common Stock resulting in
gross proceeds to the Company (before deduction of underwriters' commissions and
expenses) of not less than $15,000,000 and at a price per share to the public
which implies a pre-financing fully diluted valuation of the Company of at least
$75,000,000.
(p) "Purchaser Securities" means, collectively, the following
securities: the Class C Preferred Stock to be issued to the Purchaser pursuant
to this Agreement; the Restricted Common Stock to be issued to the Purchaser
pursuant to this Agreement; the Convertible Note to be issued to the Purchaser
pursuant to this Agreement; the Deficit Warrant to be issued to the Purchaser
pursuant to this Agreement; and the Warrant to be issued to the Purchaser
pursuant to this Agreement.
(q) "Redemption Notes" has the meaning set forth in Article 2, Section
D, Paragraph (6) of the Articles of Incorporation.
(r) "Required Investors" means those Investors holding an aggregate
ownership interest of sixty percent (60%) of the securities of the Company held
by all Investors. For purposes of this definition, the ownership interest of
each Investor shall include (i) the number of shares of Common Stock (excluding
any shares of Restricted Common Stock unless and until such shares are no longer
subject to forfeiture as provided in the Restricted Stock Agreement) held by
such Investor, (ii) the number of shares of Common Stock issuable to such
Investor pursuant to the conversion of the Preferred Stock held by such
Investor, and (iii) following the redemption of an Investor's Preferred Stock,
the number of shares of Common Stock that would have been issuable to such
Investor if such Investor had converted its Preferred Stock immediately prior to
redemption; provided, however, that the ownership interest of an Investor
determined pursuant to this clause (iii) shall be deemed to be reduced
proportionately in accordance with the repayment of the Redemption Note held by
such Investor. If at any time an Investor, alone or together with one or more of
its Affiliates or any other person for whom such Investor serves as the Related
Investor (as provided in Section 9(n)), owns 20% or more of the Company's then
outstanding equity securities (calculated ona fully diluted basis), then the
reference above to "sixty percent (60%) of the securities of the Company held by
all Investors" shall thereafter be deemed a reference to "more than fifty
percent (50%) of the securities of the Company held by all Investors."
(s) "Restricted Common Stock" means those shares of the Company's
Common Stock issued to the Purchaser as provided herein and as further subject
to the restrictions contained in the Restricted Stock Agreement in the form of
Exhibit 1(s) hereto.
(t) "Securities Act" means the Securities Act of 1933, 15 U.S.C.
Section 77a et seq., as from time to time amended.
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(u) "Securities Purchase Agreement" or "Agreement" means and includes
this Securities Purchase Agreement (including any Exhibits or Schedules which
are attached hereto, each of which are deemed incorporated herein by reference
and made a part hereof) and any amendments thereto authorized in the manner
provided herein.
(v) "Subsidiary" means any corporation with respect to which the
Company owns, directly or indirectly, a majority of the voting shares, or shares
or other interests entitling the Company to elect a majority of the Board of
Directors.
(w) "Warrant" means the warrant to purchase shares of Common Stock in
the form of Exhibit 1(w) hereto.
(x) To the extent not specifically defined herein, any accounting term
used herein has the meaning ordinarily accorded to it under generally accepted
accounting principles consistent with those followed in the preparation of the
financial statements of the Company.
2. AUTHORIZATION OF ISSUANCE OF PURCHASER SECURITIES
The Company has authorized the issuance to the Purchaser of (i) 826,446
shares of Class C Preferred Stock, (ii) 2,683,930 shares of Restricted Common
Stock; (iii) the Convertible Note; (iv) the Deficit Warrant; and (v) the
Warrant.
3. PURCHASE AND SALE OF SECURITIES.
Subject to the terms and conditions herein set forth, and in reliance
upon the representations and warranties of the Company and the Purchaser
contained herein, upon the closing of this Agreement (the "Closing"), the
Company shall sell to the Purchaser and the Purchaser shall purchase from the
Company:
(a) a total of 826,446 shares of Class C Preferred Stock at an
aggregate purchase price of $5,000,000, which purchase price shall be
paid by delivery to the Company of immediately available funds at the
Closing;
(b) the Convertible Note in the principal amount of
$10,000,000 pursuant to which the Company may borrow, and the Purchaser
agrees to lend, up to $10,000,000 as more particularly provided in such
Convertible Note; and
(c) the Deficit Warrant which shall entitle the Purchaser to
purchase up to 1,111,111 shares of Common Stock or Preferred Stock (the
class of which is determined by reference to the timing of a Public
Offering) at an aggregate purchase price of $10,000,000; provided that
both the number of shares and the purchase price therefor shall be
subject to adjustment as provided in the Deficit Warrant.
The Company shall also sell to the Purchaser and the Purchaser shall purchase at
the Closing, in consideration of the execution, delivery and performance by the
Purchaser of the License and
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<PAGE> 9
Technical Assistance Agreement in the form of Exhibit 3 hereto (the "License
Agreement"), the following additional Purchaser Securities:
(d) the Warrant which shall entitle the Purchaser to purchase
1,000,000 shares of Common Stock at an aggregate purchase price of
$10,000,000; provided that both the number of shares and the purchase
price therefor shall be subject to adjustment as provided in the
Warrant; and
(e) a total of 2,683,930 shares of Restricted Common Stock.
4. CONDITIONS OF CLOSING.
The Purchaser's obligation to purchase and pay for the Purchaser
Securities as set forth under Section 3 above is subject to the satisfaction (or
waiver, in the Purchaser's sole discretion), on or before the date hereof of the
following conditions:
(A) CONSENT OF THIRD PARTIES, ETC. The Company shall have presented
evidence reasonably satisfactory to the Purchaser and its counsel to the effect
that (i) all consents and waivers required in connection with the consummation
of the transactions related to this investment have been obtained, (ii) the
transactions related to this investment shall not violate, or constitute or
trigger the occurrence of an event of default with respect to, any lease,
promissory note, loan agreement or any other agreement or understanding with
respect to which the Company is a party, and (iii) the Company is not in
violation of or default under or with respect to any lease, promissory note,
loan agreement or any other agreement or understanding to which it is a party.
(B) AUTHORIZATION AND RESERVATION. The Company shall have taken all
necessary actions in order to authorize and reserve for issuance up to (i)
826,446 shares of its Common Stock to be issued upon the conversion of the Class
C Preferred Stock; (ii) 1,000,000 shares of its Common Stock to be issued upon
exercise of the Warrant; and (iii) 1,111,111 shares of its Common Stock to be
issued upon conversion of the Convertible Note and/or exercise of the Deficit
Warrant.
(C) FINANCIAL INFORMATION. The Company shall have provided the
Purchaser with such financial information relative to the Company's consolidated
financial condition which may be reasonably requested by the Purchaser, which
information shall include, at a minimum, (i) audited financial statements of the
Company consisting of its balance sheet as of April 1, 1995 and its statements
of income and retained earnings and cash flow for the fiscal year ended April 1,
1995, and (ii) the Company's internally prepared financial statements consisting
of its balance sheet as at March 30, 1996 and its statements of income and
retained earnings and cash flow for the 12-month period ended March 30, 1996.
(D) CERTAIN AGREEMENTS. The following agreements shall have been
entered into by the appropriate parties and shall be in full force and effect:
(i) Second Amended and Restated Registration Rights Agreement
in the form of Exhibit 4(d)(i) hereto (the "Registration Rights
Agreement");
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(ii) Second Amended and Restated Shareholders' Agreement in
the form of Exhibit 4(d)(ii) hereto (the "Shareholders' Agreement");
(iii) Restricted Stock Agreement in the form of Exhibit 1(s)
hereto;
(iv) License Agreement in the form of Exhibit 3 hereto; and
(v) Supply Agreement in the form of Exhibit 4(d)(v) hereto.
(E) AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION. The
Company shall have amended its Amended and Restated Articles of Incorporation as
heretofore amended in the manner provided in Exhibit 4(e) hereto.
(F) AMENDMENT TO BYLAWS. The Company shall have amended its Bylaws as
heretofore amended in the manner provided in Exhibit 4(f) hereto.
(G) AMENDMENT TO STOCK OPTION PLAN. The Company shall have amended its
1992 Stock Option Plan as heretofore amended in the manner provided in Exhibit
4(g) hereto. The Company hereby covenants to the Purchaser that it will make
additional option grants pursuant to such plan or otherwise provide appropriate
incentives to certain key employees of the Company involved in the transfer of
the technology and the organization and operation of the Foundry to be used to
manufacture Licensed Products as described in the License Agreement as the
Company's Boardof Directors shall in good faith determine; provided that nothing
herein shall constitute a right of any person not party to this Agreement to any
economic or other incentive and/or continued employment by the Company.
(H) OPINION OF COUNSEL. The Purchaser shall have received from Womble
Carlyle Sandridge & Rice, PLLC, legal counsel for the Company, a favorable
opinion as of the date hereof in form and substance reasonably satisfactory to
the Purchaser and its counsel and to the effect set forth in Exhibit 4(h).
(I) DELIVERY OF CLOSING DOCUMENTS. The Purchaser shall have received
the following closing documents, in form and substance satisfactory to the
Purchaser and its counsel:
(1) Three executed counterparts of this Securities Purchase
Agreement, including all Exhibits and Schedules hereto.
(2) Certificates representing the shares of Restricted Common
Stock and the Class C Preferred Stock being purchased by the
Purchaser.
(3) Three executed counterparts of the Registration Rights
Agreement.
(4) Three executed counterparts of the Shareholders' Agreement.
(5) The Convertible Note.
(6) The Deficit Warrant.
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(7) The Warrant.
(8) Three executed counterparts of the License Agreement.
(9) Three executed counterparts of the Supply Agreement.
(10) The opinion of counsel in the form described in subsection
4(h) hereof.
(11) Certificate of the Secretary of State of North Carolina as to
the good standing of the Company in such jurisdiction as of a
recent date.
(12) Copy of the Articles of Incorporation of the Company, as
amended to date, certified by the Secretary of State of North
Carolina to be true and correct.
(13) Copy of the Bylaws of the Company, as amended to date,
certified by the Secretary of the Company to be true and
correct.
(14) Copies of resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement,
which resolutions shall have been certified by the Secretary
of the Company to be true and correct.
(15) A copy or copies of the consents and waivers to be obtained by
the Company pursuant to the provisions of subsection 4(a)
hereof, if any.
(16) A copy of the financial information to be provided by the
Company pursuant to the provisions of subsection 4(c) hereof,
which financial statements shall be certified by the chief
executive officer or the chief financial officer of the
Company to be true and correct and to have been prepared in
accordance with generally accepted accounting principles,
consistently applied.
(17) Incumbency Certificates with respect to the Company's officers
and directors.
(18) A true copy of all stock option plans, as amended, and related
arrangements reserving shares for issuance to executives and
employees of the Company, all of which plans are described in
Schedule 5(c) attached hereto.
(19) A true copy of all agreements in which the Company has granted
or agreed to grant a security interest, pledge, mortgage, deed
of trust, encumbrance, lien or charge on any of its property
or assets, whether now owned or hereafter acquired, all of
which agreements are listed on Schedule 5(h) attached hereto;
provided, however, that the Company shall not be required to
provide the Purchaser with a copy of the capital leases listed
on Schedule 5(h) attached hereto.
(20) A true copy of all leases of real property naming the Company
as either lessor or lessee, all of which leases are listed on
Schedule 5(s) attached hereto.
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(21) To the extent not otherwise provided for herein, and if
requested by the Purchaser, such Purchaser shall have received
a true copy of all material contracts to which the Company is
a party, all of which contracts are listed on Schedule 5(h)
attached hereto; provided, however, that the Company shall not
be required to deliver contracts which contain competitively
sensitive information.
(22) Any and all other documents, certificates and assurances which
may be reasonably requested by the Purchaser in connection
with its commitments as set forth herein.
(J) DELIVERY OF PURCHASE PRICE AND INITIAL ADVANCE UNDER THE LOAN. The
Purchaser shall have transferred to the trust account of Womble Carlyle
Sandridge & Rice, PLLC, the $5,000,000 cash purchase price for the Class C
Preferred Stock.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser that, as of
the date hereof:
(A) ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized and validly existing under the laws of the State of North Carolina,
and is in good standing under such laws. The Company is qualified and authorized
to do business in, and is in good standing as a foreign corporation in, all
other states in which such qualification or authorization is necessary for the
conduct of the business in which the Company is now engaged, and has all
necessary licenses and permits required by all governmental authorities to carry
on such business. A complete list of all states in which the Company (i) owns or
leases property or has employees and (ii) has qualified to do business, is set
forth at Schedule 5(a) hereto.
(B) AFFILIATIONS. The Company has no Subsidiaries. The Company does not
own or control any shares of stock or any other investments in any other Person.
(C) AUTHORIZED AND ISSUED CAPITAL. The authorized capital stock of the
Company consists of 15,000,000 shares of Common Stock, no par value per share,
of which 585,000 shares areissued and outstanding; 1,000,000 shares of Class A-1
Preferred Stock, of which 975,000 shares are issued and outstanding; 1,100,000
shares of Class A-2 Preferred Stock, of which 1,034,091 shares are issued and
outstanding; 3,700,000 shares of Class B Preferred Stock, of which 3,300,000
shares are issued and outstanding, and 2,700,000 shares of Class C Preferred
Stock, of which 1,818,783 shares are issued and outstanding prior to the
Closing. The Company is also authorized to issue up to 1,200,000 shares of a
class of Preferred Stock to be designated by its Board of Directors for purposes
of satisfying the Company's obligations under the Convertible Note and the
Deficit Warrant. Set forth on Schedule 5(c) is a list of all shareholders of the
Company and the number of shares held by each. There are no further
subscriptions, contracts or agreements for the issuance or purchase of any other
or additional shares of the Company's capital stock, either in the form of stock
option or purchase agreements, warrants, calls or convertible debentures, other
than (i) the Purchaser Securities to be issued pursuant to the terms hereof and
the Common Stock or Preferred Stock issuable upon conversion or exercise
thereof, (ii) the Common Stock to be issued upon the conversion of any Preferred
Stock, (iii) 926,000 shares of Common Stock reserved for
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issuance pursuant to the stock option plan described in Schedule 5(c), and (iv)
the options and other arrangements described in Schedule 5(c). The number of
shares of its Common Stock reserved for issuance as set forth in Schedule 5(c)
is not subject to adjustment by reason of the issuance of the Purchaser
Securities or the issuance of the Common Stock pursuant to the 1992 Stock Option
Plan or upon the conversion of any of the Preferred Stock. Except as disclosed
in Schedule 5(c), there are no preemptive or similar rights to purchase or
otherwise acquire shares of the Company's capital stock pursuant to any
provision of law, the Articles of Incorporation or Bylaws of the Company, or any
agreement to which the Company is a party, or otherwise.
(D) AUTHORIZATION. The execution and delivery of this Securities
Purchase Agreement, the Convertible Note, the Deficit Warrant, the Warrant and
the other agreements described in Section 4(d) to which the Company is party
(collectively, the "Company Agreements") and the issuance to the Purchaser of
the Purchaser Securities, as herein provided, have been duly authorized by all
necessary corporate action of the Company so that when issued and delivered (i)
the Purchaser Securities and the Common Stock or Preferred Stock issuable upon
conversion or exercise thereof will be validly authorized and issued, fully paid
and nonassessable, (ii) the Company Agreements will constitute the legal, valid
and binding agreements of the Company enforceable against it in accordance with
their respective terms and (iii) neither the execution and delivery of the
Company Agreements, nor the issuance of the Purchaser Securities, or upon
conversion or exercise thereof, any Preferred Stock or Common Stock, will be in
contravention of law or of any order, rule or regulation applicable to the
Company or of its Articles of Incorporation, Bylaws or, except as set forth on
Schedule 5(d), any other contract, agreement or instrument to which the Company
is a party.
(E) GOOD TITLE TO ALL PROPERTIES. The Company has good title to all the
properties and assets used in its businesses or reflected in the Financial
Statements, and to all patents, trademarks, trademark rights, trade names,
copyrights or licenses either developed by or assigned to the Company for its
use, subject to no lien, mortgage, pledge, security interest, encumbrance or
charge of any kind, except for: (a) inchoate liens for current taxes not yet
delinquent, (b) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (c) liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, (d) minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property, (e) those reflected in the Financial Statements and (f)
such matters as described on Schedule 5(e).
(F) LITIGATION. Except as described on Schedule 5(f), there is no
litigation or other proceeding before any court, commission or other
administrative authority pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or its officers or directors, which
involves the possibility of any judgment or liability which may materially and
adversely affect any of the property or assets of the Company or the right of
the Company to conduct its businesses as now engaged. To the best knowledge of
the Company, none of the officers or employees of the Company is subject to any
contract, prohibition, non-compete, trade secret or any other restrictive
agreement which would impair his ability to provide services to the Company. To
the best knowledge of the Company, no third party may assert any valid claim
under any agreement or arrangement or any laws governing unfair competition,
trade secrets or proprietary information
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<PAGE> 14
against the Company, or its employees, that might have the effect of prohibiting
the Company or such employees from using such information.
(G) TAXES. The Company has filed all Federal, state and local tax
returns and reports which are required by law to be filed as of the date hereof,
and has paid all taxes which have become due pursuant to such returns or
relating to any assessments, if any and is not a party to any pending action or
proceeding by any taxing authority for the collection of any tax, interest,
penalty, assessment or deficiency.
(H) OTHER CONTRACTS. The Company has furnished to the Purchaser copies
or access to copies of all contracts and agreements of the Company each of which
result in annual revenues or expenses to the Company of at least $25,000 or
which are otherwise material to the business of the Company, all of which are
listed on Schedule 5(h). The Company is not a party to any other contract or
agreement which in the judgment and opinion of the Company would materially or
adversely affect the business, properties, assets or financial condition of the
Company. The Company is not in default of any such material contracts and
agreements.
(I) ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation, as amended pursuant to Section 4(e) hereof, and Bylaws of the
Company, as amended pursuant to Section 4(f) hereof, copies of which have been
furnished to the Purchaser, are in full force and effect, without further
changes, amendments or modifications.
(J) FINANCIAL STATEMENTS; CERTAIN CHANGES.
(i) The Company has furnished to the Purchaser the financial
statements described in subsection 4(c) hereof (the "Financial
Statements"). The Financial Statements are true and correct and were
prepared in accordance with generally accepted accounting principles,
consistently applied, except that interim financial statements are
subject to routine year-end adjustments and do not contain footnotes.
(ii) In addition, except as set forth on Schedule 5(j), and
except for the amendment to the Articles of Incorporation required
pursuant to subsection 4(e) hereof and the amendment to the Bylaws
required pursuant to subsection 4(f) hereof or otherwise contemplated
by this Agreement, since February 24, 1996, the Company has conducted
its business in the ordinary course in a manner consistent with its
past practices, and has not (a) issued or sold, or contracted to sell,
any of its stock, notes, bonds or other securities, or any option,
warrant or other right to purchase the same, or entered into any
agreement with respect thereto; (b) amended its Articles of
Incorporation or Bylaws; (c) declared, set aside or paid any dividend
or other distribution in respect of its capital stock; (d) redeemed,
repurchased or otherwise acquired any of its capital stock or
securities convertible into or exchangeable for its capital stock or
entered into any agreement to do so; (e) made any capital expenditures
or commitments for the acquisition or construction of any single item
of property, plant or equipment in excess of $5,000; (f) incurred any
damage, destruction or similar loss of property in an amount exceeding
$5,000, whether or not covered by insurance; (g) experienced any
materially adverse change in its business, operations, assets,
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<PAGE> 15
earnings or financial condition; (h) made any sale of accounts
receivable or any accrual of liabilities not in the ordinary course of
business; (i) purchased or disposed of, or contracted to purchase or
dispose of, or granted or received an option to purchase or sell, any
properties or assets, except in the ordinary course of business; (j)
disposed of any inventories other than in the ordinary course of
business; (k) except for increases resulting from the application of
existing formulas or policies under existing plans, agreements or
policies relating to employee compensation, increased the rate of
compensation payable or to become payable to any of its employees or
officers or increased the amounts paid or payable to such employees or
officers under any bonus, insurance, pension or other benefit plan, or
any arrangements therefor made for or with any of said employees or
officers; or (l) changed any accounting principle, procedure or
practice or the method of applying such principle, procedure or
practice.
(K) OFFERING OF PURCHASER SECURITIES. Neither the Company nor any agent
acting on its behalf has taken any action which would require the issuance or
sale of the Purchaser Securities to be registered under the provisions of
Section 5 of the Securities Act.
(L) GOVERNMENTAL APPROVAL. No consent or approval of any governmental
agency or authority is required in the making or performance of this Agreement
by the Company.
(M) UNTRUE STATEMENTS. Neither this Agreement nor any other agreements,
Financial Statements, reports, certificates, or any other documents furnished to
the Purchaser by the Company in connection herewith contains any untrue or
misleading statement of material fact or omits to state a fact material to the
business of the Company or necessary to make the statements contained therein
not misleading.
(N) PATENTS, LICENSES, TRADEMARKS, ETC. Set forth on Schedule 5(n) is a
list of all Intellectual Property Rights in which the Company has an interest.
With respect thereto:
(i) the Company possesses all Intellectual Property Rights
which are necessary to conduct its respective business as now conducted
or as contemplated to be conducted, without conflict with any patent,
license, trademark, trade name, copyright or other Intellectual
Property Right of any other Person;
(ii) no royalties, honorariums or fees are payable by the
Company to other Persons by reason of the ownership or use of the
Intellectual Property Rights;
(iii) no product manufactured, marketed or sold by the Company
will, to the best knowledge of the Company, violate any license or
infringe any Intellectual Property Rights or assumed name of another;
and
(iv) there is no pending or, to the best knowledge of the
Company, threatened claim or litigation against the Company (nor, to
the best knowledge of the Company, does there exist any basis therefor)
contesting the validity or right to use of any of the foregoing. The
Company has not received any notice that any of the Intellectual
Property Rights or the
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operation or proposed operation of its business conflicts, or will
conflict, with the asserted rights of others, and to the best knowledge
of the Company, there exists no basis for any such conflict.
(O) COMPLIANCE WITH LAW. Except as set forth on Schedule 5(o), the
Company is not in violation of any law, regulation, authorization, or order of
any public authority including, without limitation any Environmental Laws
relevant to the ownership of its properties or the carrying on of its present or
contemplated business.
(P) BROKERAGE FEES. There are no claims against the Company or any of
its officers for brokerage commissions, finders' fees or other similar
compensation in connection with the trans actions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company, or
such officer. Neither the Company nor any of its officers has employed any
broker or finder in connection with the transactions contemplated by this
Agreement.
(Q) NO CRIMES, ETC. Neither the Company nor, to the best knowledge of
the Company, any of its current executive officers or directors, nor any of its
promoters currently connected with it in any capacity, has since October 1,
1985:
(i) filed a petition, or had a petition filed against it or
them, under the Federal bankruptcy laws or any state insolvency law, or
had a receiver, fiscal agent or similar officer appointed by a court
for its or their business or property, or for any partnership in which
it or they were a general partner or any corporation or business
association of which it or they were an executive officer at or within
two years before such filing or appointment;
(ii) been arrested, indicted or convicted in a criminal
proceeding or been named the subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(iii) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining it or them from, or
otherwise limiting the following activities:
(A) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other Person regulated by the Commodity Futures Trading
Commission ("CFTC"), or an associated Person of any of the
foregoing, an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated Person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(B) engaging in any type of business practice; or
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(C) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or state securities law or
Federal commodities law;
(iv) been the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any Federal
or State authority barring, suspending or otherwise limiting its or
their right to engage in any activity described in (iii) above, or to
be associated with Persons engaged in any such activity;
(v) been found by a court of competent jurisdiction in
a civil action or by the Securities and Exchange Commission
(the "Commission") or CFTC or any state securities administrator or
commissioner to have violated any Federal or state securities law or
Federal commodities law, and the judgment in such civil action or
finding by the Commission or the CFTC or any state securities
administrator or commissioner has not been subsequently reversed,
suspended or vacated; or
(vi) filed a registration statement or applications for
qualification of securities which is the subject of a currently
effective stop order entered pursuant to any state's law.
(R) RELATED TRANSACTIONS. Except as disclosed on Schedule 5(r), no
"Conflict of Interest Transactions" with "Restricted Persons" of the Company, as
such terms are defined in subsection 8(j) hereof, have occurred within the past
twelve months.
(S) LEASED REAL PROPERTY. Schedule 5(s) sets forth a list of all leases
or subleases of all real property or interests therein currently leased by the
Company (the "Real Property Leases"). Complete and correct copies of all such
Real Property Leases have been delivered to the Purchaser. Except as set forth
in Schedule 5(s), no alterations are being made or are planned with respect to
any of the real property covered by the Real Property Leases. Each Real Property
Lease is legal, valid and binding and the Company is a tenant in good standing,
free of any default or breach whatsoever and quietly enjoys the premises
provided for therein. Each rental and other payment due under each Real Property
Lease has been duly made; each act required to be performed which, if not
performed, would constitute a material breach thereof has been duly performed;
and no act forbidden to be performed has been performed thereunder which, if
performed, would constitute a material breach thereof. The Company has the legal
right (without the consent or other approval of any other party) to possess and
quietly enjoy each of the premises and properties under each of the Real
Property Leases. All real property covered by the Real Property Leases is zoned
for the purposes for which each of such properties is currently being used. None
of the real property covered by the Real Property Leases has been condemned or
otherwise taken by any public authority, and, to the best knowledge of the
Company, no condemnation or taking is threatened or contemplated. None of the
real property is subject to any claim, contract or law which might affect its
use or value for the purposes now made of it during the terms of the respective
Real Property Leases.
(T) NONCOMPETITION AGREEMENTS. To the best knowledge of the Company, no
individual party thereto is in default of his respective Noncompetition
Agreement and such Noncompetition Agreements remain in full force and effect.
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(U) REGISTRATION EXEMPTION. Based upon the representations contained in
Section 6 hereof, the issuance by the Company of the Purchaser Securities and,
upon conversion or exercise thereof, the Common Stock and Preferred Stock so
obtained, is exempt from the registration requirements under the securities laws
of the United States and the State of North Carolina and any other applicable
state securities laws.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Company as follows:
(A) INVESTMENT PURPOSE. In making the purchases contemplated herein, it
is specifically understood and agreed that the Purchaser is acquiring the
Purchaser Securities (and the Common Stock and Preferred Stock to be obtained
upon the conversion or exercise of the Convertible Note, the Deficit Warrant or
the Warrant) for the purpose of investment for its own account, not as a nominee
or agent, and not with a view towards the sale or distribution thereof within
the meaning of the Securities Act; provided, however, that the disposition of
the Purchaser's property shall at all times be and remain within its control.
The Purchaser does not have any contract, undertaking, agreement or arrangement
with any Person to sell, transfer or grant a participation in to such Person, or
to any third Person, the Purchaser Securities, or, upon conversion or exercise
thereof, the Common Stock or Preferred Stock so obtained. The Purchaser has no
immediate plans to liquidate ordissolve or effect any other transaction the
effect of which would be to distribute any of the Purchaser Securities, or, upon
conversion or exercise thereof, the Common Stock and Preferred Stock so
obtained, to its equity holders.
(B) EXEMPTIONS. The Purchaser understands that the Purchaser Securities
and the Common Stock or Preferred Stock obtained upon conversion or exercise
thereof will not be registered under the Securities Act or any applicable state
securities law, by reason of their issuance by the Company in transactions
exempt from the registration requirements of the Securities Act and suchlaws,
and that it must hold such securities indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration.
(C) RULE 144. The Purchaser understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to the
Purchaser) promulgated by the Commission under the Securities Act depends on the
satisfaction of various conditions, including the requirement that the Company
has been subject to the reporting requirements of Section 13 or Section 15 of
the Securities Exchange Act of 1934 for at least 90 days, and that, if
applicable, Rule 144 affords the basis for sales only in limited amounts and
that the Company does not now qualify under Rule 144 and may not ever qualify.
(D) NO BROKER. The Purchaser has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(E) INVESTMENT DECISION. The Purchaser is experienced in evaluating and
investing in recently organized companies such as the Company, is able to fend
for itself in the transactions
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contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment, and has the ability to bear the economic risks of an entire loss of
its investment. The Purchaser has been furnished with or has had access to the
information it has requested from the Company and has had an opportunity to
discuss with management of the Company the business and financial affairs of the
Company; provided, however, that the foregoing shall in no way affect, diminish
or derogate from the representations and warranties made by the Company
hereunder or the right of the Purchaser to rely thereon and to seek
indemnification hereunder.
(F) ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(G) RESTRICTION ON SALE OR TRANSFER. The Purchaser agrees that in no
event will it sell, transfer or otherwise dispose of any of the Purchaser
Securities, or any Common Stock or Preferred Stock issuable upon conversion or
exercise thereof (other than pursuant to an effective registration statement
under the Securities Act and any applicable state securities laws), unless and
until the Purchaser or its proposed transferee shall have furnished to the
Company an opinion, reasonably satisfactory to the Company, of counsel
reasonably satisfactory to the Company (which may be in- house counsel of the
Purchaser), prepared at the expense of the Purchaser or its transferee, to the
effect that such transfer may be made without registration under the Securities
Act and all applicable state securities laws.
(H) LEGEND. All certificates evidencing the Purchaser Securities and
any Common Stock or Preferred Stock issued upon conversion or exercise thereof
shall bear a legend substantially to the following effect until the same is no
longer required under the Securities Act:
"These securities have not been registered under the
Securities Act of 1933, as amended, or any applicable state
securities laws. They may not be sold, offered for sale,
pledged, hypothecated or otherwise disposed of absent
registration of such securities under said Act and said laws
unless the Company receives an opinion of counsel satisfactory
to the Company that such registration is not required."
The certificates evidencing the Purchaser Securities and any
Common Stock or Preferred Stock issued upon conversion or exercise thereof shall
also bear any legend required by any applicable state securities law. In
addition, the Company shall make a stop transfer notation regarding the
foregoing restrictions on transfer in its records, and the Purchaser Securities
and any Common Stock or Preferred Stock issued upon conversion thereof shall be
transferred on the books of the Company only if transferred or sold pursuant to
an effective registration statement under the Securities Act covering such
shares or pursuant to and in compliance with the provisions of subsection 6(g)
hereof.
(I) AUTHORIZATION. The execution and delivery of this Agreement and the
other agreements described in Section 4(d) to which the Purchaser is party
(collectively, the "Purchaser Agreements") have been duly authorized by all
necessary action of the Purchaser, do not conflict
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with or result in a breach of any of the Purchaser's governing documents or any
agreement to which the Purchaser is a party or is subject or any judgment,
order, writ, injunction, decree, rule or regulation of any court or
administrative agency, and constitute legal, valid and binding agreements of the
Purchaser enforceable against it in accordance with their respective terms.
7. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, prior to the occurrence of a
Public Offering, for so long as (i) any of the Investors owns any Preferred
Stock or Common Stock or (ii) any part of the principal or interest on the
Redemption Notes remains unpaid:
(A) CONVERSION. The Company shall at all times maintain a sufficient
number of authorized but unissued shares of its Common Stock and Preferred Stock
to allow for the full conversion by the Investors of the Preferred Stock and for
the full conversion or exercise, as the case may be, by the Purchaser of the
Purchaser Securities, and shall promptly accomplish such conversion or exercise
upon the request of any of the Investors and the presentation of such Investor's
securities in accordance with their respective terms and conditions.
(B) REDEMPTION OF PREFERRED STOCK. The Company will duly and punctually
redeem the Preferred Stock in accordance with the provisions of Articles of
Incorporation, as such Articles of Incorporation may from time to time be
amended.
(C) USE OF PROCEEDS.
(i) Unless otherwise agreed by the Purchaser, the Company
shall (A) utilize the proceeds received by it from the issuance of the
Purchaser Securities exclusively for the planning and construction and
the operational, working capital and related requirements of the
Foundry to be used to manufacture Licensed Products, as defined in the
License Agreement and (B) use its reasonable best efforts to obtain any
additional financial or other commitments necessary to complete such
venture on terms acceptable to the Company.
(ii) The Company shall continue to expend the remaining
proceeds received from the issuance of the Class C Preferred Stock in
November 1995 in accordance with the budgets delivered pursuant to
subsections 4(c) and 7(f) hereof.
(D) PAYMENT OF REDEMPTION NOTES. The Company will duly and punctually
pay the principal and interest on the Redemption Notes on the dates and in the
manner provided therein.
(E) PAYMENT OF CONVERTIBLE NOTE. The Company will duly and punctually
pay the principal and interest on the Convertible Note on the date and in the
manner provided therein.
(F) PREPARATION AND APPROVAL OF BUDGETS, ETC. The Company will, no
later than 30 days before the commencement of each of its fiscal years, prepare
and submit to its Board of Directors and each of the Investors, and will obtain
the approval of the Required Investors with respect thereto, consolidated
capital and operating expense budgets, projections of sources and
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<PAGE> 21
applications of funds, balance sheets and profit and loss projections, all for
each month of such fiscal year, all itemized in reasonable detail (including
itemization of provisions for officers' compensation). Each Investor shall, in
addition, be furnished any material revisions made in the budgets, projections
or other information furnished pursuant to this subsection, within 10 days after
the adoption of such revisions. All financial statements and reports furnished
to the Investors pursuant to subsection 7(i) and pursuant to the preceding
sentence with respect to which a budget, projections or other information has
been submitted shall set forth, to the extent practicable, in comparative form,
figures for such budget, projection or other information for the applicable
preceding accounting period.
(G) TAXES AND LIENS. The Company will pay and promptly discharge, when
due, all lawful claims, including taxes, assessments, governmental charges and
claims for labor, materials and supplies incurred in the ordinary course of
business, except in those instances where the validity or amount thereof is
being contested in good faith and by appropriate legal or administrative
proceedings, and an adequate reserve therefor has been established on its books.
(H) INSURANCE. The Company will maintain (i) all of its assets which
are of an insurable character fully insured against loss or damage by fire,
flood, theft, explosion, sprinklers and all other hazards and risks ordinarily
insured against under all risk policies in use in the jurisdiction where such
assets are located, (ii) insurance against claims for general comprehensive
liability relating to bodily injury, death or property damage in amounts as
shall be satisfactory to the Investors in their reasonable judgment and are
consistent with the type and amounts of insurance customarily carried by similar
companies, (iii) insurance under the workers' compensation laws of the states in
which the Company conducts business and (iv) life insurance, in the minimum
amount of at least $1,000,000 each, on the lives of William J. Pratt and David
A. Norbury for the benefit of the Company. The Company shall provide the
Investors with copies of all such policies upon request, which policies shall be
issued by financially sound and reputable insurers acceptable to the Investors
in their reasonable discretion.
(I) FINANCIAL STATEMENTS. The Company will deliver to the Investors:
(i) within 30 days after the end of each month, a balance
sheet of the Company as of the end of such month, statements of income
and retained earnings and statements of cash flows of the Company for
the current month just ended and for the period from the beginning of
the current fiscal year to the end of such month, all in reasonable
detail and satisfactory in form and scope to the Investor, and prepared
in accordance with generally accepted accounting principles,
consistently applied. With respect to each such financial statement,
the Company will deliver to the Investors (A) a comparison of actual
financial results to budgeted figures, for the month to which the
financial statements pertain for the fiscal year to date and (B) an
Officer's Certification from the chief executive officer or chief
financial officer of the Company stating in effect that, to the best of
his knowledge and belief, such financial statements are true and
correct and have been prepared in accordance with generally accepted
accounting principles, consistently applied, subject to changes
resulting from year-end adjustments;
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(ii) as soon as available and in any event within 90 days
after the end of each fiscal year, a balance sheet of the Company as of
the end of such fiscal year, and a statement ofincome and retained
earnings and a statement of cash flows of the Company for such year,
setting forth in each case in comparative form corresponding figures
from the preceding year, and a comparison of actual consolidated
financial results to budgeted figures for the fiscal year in question,
all in reasonable detail and satisfactory in form and scope to the
Investors and certified by and containing an unqualified report thereon
satisfactory to the Investors of Ernst & Young or another firm of
independent certified public accountants acceptable to the Investors,
which financial statements shall have been prepared in accordance with
generally accepted accounting principles, consistently applied;
(iii) within 30 days after the end of each month, a
management summary prepared by the Company's chief executive
officer (which management summary should not customarily exceed two
type-written pages in length) setting forth in narrative form all
significant operational and financial events and activities affecting
the Company during such month, and stating that the chief executive
officer has reviewed the obligations of the Company under this
Agreement and the related documents and, to his best knowledge and
belief, no breach by the Company of this Agreement has occurred, or
disclosing any breach of which he has obtained knowledge and setting
forth what action, if any, has been initiated or taken by the Company
towards the curing of such breach;
(iv) as soon as available and to the extent requested by the
Investors, copies of all statements, reports and other documents
relating to the financial condition of the Company and its business
operations as required to be furnished to any lender of the Company
pursuant to the terms of any loan documentation, as the same may be
amended, supple mented or modified from time to time;
(v) promptly upon transmission thereof, and in any event no
later than 10 days after the date of such transmission, copies of all
financial statements, reports and returns as the Company shall send to
its stockholders and any governmental department, bureau, commission or
agency having regulatory authority over the Company and including, but
not limited to, all communications to and from applicable regulatory
authorities regarding notice of enforcement proceedings, complaints,
inspections and related matters;
(vi) promptly upon the effectiveness thereof, certified
copies of all amendments to the Articles of Incorporation and
Bylaws of the Company;
(vii) with reasonable promptness, such additional financial
or other data as the Investors may reasonably request; and
(viii) following the occurrence of a Public Offering and
notwithstanding the introductory clause of this Section 7, promptly
upon being filed, a copy of each 10-K, 10-Q and 8-K filed by the
Company.
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(J) OTHER INFORMATION; EXAMINATION. The Company will furnish to the
Investors from time to time and with reasonable promptness (i) detailed
information with respect to proposed material events relating to the operations
of the Company (including, without limitation, matters relating to any public
offering of securities, financing arrangements, material litigation, either
filed against or on behalf of the Company, and contracts for substantial amounts
of the Company's products and contracts for any related services), and (ii)
copies of all material documents filed with any court with respect to any
material litigation in which the Company is a party. The Company will further
permit representatives of the Investors to visit and inspect the premises of the
Company and to examine its insurance certificates and records, books of account
and other records at such reasonable times and as often as the Investors may
reasonably request, but only under circumstances as would not unreasonably
interfere with the conduct of the Company's business. The Company will also
permit representatives of the Investors to visit with the Company's accountants,
and this Agreement shall constitute the Company's authorization to said
accountants to discuss with such representatives the Company's affairs, finances
and accounts. The foregoing notwithstanding, nothing in this subsection 7(j)
shall entitle an Investor that is a customer or supplier of the Company to
receive or be provided access to competitively sensitive information.
(K) MEETINGS.
(i) The Company will have regular meetings of its Board of
Directors at least every calendar quarter (and more frequently if felt
to be necessary by the Required Investors) andof its shareholders at
least once a year, as provided for in the Company's Bylaws, and minutes
of such meetings shall be prepared and maintained as a part of the
permanent records of the Company. The Company will provide the
Investors with written notice of all proposed agendas (which shall not,
however, limit the matters which may be acted upon in the event a
majority of the directors or shareholders, as appropriate, present at
the meeting vote to discuss or act upon any other matter) for all
meetings of the shareholders and Board ofDirectors of the Company at
least two weeks in advance (except in the case of special meetings of
the Board of Directors, in which case such notice shall be as prompt as
practicable consistent with applicable state law).
(ii) Each of the Investors owning not less than 80,000 shares
of Preferred Stock and not otherwise directly represented on the Board
of Directors shall be entitled to have a representative present at each
regular and special meeting of the Board of Directors in a nonvoting
observer capacity; provided, however, that such representative shall
agree to hold intrust and act in a fiduciary capacity with respect to
all information provided at such meetings and provided further that the
Company may exclude such representatives at any meeting of which
attendance by such representative could adversely affect the
attorney-client privilege between the Company and its counsel; and
provided, further, that the representative of an Investor that is a
customer or supplier of the Company (A) shall not be entitled to attend
meetings of the Board of Directors at which the principal agenda items
are competitively sensitive information with respect to the Investor or
its affiliate and (B) may be excluded from any portion of a meeting of
the Board of Directors during which competitively sensitive information
with respect to the Investor or its affiliate is to be discussed.
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(L) EXECUTIVE PERSONNEL. Set forth on Schedule 7(l) attached hereto and
incorporated herein by reference is a list of the officers and other Key
Employees of the Company. The Company will use its best efforts to retain the
same executive personnel and management as it has as of the date hereof;
provided, however, that nothing herein shall give any officer or Key Employee of
the Company any rights greater than he would otherwise have under any existing
agreement with the Company. With respect to future Key Employees, the Company
will enter into appropriate inventions and confidentiality agreements on terms
and conditions reasonably satisfactory to the Board of Directors.
(M) BOOKS OF ACCOUNT. The Company will maintain books of account in
accordance with generally accepted accounting principles, consistently applied.
(N) CORPORATE EXISTENCE. The Company will do all things necessary to
preserve and to keep in full force and effect its corporate existence, rights
and franchises granted by law or otherwise.
(O) COMPLY WITH LAWS. The Company will comply in all material respects
with all laws of the United States and each state and subdivision thereof which
may be applicable to it, and with all rules and regulations promulgated by
agencies, commissions and other instrumentalities of the United States and any
state or subdivision thereof having rule-making or regulatory authority over the
Company.
(P) MAINTAIN PROPERTY. The Company will take all reasonable steps to
maintain its property in good order and repair.
(Q) NOTICE OF DEFAULT. The Company will, within five days of its
discovery of any default under this Agreement, or any default under any other
agreement executed in connection herewith, or under any other loan or material
lease pursuant to which the Company is obligated to any third party, furnish the
Investor with a copy of any notification of default (in the case such
notification is received with respect to obligations owing to third parties) and
an Officer's Certification providing a written explanation of the circumstances
involved.
(R) AMEND BYLAWS. The Company will amend its Bylaws to the extent
necessary to avoid or eliminate a conflict with the terms of this Agreement.
(S) DIRECTOR LIABILITY. The Company will, as from time to time made
necessary by a change in applicable law, amend its Bylaws or Articles of
Incorporation to the extent necessary to limit the liability of directors and to
provide for the indemnification of directors, in both instances, to the maximum
amount allowed by law.
(T) SBA REPURCHASE OBLIGATION. If the Company uses the proceeds
received from the sale of the Class C Preferred Stock to an SBIC Purchaser in
violation of the rules and regulations promulgated by the Small Business
Administration (the "SBA") it shall give each Investor that is a small business
investment company (as determined by the SBA, an "SBIC Purchaser") the right in
its sole and absolute discretion to demand, upon 30 days' notice, that the
Company repurchase,
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at the price paid hereunder by such SBIC Purchaser to the Company, the Class C
Preferred Stock purchased by such SBIC Purchaser hereunder. All amounts due
hereunder shall be paid to such SBIC Purchaser by certified check, cashier's
check or wire transfer in immediately available funds. Notwithstanding the
foregoing, to the extent that SBA regulations permit the Company to cure any
default under this Section 7(t), the Company may cure such default prior to the
expiration of the 30-day notice period above, and in such case the rights of
such SBIC Purchaser under this Section 7(t) shall cease with respect to such
default. Any such cure shall in no way be deemed to limit such SBIC Purchaser's
right under this Section 7(t) with respect to any subsequent default. Nothing in
this Section 7(t) shall be construed to restrict or otherwise limit any SBIC
Purchaser's right to seek all other remedies available to it as provided
hereunder, or at law or in equity. The provisions of this Section 7(t) shall
expire with respect to any SBIC Purchaser upon evidence satisfactory to such
SBIC Purchaser that the Company has utilized the proceeds received pursuant to
this Agreement in a manner that is consistent with their use reported to the SBA
on SBA Form 1031.
8. NEGATIVE COVENANTS OF THE COMPANY.
The Company covenants and agrees that, prior to the occurrence of a
Public Offering, for so long as (i) any of the Investors owns any Preferred
Stock or Common Stock or (ii) any part of the principal or interest on the
Redemption Notes remains unpaid, the Company will not, without obtaining the
prior written permission and consent of the Required Investors, do any of the
following:
(A) DIVIDENDS AND REDEMPTION OF STOCK. Notwithstanding the provisions
of Section 9(1), authorize, declare or pay any dividend, whether in cash,
properties or securities, or make any distribution (other than redemptions of
securities approved by the Required Investors) upon any class of its capital
stock, except for the redemption of Preferred Stock in accordance with
theArticles of Incorporation without the written consent of the Purchaser until
the Foundry to be used to manufacture Licensed Products as described in the
License Agreement is an Operational Foundry (as therein defined) or the License
Agreement terminates, whichever first occurs.
(B) LOANS TO, INVESTMENTS IN, AND LIABILITIES OF OTHERS. Make or permit
to remain outstanding any loan or advance to, or pledge or encumber its assets
for the benefit of, or assume or guarantee the payment or performance of any
liability or obligations of, or own, purchase or acquire any stock or securities
of, or guarantee, endorse or otherwise be or become contingently or absolutely
liable in connection with the obligations, stock or dividends of, any other
Person except for: (a) the endorsement of negotiable instruments for deposit or
collection in the normal course of business; (b) the investment in direct
obligations of the United States of America or generally accepted short-term
money market instruments which by independent credit ratings by Standard & Poors
or Moody's are considered nonspeculative, or in bank certificates of deposit;
(c) the extension of credit in the ordinary course of business in connection
with the sale of its products and services; (d)the investment in, or purchase of
shares of open-end investment companies investing in high-grade money market
instruments; (e) the making of advances to employees and consultants for
expenses incurred in the ordinary course of business; (f) the making of deposits
in the ordinary course of business with vendors, suppliers of services, and
other entities; or (g) as provided for in
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the budget delivered in accordance with subsection 4(c) hereof or proposed and
approved in accordance with subsection 7(f) hereof.
(C) DISPOSAL OF ASSETS. Sell, exchange, convey, assign, transfer, lease
or otherwise dispose of all or any portion of its assets other than dispositions
which (i) result in proceeds to the Company of $50,000 or less, (ii) are for
adequate value and (iii) are in the normal course of the Company's business
operations.
(D) SUBSIDIARY CORPORATION. Create or acquire in any manner a
Subsidiary corporation, or acquire any equity interest in any other Person.
(E) CHARACTER OF BUSINESS. Change the general character of the business
of the Company as conducted or contemplated at the date hereof, or engage in any
type of business not reasonably related to the business of the Company as
presently conducted.
(F) PAYMENT FOR SERVICES OR PROPERTY NOT DELIVERED. Enter into or be a
party to any contract for the purchase of materials, supplies or other property
or for the provision of services if such contract requires that payment for such
materials, supplies or other property or services shall be made regardless of
whether or not delivery is ever made of such materials, supplies or other
property or whether or not performance of such services is ever accomplished.
(G) SALE AND LEASEBACK. Enter into any arrangement, directly or
indirectly, whereby the Company shall sell or transfer any real or personal
property, whether now or hereafter acquired, used or useful in the business of
the Company and thereafter rent or lease such property, or other property, which
the Company shall intend to use for substantially the same purpose as the
property sold or transferred.
(H) CAPITAL EXPENDITURES AND LEASEHOLD OBLIGATIONS. Except as provided
in the License Agreement, make or enter into (a) any capital expenditures of the
Company or expenses for research and development mask sets and productions mask
sets which exceed the amount provided for in the budget delivered in accordance
with subsection 4(c) hereof or prepared and approved in accordance with
subsection 7(f) hereof, (b) any leasehold obligations of the Company with
respect to which the total of such rentals and other payments owing over the
life of such leases is in excess of the amount provided for in the budget
delivered in connection with subsection 4(c) hereof or prepared and approved in
accordance with subsection 7(f) hereof or (c) any contract that would reasonably
be expected to result in expenditures by the Company in excess of $50,000 in any
fiscal year.
(I) DISCOUNT OR SALE OF NOTES AND ACCOUNTS RECEIVABLE. Discount or
sell, with recourse, or sell for less than the face amount thereof, any of the
notes or accounts receivable of the Company.
(J) CONFLICT OF INTEREST TRANSACTIONS WITH RESTRICTED PERSONS. Enter
into any trans action with a Restricted Person of the Company, except on terms
that would be usual and customary in a similar transaction between Persons who
are not Affiliates, or enter into a Conflict of Interest
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Transaction with such Restricted Person. For purposes of this Agreement, a
Restricted Person shall consist of an employee, a shareholder, director or
officer of the Company, or a relative of any such individual, or a customer or
supplier of the Company, and a Conflict of Interest Transaction shall include,
but not be limited to, the sale of merchandise or the provision of services by
the Company for less than fair market value, or the purchase of merchandise or
supplies in transactions involving rebates to or from a Restricted Person, or
the payment of fees or salaries in excess of the legitimate and documentable
fair market value of the services rendered for such fees or salaries.
(K) NO AMENDMENTS TO BYLAWS OR NONCOMPETITION AGREEMENTS. Make any
amendments to the Company's Bylaws or, without the approval of the Board of
Directors, amend any of the Noncompetition Agreements.
(L) SETTING OR CHANGING COMPENSATION. Without the approval of the
Compensation Committee of the Board of Directors, set or change the compensation
(including salary, bonuses, stock options and benefits) of the chief executive
officer or any officer who reports directly to the chief executive officer.
(M) INDEBTEDNESS. Except for the indebtedness to be incurred under the
Convertible Note or as otherwise disclosed in the Financial Statements delivered
pursuant to subsection 4(c) hereof or described on Schedule 5(j) hereto or
provided for in budgets proposed and approved in accordance with subsection 7(f)
hereof, incur, create, assume or permit to exist any liability for borrowed
money, or any other liability evidenced by notes, bonds, debentures or similar
obligations.
(N) "OFF BALANCE SHEET FINANCING." Create any financial obligations
which are not reported as liabilities or obligations to pay to their full extent
on the audited balance sheet of the financial statements of the Company, whether
such obligations be leases, lease-purchases, non-recourse financing or any other
means or methods commonly referred to as "off balance sheet financing."
(O) ASSIGNMENT OF RIGHTS. Assign any rights or obligations under this
Agreement or any of the other agreements contemplated in this transaction.
(P) EMPLOYEE BENEFIT PLANS. Without the approval of the Board of
Directors, adopt or amend any employee benefit plans, other than stock option
plans.
(Q) STOCK OPTION PLANS. Adopt any stock option plan or enter into any
stock option agreement or amend any existing stock option plan or related
agreement if such plan or agreement, as adopted, entered into or amended, would
(i) provide the employee with a vesting or exercise schedule more favorable than
the schedule currently in effect under the agreements entered into between the
Company and certain of its employees pursuant to the Company's 1992 Stock Option
Plan or (ii) contain repurchase provisions less favorable to the Company than
the repurchase provisions currently in effect under the agreements entered into
between the Company and certain of its employees pursuant to the Company's 1992
Stock Option Plan.
23
<PAGE> 28
9. GENERAL.
As further and special provisions set forth under this Agreement, the
parties hereto further warrant, covenant, contract and agree each with the other
as follows:
(A) ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto
and other documents referred to herein constitute the entire understanding among
the parties as to the subject matter specifically referred to herein or therein.
The affirmative and negative covenants contained in Sections 7 and 8 of this
Agreement supersede the affirmative and negative covenants contained in Sections
7 and 8 of the Stock Purchase Agreement dated November 22, 1995 (the "Prior
Agreement") by and among the Company and the Investors named therein, which
Agreement otherwise remains in full force and effect (unless and to the extent
that the Prior Agreement conflicts with the terms of this Agreement with respect
to the sale of the Purchaser Securities, in which case this Agreement shall
control).
(B) SURVIVAL OF AGREEMENTS AND REPRESENTATIONS AND WARRANTIES. All
agreements and all representations and warranties contained herein or made in
writing by the Company in connection herewith, to the extent applicable, shall
survive the execution and delivery of this Agreement and other documents
referred to herein and shall continue so long as (i) any of the Investors owns
any Preferred Stock or Common Stock or (ii) any part of the principal or
interest on the Redemption Notes remains unpaid; provided that the Company shall
not be bound by any agreement, representation or warranty applicable solely to
the Purchaser after such time as the Purchaser or its successor no longer holds
any Purchaser Securities or shares of Common Stock or Preferred Stock issued
upon conversion or exercise thereof.
(C) NO WAIVER. No delay by or on behalf of the Purchaser in exercising
any rights conferred hereunder, and no course of dealing between the Purchaser
and the Company, shall operate as a waiver of any right granted hereunder,
unless expressly waived in writing by the party whose waiver is alleged.
(D) BINDING EFFECT. All covenants, representations, warranties and
other stipulations in this Agreement and other documents referred to herein,
given by or on behalf of any of the parties hereto, shall bind and inure to the
benefit of the respective successors, heirs, personal representatives and
assigns of the parties hereto.
(E) INITIAL HOLDER. The Company shall be entitled to treat and deal
with the Purchaser, and shall not be required to recognize any other Person as
the holder of the Purchaser Securities, the Common Stock or Preferred Stock
issued upon conversion or exercise thereof or the Purchaser's Redemption Notes,
except after production of the stock certificates or other documentation
representing such securities, duly endorsed for transfer, together with such
documentation as the Company may reasonably require concerning compliance with
Federal or state securities laws, or after receipt by the Company of written
notice from the Person theretofore entitled to be treated as the holder advising
the Company of the transfer of such stock certificates or other documentation
representing such securities or any portion thereof to such other Person and
stating the latter's address, together with such documentation as the Company
may reasonably require concerning compliance with Federal or state securities
laws.
24
<PAGE> 29
(F) CUMULATIVE POWERS. No remedy herein conferred upon the Purchaser is
intended to be exclusive of any other remedy, and each such remedy shall be
cumulative and in addition to every other remedy given hereunder or now or
hereafter existing at law, or in equity or by statute or otherwise.
(G) LOSS OF SECURITIES; REISSUANCE IN LESSER DENOMINATIONS. Upon:
(i) receipt of evidence satisfactory to the Company of loss,
theft, mutilation or destruction of a stock certificate, the
Convertible Note, the Deficit Warrant, the Warrant, or a Redemption
Note; and
(ii) in the case of any such loss, theft, or destruction, upon
delivery of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon
surrender and cancellation of such stock certificate, Convertible Note,
Deficit Warrant, Warrant, or such Redemption Note,
the Company will make and deliver a new certificate, Convertible Note, Deficit
Warrant, Warrant, or Redemption Note of like tenor, in lieu of such lost,
stolen, mutilated or destroyed certificate, note or warrant. In addition, upon
request of any holder of a stock certificate, note or warrant or other
securities of the Company now or hereafter issued by the Company to the
Purchaser, and upon surrender of such certificate, note or warrant or other
securities to the Company and compliance with any restrictive legends, the
Company will reissue, in lesser denominations to parties designated by such
holder, new certificates, notes or warrants or other securities in the
equivalent amounts of such other securities surrendered.
(H) COMMUNICATIONS. All communications and notices provided for
hereunder shall be sent by registered or certified mail, via a courier service,
or by telephonic notice, telecopy, telegram or Telex (except for communications
pursuant to subsection 7(i) hereof, which may be delivered by regular,
first-class mail) to the Investors and the Company at their respective addresses
set forth on Schedule 9(h) hereto, or to such other address with respect to any
Person as such Person shall notify the Company and the other Investors hereto in
writing. Any notice required to be given hereunder by one Person to another
shall be deemed to have been given when deposited in certified or registered
form in the United States mail, properly addressed to such other Person and with
proper first-class postage and postage for certification or registration affixed
thereto (or, in the case of notice by courier service, telephonic notice,
telecopy, telegram or Telex, where the receipt of such message is verified by
return). Except as otherwise provided for herein, all requests for disclosure or
other provision of information to be made or otherwise given by the Company
shall be completed no later than 10 days following the giving of a written
request therefor in the manner described in this subsection.
(I) GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of North Carolina.
(J) HEADINGS. The descriptive section headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
25
<PAGE> 30
(K) MULTIPLE ORIGINALS. This Agreement may be executed simultaneously
in multiple counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
(L) AMENDMENT OR WAIVER. Except as otherwise provided in this Section
9(l), this Agreement may be amended only by the written agreement of the Company
and the Purchaser. Notwithstanding the foregoing, Sections 7 and 8 hereof may be
amended only by the written agreement of (i) the Company and (ii) those
Investors holding an aggregate ownership interest of sixty percent (60%) of the
Preferred Stock held by all Investors. For the purposes of the previous
sentence, the ownership interest of an Investor with respect to Preferred Stock
shall be (i) the number of shares of Common Stock held by the Investors which
were obtained by conversion of shares of Preferred Stock, (ii) the number of
shares of Common Stock issuable to the Investor pursuant to the conversion of
shares of such class of Preferred Stock held by the Investor, and (iii)
following the redemption of the Investor's Preferred Stock, the number of shares
of Common Stock that would have been issuable to the Investor if the Investor
had converted its Preferred Stock immediately prior to redemption; provided,
however, that the ownership interest of an Investor determined pursuant to this
clause (iii) shall be deemed to be reduced proportionately in accordance with
the repayment of the Redemption Note held by the Investor. If at any time an
Investor, alone or together with one or more of its Affiliates or any other
person for whom such Investor serves as the Related Investor, owns 20% or more
of the Company's then outstanding equity securities (calculated on a fully
diluted basis), then the reference above to "sixty percent (60%) of the
securities of the Preferred Stock held by all Investors" shall thereafter be
deemed a reference to "more than fifty percent (50%) of the Preferred Stock held
by all Investors." The Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, if the Company shall
obtain the written consent of the Required Investors to such action or omission
to act. Neither this subsection 9(l) nor the definition of "Required Investors"
set forth in Section 1 hereof may be amended without the prior written consent
of all Investors. Any such consent to any such action or omission to act may be
granted prior to or after such action or omission to act. Each holder of the
Preferred Stock, the Common Stock and the Redemption Notes, at the time or times
thereafter outstanding, shall be bound by any consent authorized by this
section, whether or not the stock certificates, notes, warrants, or the
Redemption Notes shall have been marked to indicate such consent. Any provision
contained herein to the contrary notwithstanding, neither Section 7 nor 8 of
this Agreement or this Section 9(l) may be waived, modified or amended without
the written consent of the holders of sixty percent (60%) of a class of
Preferred Stock (seventy-five percent (75%) in the case of the Class C Preferred
Stock) if such waiver, modification or amendment would have an adverse effect on
the rights and privileges of such class of Preferred Stock that is materially
and adversely different from the effect of such amendment on the holders of
other classes of Preferred Stock. Further, no amendment of Sections 7(a),
7(c)(i) and 7(e) shall be effected without the separate consent of the
Purchaser.
(M) THIRD PARTY BENEFICIARIES. In consideration of the receipt from the
Required Investors of their consent to the transactions contemplated by this
Agreement, the parties hereto agree that Sections 7, 8, 9(a), 9(b), 9(d), 9(h),
9(l), 9(m) and 9(n) hereof are specifically intended to benefit the Investors
and are hereby deemed to so benefit such Investors and further that this Section
9(m) shall not be amended without the prior written consent of all Investors.
26
<PAGE> 31
(N) OBLIGATIONS OF COMPANY TO CERTAIN INVESTORS. The Company shall be
deemed to have fulfilled its obligation to each Investor if (i) it provides to
the Related Investor of such Investor the information and notices required to be
provided in subsections 7(f), 7(i), 7(j), 7(k) and 7(q) or pursuant to the
Registration Rights Agreement or the Shareholders' Agreement and (ii) it allows
the Related Investor of such Investor Affiliate to make the inquiries, visits
and inspections allowed by subsection 7(j). For the purposes hereof, (i) ATG
shall be the Related Investor for the following Investors: Robert G. Paul,
Philip W. Colburn, Robert A. Youdelman and Erik H. van der Kaay and (ii) ATV
shall be the Related Investor for the following Investors: Royce Diener, Robert
Easton, Peter Flanigan, Steward S. Flaschen Revocable Investment Trust, Flaschen
Family Trust, Robert F. Sproull, Richard J. Testa and Jasper Welch. Nothing
contained in this subsection 9(n) shall relieve the Company of any obligation
imposed by law to provide any of the Investors with notices or other
information.
(O) OBLIGATIONS OF PURCHASER TO PAY ITS EXPENSES. The Purchaser shall
pay all costs and expenses which it incurs in connection with the Purchaser
Agreements, including, without limitation, the fees of any investment bankers,
attorneys or other third parties retained by the Purchaser.
27
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers, their
respective seals to be hereunto affixed, all by authority of their respective
Board of Directors, all as of the day and year first above written.
COMPANY:
RF MICRO DEVICES, INC.
By:
-------------------------------------
David A. Norbury, Chief Executive
Officer and President
ATTEST:
- ----------------------------------
Secretary
- -----------------
[CORPORATE SEAL]
PURCHASER:
TRW INC.
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
ATTEST:
- ----------------------------------
Secretary
- -----------------
[CORPORATE SEAL]
28
<PAGE> 33
FIRST AMENDMENT
TO
SECURITIES PURCHASE AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is made as of the 4th day of
November 1996, to the Securities Purchase Agreement, dated June 6, 1996, between
RF MICRO DEVICES, INC., (the "Company") and TRW, INC. (the "Securities Purchase
Agreement").
The Securities Purchase Agreement is amended as follows:
1. Section 8(q) is hereby amended by adding the following
phrase immediately prior to the period at the end of this section: ";
provided, however that the Compensation Committee of the Board of
Directors may grant nonqualified stock options pursuant to the
Company's 1992 Stock Option Plan (the "Plan") to non-employee officers,
directors, consultants, advisors and other such individuals performing
services for or on behalf of the Company on such terms as it shall
approve consistent with the provisions of the Plan."
2. Except as set forth herein, the Securities Purchase
Agreement shall remain in full force and effect.
<PAGE> 1
EXHIBIT 10.11
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), dated as of
June 6, 1996, is made by and between RF MICRO DEVICES, INC., a North Carolina
corporation (the "Company"), and TRW INC., an Ohio corporation ("TRW").
RECITALS:
WHEREAS, pursuant to that certain Securities Purchase
Agreement of even date herewith (the "Purchase Agreement"), and in
consideration of the execution, delivery and performance by TRW of that certain
License and Technical Assistance Agreement between TRW and the Company of even
date herewith (the "License Agreement"), concurrent with the execution of this
Agreement the Company is issuing to TRW 2,683,930 shares (the "TRW Shares") of
its Common Stock, no par value (the "Common Stock"); and
WHEREAS, the parties agree as a condition of the issuance
thereof that the TRW Shares shall be subject to certain restrictions as more
fully set out herein; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meaning given them in the License Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SHARE CERTIFICATES.
Concurrent with the execution of the Purchase Agreement, the
License Agreement and this Agreement, a certificate representing the TRW Shares
is being issued in the name of TRW, and the TRW Shares represented by such
certificate shall be considered to be issued and outstanding for all purposes.
Such certificate (or any replacement therefor) shall also bear the following
(or a similar) legend:
"THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING
REDEMPTION) CONTAINED IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE
ISSUER AND TRW INC. DATED AS OF JUNE 6, 1996, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE ISSUER'S PRINCIPAL EXECUTIVE OFFICE.
FURTHERMORE, SUCH RESTRICTED STOCK AGREEMENT CONTAINS AN IRREVOCABLE
PROXY COUPLED WITH AN INTEREST WHICH PROVIDES FOR THE VOTING OF SUCH
SHARES IN A CERTAIN MANNER PRIOR TO THE EXPIRATION OF SUCH AGREEMENT."
<PAGE> 2
2. DIVIDENDS AND VOTING RIGHTS.
(a) TRW shall be entitled to receive on the same basis as
all other holders of Common Stock any cash dividends declared and paid by the
Company on the Common Stock. Any securities of the Company distributed as a
dividend on or in exchange or replacement of the TRW Shares (collectively, the
"New Securities"), shall bear the legend described in Section 1 above and the
provisions of this Agreement shall apply mutatis mutandis to the New
Securities.
(b) During the term of this Agreement, the parties agree
that this Agreement shall serve as TRW's proxy to David A. Norbury (or his
successor in the office of President of the Company, in either case, "Proxy
Holder") who, by his execution hereof, agrees to vote the TRW Shares in any
vote of the holders of the Company's Common Stock for any proposal approved by
a vote (as provided in the Company's Bylaws) of the Company's Board of
Directors. Any attempt to revoke this proxy shall result in the immediate
right of the Company to redeem any or all of the TRW Shares for an aggregate
purchase price of $1.00. The Proxy Holder shall have full power of
substitution provided any such substitute shall be bound by the provisions of
this Agreement and shall vote the TRW Shares in the manner herein specified.
THE FOREGOING PROXY APPOINTMENT IS IRREVOCABLE AND SHALL BE DEEMED COUPLED WITH
AN INTEREST.
3. TRANSFERABILITY.
During the term of this Agreement, no TRW Share, nor any
right, title or interest therein, may be sold, transferred, pledged,
encumbered, assigned or otherwise disposed of (a "Transfer") without the prior
written consent of the Company, which consent may be given or withheld in the
Company's sole discretion. Any purported Transfer in violation of this Section
3 shall be null and void, shall not be recognized in the stock transfer records
of the Company and shall result in the immediate right of the Company to redeem
any or all of the TRW Shares attempted to be so Transferred for an aggregate
purchase price of $1.00. Notwithstanding the foregoing, the provisions of this
Section 3 shall not apply to any Transfer (i) in connection with a merger
transaction to which the Company is party and in which the Company is not the
surviving entity or (ii) to an entity in which TRW owns at least 50% of the
outstanding voting securities provided TRW or the transferee shall comply with
Section 6(g) of the Purchase Agreement.
4. FORFEITURE OF TRW SHARES.
(a) If by March 1, 1997 (the "Funding Date"), the
Financing has not been secured or committed, or the Company has not entered
into a definitive sublicense agreement with a third party for the manufacture
of Licensed Products, then the Company shall have the immediate right to redeem
any or all of the TRW Shares for an aggregate purchase price of $1.00.
2
<PAGE> 3
(b) If the Foundry is not an Operational Foundry on or
before December 31, 1998 (or such other date as to which the parties mutually
agree pursuant to Section 8.2.2 of the License Agreement) (the "Target Date"),
the Company shall have the immediate right to redeem as much as one-half of the
TRW Shares for an aggregate purchase price of $1.00.
(c) Upon the exercise by the Company of the redemption
rights provided in Sections 2 or 3 above or this Section 4, TRW agrees to
execute any stock power or other documentation necessary to transfer the TRW
Shares being redeemed to the Company and the Company agrees promptly to issue a
new certificate representing the balance, if any, of the TRW Shares not so
redeemed. Until surrendered, each outstanding certificate representing any TRW
Share to be redeemed shall represent only the right to receive the cash
redemption consideration provided herein and no interest will be paid or
accrued thereon upon the surrender of the certificate or certificates
representing such TRW Shares. With respect to any certificate for TRW Shares
that has been lost or destroyed, TRW shall provide an indemnity reasonably
satisfactory to the Company. After the date fixed for redemption of any TRW
Shares, no transfer thereof shall be made on the stock transfer books of the
Company and such shares shall not be considered outstanding for any purpose.
5. COMPLIANCE WITH LAW.
Upon the request of either party hereto based on the advice of
its counsel, the parties agree to cooperate in good faith with one another to
determine whether compliance with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), is required
prior to the date any TRW Share ceases to be subject to redemption in
accordance with Section 4 above. If action is taken by the Federal Trade
Commission or the United States Department of Justice to enjoin TRW's retention
of any TRW Share, the Company agrees to reasonably cooperate with TRW, at TRW's
request and expense, to contest such enjoinment.
6. MISCELLANEOUS.
(a) This Agreement, together with the Purchase Agreement
and the other documents attached or referred to therein (including the License
Agreement), constitute the entire agreement between the parties with respect to
the subject matter hereof.
(b) This Agreement may not be modified or amended except
by an instrument in writing signed by the Company and TRW. The consent of the
Proxy Holder shall not be required to amend this Agreement unless this Section
6(b) is being amended or additional duties are required of such Proxy Holder
pursuant to such amendment, in which case the consent of the Proxy Holder shall
be required for such an amendment.
(c) 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.
3
<PAGE> 4
(d) This Agreement shall terminate on March 31, 1997 if
by the Funding Date, the Financing has not been secured or committed, or the
Company has not entered into a definitive sublicense agreement with a third
party for the manufacture of Licensed Products or if not then terminated, 30
days after the Target Date.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, without regard to its
provisions regarding conflicts of law.
[The remainder of this page is intentionally left blank.]
4
<PAGE> 5
IN WITNESS WHEREOF, this Restricted Stock Agreement has been executed
in behalf of the Company and TRW as the date set forth above.
RF MICRO DEVICES, INC.
By:_____________________________________
David A. Norbury, President
TRW INC.
By:_____________________________________
_____________, (Vice) President
PROXY HOLDER:
__________________________________(SEAL)
David A. Norbury
5
<PAGE> 1
EXHIBIT 10.12
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, (the
"Agreement") dated as of June 6, 1996, is made by and among RF MICRO DEVICES,
INC., a North Carolina corporation (the "Company"), and those certain investors
set forth on Schedule 1 attached hereto and incorporated herein by reference
(collectively, the "Investors"). This Agreement amends, restates and
supersedes that certain Amended and Restated Registration Rights Agreement
dated November 22, 1995.
WHEREAS, certain of the Investors own, in the aggregate, 975,000
shares of the Company's Class A-1 Convertible Preferred Stock (the "Class A-1
Preferred Stock"), 1,034,091 shares of the Company's Class A-2 Convertible
Preferred Stock (the "Class A-2 Preferred Stock"), 3,300,000 shares of the
Company's Class B Convertible Preferred Stock (the "Class B Preferred Stock")
and 1,818,783 shares of the Company's Class C Convertible Preferred Stock (the
"Class C Preferred Stock"); and
WHEREAS, the Company has issued to Allen Telecom Group, Inc. its Stock
Purchase Warrant No. 1 dated August 7, 1995 and its Stock Purchase Warrant No.
2 dated November 10, 1995 (the "Allen Warrants"), each of which entitles Allen
Telecom Group, Inc. to purchase shares of the Company's common stock, no par
value per share ("Common Stock"); and
WHEREAS, pursuant to the terms of that certain Securities Purchase
Agreement of even date herewith by and between the Company and TRW Inc. (the
"Purchaser" and also an "Investor") (the "Securities Purchase Agreement"), the
Company has sold to the Purchaser the aggregate amount of 826,446 shares of the
Company's Class C Preferred Stock; a subordinated convertible promissory note
in the principal amount of $10,000,000, pursuant to which the Company may
borrow up to $10,000,000 from the Purchaser and the outstanding principal of
which may be converted by the Purchaser into 1,111,111 shares of Common Stock
or a class of the Company's preferred stock (the "New Preferred Stock") (to be
determined and adjusted as provided therein) (the "Convertible Note"); a
warrant entitling the Purchaser to purchase up to 1,111,111 shares of Common
Stock or New Preferred Stock (to be determined and adjusted as provided
therein) (the "Deficit Warrant"); a warrant entitling the Purchaser to purchase
up to 1,000,000 shares of Common Stock (subject to adjustment as provided
therein) (the "Warrant"); and the aggregate amount of 2,683,930 shares of
Common Stock (the "Restricted Common Stock"), which shares are subject to the
provisions of that certain Restricted Stock Agreement of even date herewith
between the Company and the Purchaser (the "Restricted Stock Agreement");
WHEREAS, the Class A-1 Preferred Stock, the Class A-2 Preferred Stock,
the Class B Preferred Stock, the Class C Preferred Stock and the New Preferred
Stock are collectively referred to as the "Preferred Stock" and such Preferred
Stock is convertible into Common Stock, all as
<PAGE> 2
provided (or to be provided, in the case of the New Preferred Stock) in the
Company's Articles of Incorporation; and
WHEREAS, in order to induce the Investors to purchase from the Company
the Preferred Stock and to induce the Purchaser to purchase the Class C
Preferred Stock, the Convertible Note, the Deficit Warrant, the Warrant and the
Restricted Common Stock (collectively, the "Purchaser Securities"), the Company
desires to grant registration rights to the Investors for shares of its Common
Stock which the Investors will have the right to acquire pursuant to conversion
of the Preferred Stock, the Purchaser Securities or the Allen Warrants;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
As used herein the following defined terms shall have the
following respective meanings:
(a) The term "Holders" means any holder or holders of
shares of Registrable Securities.
(b) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined below) and the
declaration or ordering of the effectiveness of such registration statement.
(c) The term "Registrable Securities" means all shares of
Common Stock issued or issuable upon (i) the conversion of Preferred Stock,
(ii) the exercise of the Allen Warrants, (iii) the exercise or conversion of
any Purchaser Securities other than the Restricted Common Stock and (iv) those
shares of Restricted Common Stock which are no longer subject to forfeiture as
provided in the Restricted Stock Agreement.
(d) The term "Securities Act" means the Securities Act of
1933, as amended.
2. Requested Registration.
(a) If at any time after one year from the date hereof,
the Company shall receive from the Holders of at least sixty percent (60%) of
the Registrable Securities a written request that the Company effect a
registration under the Securities Act with respect to not less than twenty
percent (20%) of the Registrable Securities and having an expected aggregate
offering price to the public of not less than $15,000,000, the Company will, as
expeditiously as possible, notify in writing all the Holders of such request
and use its diligent best efforts to effect all such registrations (including,
without limitation, the execution of an undertaking to file post-effective
amendments and appropriate qualifications and approvals under the laws and
regulations applicable to the Company of any applicable governmental agencies
and authorities, including the applicable blue sky or other
2
<PAGE> 3
state securities laws) as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of the Registrable Securities
as are specified in such request, together with any Registrable Securities held
by the other Holders who may desire to participate in such registrations;
provided, however, that before filing any such registration statement or any
amendments or supplements thereto, the Company will (x) furnish to the Holders
of Registrable Securities which are to be included in such registration, copies
of all such documents proposed to be filed, which documents will be subject to
the review of such Holders and their counsel, and (y) give the Holders of
Registrable Securities to be included in such registration statement and their
representatives the opportunity to conduct a reasonable investigation of the
records and business of the Company and to participate in the preparation of
any such registration statement or any amendments or supplements thereto;
provided, further, that the Company shall not be obligated to take any action
to effect such registration pursuant to this subparagraph 2(a), (i) after (A)
the Company has effected three such registrations pursuant to this subparagraph
2(a) at the request of the Holders and (B) each of such registrations have been
declared or ordered effective; (ii) during the ninety (90) day period
commencing with the closing date of the Company's initial public offering, or
(iii) if it delivers notice to the Holders of the Registerable Securities
within thirty (30) days of any registration request of its intent to file a
registration statement for such initial public offering within ninety (90)
days. With respect to any registration requested pursuant to this subparagraph
2(a), the Company may include in such registration any other shares of its
capital stock, subject to the restrictions set forth in subparagraph 2(c).
(b) Subject to subparagraph 2(a) above and the other
terms and conditions contained herein, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practical, but in any event within ninety (90) days after (i) receipt
of the request or requests of the Holders or (ii) the date in which the Holders
of Registrable Securities to be included in such registration agree, pursuant
to subparagraph 2(c), on the terms and conditions of an underwriting, if
applicable, as evidenced by its letter of intent describing such terms and
conditions, whichever is later; provided, however, that if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed at the date filing would be required hereunder and it is
therefore essential to defer the filing of such registration statement, the
Company shall have an additional period of not more than sixty (60) days within
which to file such registration statement (which additional period may be
extended to ninety (90) days if such deferral will materially reduce the
expenses of such registration due to the elimination of the need for any
special audits to be performed in connection with such registration).
(c) If the Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subparagraph
2(a). In such event, if so requested in writing by the Company, the Holders
shall negotiate in good faith with a nationally recognized underwriter or
underwriters or major regional underwriter or underwriters acceptable to the
Holders, selected by the Company with regard to the underwriting of such
requested registration; provided, however, that if the Holders have not agreed
with such underwriter(s), in their discretion, as to the terms and conditions
of such
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<PAGE> 4
underwriting within thirty (30) days following commencement of such
negotiations, the Holders may select an underwriter of their choice. The right
of the Holders to registration pursuant to this Paragraph 2 shall be
conditioned upon the Holder's participation in such underwriting to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their Registrable Securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected pursuant to this Paragraph 2. Notwithstanding any other
provision of this Paragraph 2, if the underwriter advises the Company in
writing with a copy to the Holders that marketing factors require a limitation
of the number of shares to be underwritten, the Company shall so advise all
Holders, and the Company will include in such registration up to the maximum
allowed by such underwriter (x) first, as many shares as possible of
Registrable Securities requested to be included by the applicable Holders,
which shall be allocated among all Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities requested by
such Holders to be registered and (y) second, shares to be sold by the Company
or other holders of the Company's capital stock. If any Holder of Registrable
Securities disapproves of the terms of the underwriting, he or it may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
other Holders. In the event of any such withdrawal, the Company will include
in any such registration in lieu thereof any additional shares of Registrable
Securities which were requested to be included by a Holder and which were
excluded pursuant to the above-described underwriter limitation up to the
maximum set by such underwriter.
(d) The Company will use its best efforts to do any and
all other acts which may be necessary or advisable to enable each selling
Holder to dispose of the Registrable Securities being sold including, without
limitation, (i) furnishing to each such Holder (x) the number of copies of the
registration statement and of the exhibits and the prospectus contained therein
reasonably requested by each such Holder, and (y) signed counterparts,
addressed to each such Holder, of an opinion of the Company's counsel and a
"cold comfort" letter of the Company's independent certified public accountants
with respect to the matters customarily covered in such documents delivered to
underwriters in underwritten public offerings, (ii) registering or qualifying
the Registrable Securities under the blue sky laws of any state in which the
Registrable Securities are to be sold or obtaining exemptions therefrom;
provided, however, that no blue sky filing shall be required in any state if to
do so would require the Company to qualify to do business or to file a general
consent to service of process in such state and (iii) listing the Registrable
Securities to be sold on a national securities exchange or equivalent.
3. Company Registration.
(a) In addition to the registration rights set forth in
Paragraph 2, if at any time or from time to time, the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, in a registration statement covering the sale of
Common Stock to the general public pursuant to an underwritten public offering
(except with respect to any registration filed on Form S-8, Form S-4 or any
successor forms thereto), the Company will: (x) give to each Holder written
notice thereof at least ninety (90) days before the initial filing of such
registration (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities
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<PAGE> 5
laws), or forty-five (45) days before filing if such registration is a
subsequent registration; provided, however, in the case of a registration
statement on Form S-3, the Company shall give each Holder written notice of the
proposed filing thereof promptly after a decision to make such filings has been
made and in no event less than ten (10) business days prior to filing; and (y)
use its best efforts to include in such registration (and any related
qualification under blue sky laws) and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
within thirty (30) days after receipt of such written notice from the Company,
by any Holder or Holders, except as set forth in subparagraph 3(b) below.
(b) The right of any Holder to registration pursuant to
this Paragraph 3 shall be conditioned upon such Holder's participation in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company, and
may, at their option, require that any or all the representations and
warranties by, and the covenants and other agreements on the part of, the
Company to and for the benefit of such underwriter shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriter other than those relating to such Holders and such Holders'
intended methods of distribution. Notwithstanding any other provision of this
Paragraph 3, if the underwriter determines that marketing factors require a
limitation of the number of Registrable Securities to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in
the registration and underwriting; provided, however, that with respect to any
such registration of securities for the account of the Company, the underwriter
may not limit the amount of Registrable Securities included in such
registration and underwriting if other holders of the Company's securities are
permitted to include their securities in such registration and underwriting.
The Company shall so advise all Holders, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
requested by such Holders to be registered. If any Holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter. In the event of any such
withdrawal, the Company will include, on a proportionate basis (determined in
accordance with the preceding sentence), in any such registration in lieu
thereof any additional Registrable Securities which were requested to be
included by a Holder and which were excluded pursuant to the above-described
underwriter limitation up to the maximum set by such underwriter.
(c) Purchaser's rights, if any, to purchase shares of the
Company's securities in an offering described in this Section 3 shall rank pari
passu with the rights of the other Holders of the Registrable Securities and
shall be determined on the same basis.
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<PAGE> 6
4. Registration on Form S-3.
At such time as the Company shall have qualified for the use
of Form S-3 (or any similar form or forms promulgated under the Securities
Act), the Holders of the Registrable Securities shall have the right to request
an unlimited number of registrations (but no more than one such registration
every six months) on Form S-3 (which request or requests shall be in writing,
shall specify the Registrable Securities intended to be sold or disposed of by
the Holder thereof, shall state the intended method of disposition of such
Registrable Securities by the Holder requesting such registration and shall
relate to Registrable Securities having a proposed aggregate gross offering
price (before deduction of underwriting discounts and expenses of sale) of at
least $500,000) and the Company shall be obligated to use its best efforts to
effect such registration or registrations on Form S-3.
5. Expenses of Registration.
All expenses incurred in connection with any registration or
qualification pursuant to this Agreement, including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and counsel for the Holders, and
expenses and fees of any special audits incidental to or required by such
registration, shall be borne by the Company; provided, however, that (x) the
Company shall not be required to pay for expenses of any registration begun
pursuant to Paragraph 2, the request for which has been subsequently withdrawn
by the Holders and which the Company or any other stockholders do not wish to
continue, in which case, such expenses shall be borne by the Holders requesting
such withdrawal; provided, however, that the Company shall be required to pay
for such expenses if such registration was begun pursuant to Paragraph 2(a) and
the Holders deem such registration to satisfy the Company's obligation with
respect to registering such offering; and (y) the Company in any event shall
not be required to pay fees of legal counsel of the Holders (except for the
fees of one legal counsel of the Holders) or underwriters' discounts or
commissions relating to Registrable Securities (such underwriters' fees,
discounts, commissions or other fees or expenses to be borne by the Holders, on
a pro rata basis, based on the number of Registrable Securities sold by each of
them), except where a partner or employee of a Holder is a director of the
Company and incurs expenses on behalf of the Company with respect to any
registration or qualification in his or her capacity as a director of the
Company. In the event that expenses are to be paid by the Holders, such
expenses shall not include (x) costs of preparing any financial statements or
other information normally prepared by or for the Company in the ordinary
course or (y) general overhead expenses of the Company, including, without
limitation, salaries.
6. Registration Procedures.
In the case of each registration effected by the Company
pursuant to this Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of such registration (and any
state qualifications) and as to the completion thereof. The Company will: (x)
keep such registration or qualification pursuant to Paragraphs 2, 3 or 4
effective for a period of ninety (90) days or until all the Holders have
completed the distribution described in the registration
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<PAGE> 7
statement relating thereto, whichever last occurs, and (y) furnish such number
of prospectuses and other documents incident thereto as a Holder from time to
time may reasonably request.
7. Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities, each of the Holder's officers, directors, partners and employees,
and each person controlling such Holder, with respect to such registration or
qualification effected pursuant to this Agreement and in which Registrable
Securities are included, against all claims, losses, damages, and liabilities
(or actions in respect thereto) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
registration statement or other document incident to any such registration or
qualification, or based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated pursuant to any Federal, state or common law rule or
regulation including, without limitation, the Securities Act, applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance and will
reimburse each such Holder, each of such Holder's officers, directors, partners
and employees, and each person controlling such Holder, for any legal and any
other expenses incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, including reasonable attorneys' fees;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon and in conformity with written
information furnished to the Company by such Holder, in a signed document
stating that such information is specifically for use therein. Such indemnity
shall be effective notwithstanding any investigation made by or on behalf of
any Holder, or any such officer, director, partner, employee or controlling
person, and shall survive any transfer by the same of any of the Registrable
Securities.
(b) Each Holder will, if Registrable Securities held by
or issuable to such Holder are included in the securities as to which such
registration or qualification is being effected, severally and not jointly,
indemnify the Company, each of its directors, officers and employees, against
all claims, losses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement, prospectus or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, employees, persons or underwriters for any legal
or any other expenses incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, including reasonable
attorneys' fees, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus or other document
in reliance upon and in conformity with written information furnished to the
Company by such Holder in a signed document stating that such information is
specifically for use therein. Notwithstanding the foregoing, the liability of
any such Holder shall not exceed an amount equal to the proceeds realized by
each such Holder of Registrable Securities sold as
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<PAGE> 8
contemplated herein. Such indemnity shall be effective notwithstanding any
investigation made by or on behalf of the Company, any such director, officer,
partner, employee, or controlling person and shall survive the transfer of such
securities by such seller.
(c) Each party entitled to indemnification under this
Paragraph 7 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought. Unless in the reasonable judgment of the Indemnified Party a
conflict of interest may exist between the Indemnifying Party and the
Indemnified Party, the Indemnifying Party shall be permitted to assume the
defense of any such claim or any litigation resulting therefrom; provided,
however, that in any event counsel for the Indemnifying Party or Indemnified
Party who shall conduct the defense of such claim or litigation as provided
above shall be approved by the other Party (whose approval shall not be
unreasonably withheld), and such other Party may participate in such defense at
such Party's expense; provided, further, that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Paragraph 7.
(d) The Indemnified Party shall make no settlement of any
claim or litigation which would give rise to liability on the part of the
Indemnifying Party under an indemnity contained in this Paragraph 7 without the
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed, and no Indemnifying Party shall make any
settlement of any such claim or litigation without the consent of the
Indemnified Party. If a firm offer is made to settle a claim or litigation
defended by the Indemnified Party and the Indemnified Party notifies the
Indemnifying Party in writing that the Indemnified Party desires to accept and
agree to such offer, but the Indemnifying Party elects not to accept or agree
to such offer within ten (10) days after receipt of written notice from the
Indemnified Party of the terms of such offer, then, in such event, the
Indemnified Party shall continue to contest or defend such claim or litigation
and, if such claim or litigation is within the scope of the Indemnifying
Party's indemnity contained in this Paragraph 7, the Indemnified Party shall be
indemnified pursuant to the terms hereof. If a firm offer is made to settle a
claim or litigation defended by the Indemnifying Party and the Indemnifying
Party notifies the Indemnified Party in writing that the Indemnifying Party
desires to accept and agree to such offer, but the Indemnified Party elects not
to accept or agree to such offer within 10 days after receipt of written notice
from the Indemnifying Party of the terms of such offer, then, in such event,
the Indemnified Party may continue to contest or defend such claim or
litigation and, in such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified Party in accordance
with this Agreement with respect to such claim or litigation shall be limited
to and shall not exceed the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonable fees and disbursements
of counsel) to the date of notice that the Indemnifying Party desired to accept
such settlement offer.
(e) The indemnification payments required pursuant to
this Paragraph 7 for expenses of the investigation or defense of a claim or
lawsuit shall be made from time to time during the course of the investigation
or defense, as the case may be, upon submission of reasonably sufficient
documentation that any such expenses have been incurred.
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<PAGE> 9
8. Information by Holder.
The Holder or Holders of Registrable Securities included in
any registration shall furnish to the Company such written information
regarding such Holder or Holders and the distribution proposed by such Holder
or Holders as the Company may reasonably request in writing and as shall be
required in connection with any registration or qualification referred to in
this Agreement. The Company agrees to include in any such registration
statement all information concerning the Holders and their distribution which
the Holders shall reasonably request.
9. Securities Act Registration Statements.
The Company shall not file any registration statement under
the Securities Act covering any securities unless it shall first have given the
Holders written notice thereof. The Company further covenants that the Holders
shall have the right, at any time when they may be deemed to be a controlling
person of the Company, to participate in the preparation of such registration
statement and to request the insertion therein of material furnished to the
Company in writing which in the Holders' judgment should be included. In
connection with any registration statement referred to in this subsection, the
Company will indemnify, to the extent permitted by law, the Holders, their
officers, directors, partners and employees and each person, if any, who
controls the Holders within the meaning of Section 15 of the Securities Act,
against all losses, claims, damages, liabilities and expenses caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus or any preliminary prospectus or any
amendment thereof or supplement thereto or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement or omission or alleged omission contained
in written information furnished to the Company by the Holders expressly for
use in such registration statement. If, in connection with any such
registration statement, the Holders shall furnish written information to the
Company expressly for use in the registration statement, the Holders, severally
and not jointly, will indemnify, to the extent permitted by law, the Company,
its directors, each of its officers who sign such registration statement and
each person if any, who controls the Company within the meaning of the
Securities Act against all losses, claims, damages, liabilities and expenses
caused by any untrue statement or alleged untrue statement of a material fact
or any omission or alleged omission of a material fact required to be stated in
the registration statement or prospectus or any preliminary prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or such omission or alleged omission is contained in
information so furnished in writing by the Holders for use therein.
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10. Filing of Reports Under The Exchange Act.
The Company shall give prompt notice to the Holders of (a) the
filing of any registration statement (an "Exchange Act Registration Statement")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), relating to any class of equity securities of the Company, and (b) the
effectiveness of such Exchange Act Registration Statement and the number of
shares of such class of equity securities outstanding as reported in such
Exchange Act Registration Statement, in order to enable the Holders to comply
with any reporting requirements under the Exchange Act or the Securities Act.
The Company shall, at any time after the Company shall register any shares of
Common Stock under the Securities Act and upon the written request of the
Holders, file an Exchange Act Registration Statement relating to any class of
equity securities of the Company then held by the Holders or issuable upon
conversion or exercise of any class of debt or equity securities or warrants or
options of the Company then held by the Holders, whether or not the class of
equity securities with respect to which such request is made shall be held by
at least the number of persons which would require the filing of a registration
statement under Section 12(g) of the Exchange Act.
11. Rule 144 Reporting.
With a view to making available to the Holders benefits of
certain rules and regulations of the Securities and Exchange Commission (the
"SEC") which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees that if it becomes subject to the
reporting requirements of either Section 13 of Section 15(d) of the Exchange
Act, it will:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, or any successor provision
thereto, at all times;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) so long as a Holder owns any Registrable Securities
(or other securities of the Company), to furnish to such Holder forthwith upon
its request a written statement by the Company as to the Company's compliance
with the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing such Holder to sell any such securities without registration;
and take any further action reasonably requested by a Holder to enable such
Holder to sell its Registrable Securities without registration under Rule 144,
under any successor provision, or any similar rule or regulation promulgated by
the SEC from time to time.
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12. Transfer of Registration Rights.
The rights to cause the Company to register Registrable
Securities that are granted by the Company under Paragraphs 2, 3 and 4 may be
assigned by a Holder to (i) any partner or retired partner of any Holder which
is also a partnership, (ii) any family member or trust for the benefit of any
Holder who is also an individual, or (iii) any transferee who acquires at least
10,000 shares of Registrable Securities provided that the Company is given
written notice by the Holder at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned. Subject to the foregoing provision, this Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that the registration
rights granted in this Agreement shall not be transferred to persons who
received Registrable Securities pursuant to a registration statement under the
Securities Act or pursuant to a transaction under Rule 144 or any successor
provision thereto.
13. Consent; Changes.
For purposes of this Agreement, unless otherwise specifically
provided for hereby, all approvals and consents of the Holders required or
permitted under this Agreement shall be deemed granted by the affirmative vote
of the Holders of sixty percent (60%) of the Registrable Securities which have
not already been registered. The terms and provisions of this Agreement may
not be waived, modified or amended, except that they may be waived, modified or
amended with the written consent of (a) the Company and (b) the Holders of
sixty percent (60%) of the Registrable Securities which have not already been
registered; provided, however, that this Paragraph 13 may not be waived,
modified or amended without the written consent of (a) the Company and (b) all
of the Holders; provided, further, however, that this Agreement may not be
waived, modified or amended without the written consent of (X) the holders of
seventy-five percent (75%) of the Class C Convertible Preferred Stock and (Y)
the Company, if such waiver, modification or amendment would have an adverse
effect on the rights and privileges of the Class C Convertible Preferred Stock
that is materially and adversely different from the effect of such waiver,
modification or amendment on the holders of other classes of Preferred Stock.
14. Granting of Registration Rights.
The Company shall not, without the prior written consent of
holders of sixty percent (60%) of the Registrable Securities with respect to
the Holders of the Preferred Stock which have not already been registered,
grant any rights to any persons to register any shares of capital stock or
other securities of the Company if such rights could reasonably be expected to
conflict with, or be on parity with, the rights of the Holders provided
hereunder.
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15. "Lock-Up" Agreement.
If required by the Company and an underwriter of Common Stock
or other securities of the Company, each Holder shall agree not to sell or
otherwise transfer or dispose of any Registrable Securities held by such Holder
for a specified period of time (not to exceed one hundred twenty (120) days)
following the effective date of a primary offering by the Company; provided
that all officers and directors of the Company and all other Holders of 1% of
the shares, enter into similar agreements. Such agreement shall be in writing
in a form satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the Registrable Securities or
other securities subject to the foregoing restriction until the end of the
stand-off period.
16. Standstill Agreement by TRW.
From the date hereof through and including the date which is
the fifth anniversary of the closing of the initial Public Offering (as defined
below) by the Company, the Purchaser hereby agrees that it shall not, and shall
cause its Affiliates (as defined below) not to, directly or indirectly, (a)
acquire, offer to acquire (including without limitation, any offer conditioned
on a waiver or other elimination of this Paragraph 16), or agree to acquire,
directly or indirectly, by purchase or otherwise, any voting securities or
direct or indirect rights or options to acquire any voting securities of the
Company or any subsidiary thereof in excess of the Percentage Limit, or any
assets of the Company or any subsidiary or division thereof; (b) make any
public announcement with respect to, or submit any proposal for, or offer of
(with or without conditions), any extraordinary transaction involving the
Company or its securities or assets; (c) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" to vote (as such
terms are used in the proxy rules of the Securities and Exchange Commission),
or seek to advise or influence any person or entity with respect to the voting
of any voting securities of the Company; (d) form, join or in any way
participate in a "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 with respect to any voting securities of the
Company; or (e) solicit or encourage any person to propose a business
combination or similar transaction with, or a change in control of, the
Company. Notwithstanding the foregoing, actions permitted by that certain
Second Amended and Restated Shareholders' Agreement among the Company and its
shareholders are excepted from the prohibitions of this Paragraph 16.
Furthermore, if any party makes a bona fide offer to purchase all of the
outstanding shares of the Company, the Company shall notify the Purchaser in
writing that for a period of thirty (30) days after the date of such notice
(the "Special Option Period"), the Purchaser shall be entitled to make a
counterproposal for all outstanding shares of the Company on the same or better
terms and conditions as provided in such offer and the Purchaser may deliver
written notice to the Company at any time during the Special Option Period
setting forth the terms and conditions of such counterproposal (the "Purchaser
Offer"). The Company shall promptly upon receipt forward the Purchaser Offer
to all of its shareholders who, in their sole discretion, may elect to accept
or reject such Purchaser Offer. As used herein, the term "Public Offering"
shall have the same meaning as provided in the Company's Articles of
Incorporation; "Affiliate" shall have the same meaning as provided in Rule 405
promulgated under the Securities Act; and "Percentage Limit" means the lesser
of forty percent (40%) or the actual maximum percentage of the Company's equity
securities owned by Purchaser (assuming conversion by Purchaser of all of its
convertible
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securities and the exercise of any warrants or options held by Purchaser),
calculated on a fully diluted basis. Purchaser acknowledges that the Company
would not have an adequate remedy at law for money damages in the event of a
breach by Purchaser or its Affiliates of this Paragraph 16 and agrees that the
Company shall be entitled to specific enforcement of the terms of this
Paragraph 16 in addition to any other remedy to which it may be entitled at law
or in equity.
17. Governing Law.
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of North Carolina without
reference to the principles of conflicts of law thereof.
18. Notice.
All notices and other communications required or permitted to
be given in respect of this Agreement shall be deemed to have been given or
made if delivered personally or if mailed by registered or certified mail,
return receipt requested, to the parties at the addresses listed on Schedule 1
hereto, or, in each case, at such other address or addresses as any party shall
hereafter specify by written notice to the others. All such notices and
communications, if mailed, shall be deemed to have been given on the third
business day after the mailing thereof.
19. Termination.
This Agreement shall terminate with respect to any Holder 90
days after the effective date of a Registration Statement registering all of
such Holder's Shares under Section 12 of the Securities Act; provided, however,
that the indemnification provisions in Paragraph 7 shall survive the
termination of this Agreement and Paragraph 16 shall survive the termination of
this Agreement.
20. Counterparts.
This Agreement may be executed in counterparts, each of which
shall be deemed an original and which together shall constitute a single
agreement.
21. Headings.
The headings of the Paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part hereof.
22. Severability.
If any provision or any portion of any provision of this
Agreement shall be held to be void or unenforceable, the remaining portions of
this Agreement shall continue in full force and effect.
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<PAGE> 14
23. Superseding Effect.
This Agreement supersedes and replaces that certain Amended
and Restated Registration Rights Agreement dated November 22, 1995 by and among
the Company and certain of the Investors.
[Signatures appear on the following pages.]
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be duly executed by their authorized officers as of the day and year first
above written.
COMPANY:
RF MICRO DEVICES, INC.
By:
------------------------------------
David A. Norbury, Chief Executive
Officer and President
ATTEST:
- --------------------------------
Secretary
- -----------------
[CORPORATE SEAL]
INVESTORS:
TRW Inc.
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
KITTY HAWK CAPITAL LIMITED PARTNERSHIP II
By: KITTY HAWK PARTNERS LIMITED
PARTNERSHIP, General Partner
By:
------------------------------
Walter H. Wilkinson, Jr.,
General Partner
<PAGE> 16
ADVANCED TECHNOLOGY VENTURES III, L.P.
By: ATV ASSOCIATES III, L.P.,
General Partner
By:
------------------------------
Albert E. Paladino,
General Partner
ALLEN TELECOM GROUP, INC.
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
BRANTLEY VENTURE PARTNERS, II, L.P.
By:
---------------------------------------
Raymond J. Rund,
General Partner
THE NORTH CAROLINA ENTERPRISE FUND, L.P.
By: THE NORTH CAROLINA ENTERPRISE
CORPORATION, General Partner
By:
------------------------------
Joseph A. Velk,
Vice President
CAROLINAS CAPITAL LIMITED PARTNERSHIP
By: CAROLINAS CAPITAL INVESTMENT
CORPORATION, General Partner
<PAGE> 17
By:
------------------------------
Edward S. Goode,
President
NORWEST EQUITY PARTNERS IV, a Minnesota
Limited Partnership
By: ITASCA PARTNERS, General Partner
By:
------------------------------
Ernest Parizeau,
General Partner
NORWEST EQUITY PARTNERS V, a Minnesota
Limited Partnership
By: ITASCA PARTNERS, General Partner
By:
------------------------------
Ernest Parizeau,
General Partner
(SEAL)
-------------------------------------
Robert G. Paul
(SEAL)
-------------------------------------
Philip W. Colburn
(SEAL)
-------------------------------------
Robert A. Youdelman
<PAGE> 18
(SEAL)
------------------------------------
Erik H. van der Kaay
(SEAL)
------------------------------------
Royce Diener
(SEAL)
------------------------------------
Robert J. Easton
(SEAL)
------------------------------------
Peter Flanigan
STEWARD S. FLASCHEN REVOCABLE
INVESTMENT TRUST
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
FLASCHEN FAMILY TRUST
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
(SEAL)
----------------------------------
Robert F. Sproull
<PAGE> 19
(SEAL)
-----------------------------------
Richard J. Testa
(SEAL)
-----------------------------------
Jasper Welch, Jr.
SSANG YONG CEMENT (SINGAPORE) LIMITED
By:
--------------------------------
Print Name:
------------------------
Title:
-----------------------------
ALLIANCE TECHNOLOGY VENTURES, L.P.
By:
--------------------------------
Stephen Fleming
SVE STAR VENTURES ENTERPRISES NO. II GbR
A GERMAN CIVIL LAW PARTNERSHIP (with limitation of
liability)
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
SVE STAR VENTURES ENTERPRISES NO. III GbR
A GERMAN CIVIL LAW PARTNERSHIP (with limitation of
liability)
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
SVE STAR VENTURES ENTERPRISES NO. IIIa GbR
<PAGE> 20
A GERMAN CIVIL LAW PARTNERSHIP (with limitation of
liability)
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
NATIONSBANC CAPITAL CORPORATION
By:
-------------------------------------
Robert H. Korman, II,
Senior Vice President
QUALCOMM INCORPORATED
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 21
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT is made as of the 14th day of February, 1997 to
the Second Amended and Restated Registration Rights Agreement, dated as of June
6, 1996, by and among RF MICRO DEVICES, INC., a North Carolina corporation, and
certain shareholders of the Company (the "Registration Rights Agreement").
The Registration Rights Agreement is amended as follows:
1. Paragraph 1(c) is hereby amended by adding a new clause (iii)
to read as follows:
(iii) the exercise of stock purchase warrants issued
by the Company to FINOVA Technology Finance, Inc.
("FINOVA") for the purchase of up to an aggregate of
82,645 shares of Common Stock, subject to adjustment
as provided therein, in connection with the Master
Equipment Lease Agreement entered into between the
Company and FINOVA in February 1997,
and renumbering current clauses (iii) and (iv) as (iv) and
(v), respectively.
2. Paragraph 15 is hereby amended by deleting the phrase "one
hundred twenty (120) days" and replacing such phrase with "one
hundred eighty (180) days."
3. Except as set forth herein, the Registration Rights Agreement
shall remain in full force and effect.
<PAGE> 1
EXHIBIT 10.13
LEASE
THIS LEASE AGREEMENT made and entered into this 31st day of October,
1995, by and between Piedmont Land Company, a North Carolina corporation,
and/or its Assigns, having a business address at: 556-M Arbor Hill Road,
Kernersville, NC 27284, hereinafter referred to as "Lessor", and R.F. Micro
Devices, Inc., a North Carolina corporation, having a business address at:
7341-D West Friendly Avenue, Greensboro, NC 27410, hereinafter referred to as
"Lessee".
WITNESSETH
Lessor, for and in consideration of the rents herein reserved and the
terms, covenants, conditions and agreements set forth herein to be observed and
performed by Lessee, does hereby grant, demise, lease and let unto the said
Lessee, and Lessee does hereby lease from Lessor the following described
premises ("premises" or "demised premises"):
TO WIT: the parcel described in the attached Exhibit A which is by
this reference incorporated herewith, which parcel is approximately 5.0 +/-
acres and is located at the northeast corner of the land currently or formerly
owned by the W. W. Pegg Estate to the south of Thorndike Road in Deep River
Corporate Park, Guilford County, North Carolina, and the building and other
improvements to be constructed as "Phase I" (the "Phase I Project") in
accordance with the description, terms and conditions contained in the site
plan and in the Construction of Building in the attached Exhibit B which is by
this reference incorporated herewith, together with all easements, rights,
improvements, and appurtenances; together with the exclusive use (with other
tenants of the premises, if any) of the parking area denoted as such in Exhibit
B; provided that the tenants and/or customers of the parcel abutting the
premise's east boundary and owned by Brookhollow of North Carolina, Inc. may
have use of the driveway for ingress and egress only to gain access to and from
the parking area on Brookhollow's parcel and Thorndike Road in accordance with
the terms of a reciprocal easement, if any, or other agreement pertaining to
the premises and such parcel which easement or other agreement may be entered
into by Lessor in Lessor's sole discretion and Brookhollow of North Carolina,
Inc. after the date of this Lease. Lessee shall use the premises for general
and administrative offices, including receiving, storing, shipping and assembly
and for no other purpose or purposes without the prior written consent of the
Lessor, which shall not be unreasonably withheld.
TO HAVE AND TO HOLD said premises for a term of seven (7) years
commencing on the date of delivery of possession to Lessee, subject, to the
terms and conditions herein contained. As used in this Lease, the term "date
of delivery of possession" shall mean the date (i) thirty (30) days after the
date the premises are ready for occupancy by Lessee or (ii) the date Lessee
actually opens for business on the premises, whichever event occurs first, (the
"Commencement Date"). The first "lease year" shall mean the period beginning
on the Commencement Date and expiring on the last
<PAGE> 2
day of the 12th full calendar month thereafter. Any subsequent lease year
shall mean a 12-month period on the first day of the calendar month following
the expiration of the first lease year or any anniversary thereof.
The demised premises shall be considered ready for occupancy when (1)
all work on the construction of the building has been substantially completed,
including final painting, (2) all access and service routes and areas, and the
parking surfaces are substantially completed and in a usable condition, (3) a
certificate of temporary occupancy or certificate of occupancy has been issued
by the County of Guilford, and (4) notice has been provided to Lessee, with a
copy of the certificate of temporary occupancy or certificate of occupancy,
that the premises are ready for occupancy by Lessee.
THE PARTIES HERETO for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
hereby covenant and agree as follows:
1. Lessee shall pay unto Lessor as rental for said premises the
sum of $21,458.30 per month ("Minimum Rent") plus any applicable Federal, State
or local tax thereon, payable in advance on the FIRST DAY of each and every
month without demand, commencing on the Commencement Date and continuing
through the end of the seventh (7th) lease year; provided, however, if the
Commencement Date occurs on any day other than the first business day of the
month, Lessee's Minimum Rent for such partial month shall be determined by
multiplying $21,458.30 by a fraction, the numerator of which is the number of
days remaining in such partial month from and including the Commencement Date
and the denominator shall be the number of calendar days in such partial month.
(a) In addition to the Minimum Rent all other payments to
be made by Lessee hereunder to Lessor shall be deemed for the purpose of
securing the collection thereof to be additional rent hereunder, whether or not
same be designated as such; and Lessor shall have the same rights and remedies
upon Lessee's failure to pay the same as for the non-payment of Minimum Rent.
Any charges against the Lessee by the Lessor for services or for work done on
the premises by order of Lessee, or otherwise accruing under this Lease shall
be considered as rent due and shall be included in any lien for rent due and
unpaid.
(b) If Lessee shall fail to pay any Minimum Rent,
additional rent, or any other sums to become due hereunder within ten (10) days
after the same becomes due and payable, then in such event, Lessee shall pay to
Lessor a late payment service charge, which service charge shall be equal to
the late fees charged to Lessor in accordance with the terms of any loan
secured by mortgage(s) or deed(s) of trust on the premises. The provisions
herein for late payment service charges shall not be construed to extend the
dates for compliance with the provisions concerning such matters, nor to
relieve Lessee of its obligation to pay such sums at the times herein
stipulated. Notwithstanding the imposition of such charges, Lessee shall be in
default under this Lease if any or all payments are not made at the time
stipulated by this Lease, and neither the demand nor collection by Lessor of
such late payment service charge shall be construed as a cure for such default
on the part of Lessee.
- 2 -
<PAGE> 3
(c) Lessee shall pay the rent herein reserved at the
times and in the manner stated, without notice or demand.
2. Lessee shall pay when due all charges for telephone, gas, and
any other utility service furnished directly to the premises by such utility
provider. Lessor may elect to provide some or all of such services and in such
event charges for such services would be included as operating expenses under
paragraph 4(c).
3. Lessee shall make no incineration of trash or waste on the
premises, it being understood and agreed that Lessee shall use services
provided by Lessor.
4. Lessee shall pay within thirty (30) days after initial billing
by Lessor, on a monthly basis thereafter, its pro-rata share of one twelfth
(1/12) the estimated annual cost of: (a) Real Property Taxes, (b) insurance
coverages carried by Lessor with respect to the premises, as set forth in
Paragraph 19 hereof, and (c) expenses of operating and maintaining the premises
("operating expenses"), including the common areas and including appropriate
reasonable reserves, including but not limited to electricity, water, sewer and
other utility services which Lessor provides, maintenance, repairs, pest
control, janitorial service, security service, management fees (provided that
the management fees shall not exceed the current market rate for management
fees of the same or similar nature in the Greensboro area), common area and
parking lot lighting and maintenance, including repairing, striping, painting,
snow removal, sweeping, landscaping, gardening, trash removal, general
administrative expenses, operation of maintenance machines and equipment and
supplies. Lessor shall, upon written request of Lessee, provide copies of
relevant books and records relating to the actual costs incurred in connection
with all other charges of additional rent to Lessee. Any adjustments to the
actual costs incurred against the estimated annual costs paid by the Lessee
during each lease year shall be made as soon as determined after the end of
each such lease year by either (i) crediting the difference to Lessee's next
scheduled Minimum Rent payment (in the case of a overpayment) or (ii) billing
the Lessee (in the case of underpayment) as additional rent payable with the
next scheduled Minimum Rent payment.
5. Lessor will construct the Phase I Project on the premises in
conformance with the plans, specifications and, working drawings to be approved
by Lessee and Lessor as set forth in Exhibit B.
6. Lessee, at its sole expense shall comply with all laws,
orders, and regulations of Federal, State, county, municipal and other
governmental authorities, and with all direction of any public officer pursuant
to law, which shall impose any violation, order or duty upon Lessor or Lessee
with respect to the premises or the use or occupancy thereof.
7. Lessee will not make any alterations or changes in the
premises without the prior written consent of Lessor which consent shall not be
unreasonably withheld, and all additions, fixtures and improvements shall be
and remain a part of the premises at expiration of this Lease except for
furniture and fixtures which shall be readily removable without injury to the
premises. Notwithstanding the foregoing, at the end of the term or sooner
termination of this Lease, Lessor
- 3 -
<PAGE> 4
may require Lessee to remove fixtures, equipment and improvements attached to
the realty, and in such case Lessee shall repair all damage to the premises
occasioned by such installation and subsequent removal.
8. Lessee shall not attach any signs to the premises, or place
any lettering on the plate glass windows, unless such signs and such lettering
be of a type, kind, character and description to be approved by the Lessor
which approval shall not be unreasonably withheld. Lessee shall design and
install, in accordance with Lessor's criteria, at Lessee's expense the
identification sign for its premises.
9. Lessee shall keep in good, sound, clean, tenantable condition
and repair during the continuation of the term of this Lease the interior of
said premises, and Lessee will not suffer or permit any strip or waste of the
premises. Lessee shall not permit any noxious odors or fumes to emanate from
the premises. Lessee shall not place a load upon any floor of the premises
exceeding the floor load per square foot area which such floor was designed to
carry and which is allowed by law. Business machines and mechanical equipment
shall be placed and maintained by Lessee at Lessee's expense in settings
sufficient in Lessor's judgment to absorb and prevent vibration, noise, and
annoyance. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or like substances shall be
deposited therein.
10. Lessee's use of the premises shall be subject at all times
during the term of the Lease to reasonable rules and regulations adopted by
Lessor and Lessee agrees to comply with all such rules and regulations upon
notice thereof from Lessor.
11. Lessee shall not assign, mortgage or encumber this Lease or
underlet, or suffer or permit the premises or any part thereof to be used by
others without the prior written consent of Lessor in each instance which
consent shall not be unreasonably withheld. Lessee further covenants that the
said premises will not be used for any purpose that will invalidate any
policies of insurance now or hereafter placed on the parcel or the improvements
located thereon or which will increase the rate of premium therefor. Lessee
shall not permit or suffer any unreasonable noise, disturbance or nuisance
whatsoever on said premises, detrimental to same or annoying to the neighbors.
12. Lessee shall have the right to use the driveways, parking
areas and sidewalks serving the property, provided that sidewalks and driveways
shall be used for egress and ingress only and for no other purposes, and
parking areas shall be used only for the parking of vehicles; the use of all
such public areas shall be in accordance with rules and regulations specified
by Lessor. All merchandise, boxes, furniture, etc. shall be placed in the
premises upon delivery and the exterior will be kept free of all such items as
well as refuse and debris. Lessee agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other tenants, if any, in
the use of the parking facilities. Lessee agrees and covenants to park all
trucks, trailers, or other commercial vehicles in the parking spaces, if any,
designated for such use by Lessor. No vehicle may be repaired or serviced in
any parking area. Lessor accepts no responsibility for theft, collision,
vandalism, fire, acts of God or any other casualty of vehicles or equipment
parked on the premises.
- 4 -
<PAGE> 5
13. Upon the performance by Lessee of all the conditions
hereinabove set forth on the part of Lessee to be kept and performed, Lessee
may quietly have, hold, occupy and use the premises without interruption by the
Lessor. Lessor reserves the right to install, maintain, use, repair and
replace pipes, duct work, conduits, utility lines and wires through hung
ceiling space, column space and partitions, in or beneath the floor slab or
above or below the premises, and such shall not be deemed to be an infringement
on Lessee's occupancy or quiet enjoyment of the premises. Lessor shall not
unreasonably interfere with or interrupt the business of Lessee within the
premises.
14. Lessor will keep the exterior walls and roof of the building
and the parking area on the Phase I Project (and the Phase II Project, if
applicable) in good repair but the Lessee shall give to the Lessor prompt
written notice of needed repairs, and the Lessor shall have a reasonable time
thereafter to make them. Lessor will be responsible for all repairs
necessitated by faulty quality of work in the construction of the building, and
all repairs necessitated by casualty losses covered by casualty insurance
provided in Paragraph 19 of this Lease. Lessee shall maintain and repair the
plumbing, mechanical, heating and air-conditioning and electrical systems,
light fixtures, window frames and glass, doors and security systems. Lessee
shall have the right to utilize any and all warranties, if any, maintained by
Lessor for all such systems in the premises. Lessor has no obligations for
repairs of any kind, nature or description except as specifically set forth
herein. Lessee shall enter into an air-conditioning maintenance service
contract with respect to the system within its premises and shall furnish to
Lessor a copy of such contract or renewal prior to the start of each lease
year. If Lessor elects to contract for air conditioning maintenance service on
behalf of Lessee then Lessee shall use such service as Lessor designates, and
Lessee shall pay its pro-rata share of the cost thereof, as and when billed.
15. Lessor, or Lessor's agent, may at any reasonable time enter
and view said premises and make repairs, if Lessor should elect to do so.
16. (a) Lessor covenants and warrants that at the time of the
delivery of possession of the demised premises to Lessee:
i. Lessor and/or its successors or assigns will be the
owner of the demised premises.
ii. The demised premises shall be clear of all
encumbrances except mortgages and trust deeds of
record and other encumbrances of record, copies of
which encumbrances shall be provided to Lessee.
iii. A temporary certificate of occupancy or certificate
of occupancy shall have been duly issued for the
demised premises.
iv. The demised premises may be used as general and
administrative offices of Lessee.
- 5 -
<PAGE> 6
(b) Lessor shall not permit to remain any mechanics'
liens on the premises which arise in connection with the Lessor's construction
of the Phase I Project or the Phase II Project or other work done at Lessor's
direction at the premises and, at its sole cost and expense, shall have such
mechanic liens discharged of record by payment, bond, order of court or
competent jurisdiction or otherwise within 30 days of notice thereof; provided,
that any mechanics' liens against the premises which arise in connection with
work, labor, services or materials performed or furnished to Lessee shall be
discharged of record by Lessee by payment, bond or order of court of competent
jurisdiction or otherwise within 30 days of notice thereof.
17. Lessee shall comply with all applicable laws, ordinances and
regulations affecting the premises, now existing or hereafter adopted,
including reasonable general rules and regulations for Lessee and any other
tenants as may be developed from time to time by Lessor and delivered to
Lessee.
Throughout the term of this Lease, Lessee at its sole cost and
expense shall keep or cause to be kept for the mutual benefit of Lessor,
Lessor's managing agent and Lessee, public liability and property damage
insurance with combined single limit coverage of at least $1,000,000.00 (with
appropriate cross-liability endorsements so showing) through companies licensed
to do business in North Carolina acceptable to Lessor and having a Best's
rating of at least A-VI (as the same may be adjusted from time to time). Such
policies shall insure against all liability of Lessee, Lessee's authorized
representatives and anyone for whom Lessee is responsible, arising out of and
in connection with Lessee's use of the premises, and shall insure Lessee's
performance of the indemnity provisions contained herein to the extent
insurable.
Prior to taking possession of the premises, and thereafter at
least ten (10) business days prior to the renewal dates thereof, Lessee shall
deliver to Lessor copies of original policies, or satisfactory certificates
thereof, and a receipt showing payment of the next year's premium. All such
policies shall be non-assessable and shall contain language, to the extent
obtainable, that: (a) any loss shall be payable notwithstanding any act or
negligence of Lessor or Lessee that might otherwise result in forfeiture of the
insurance, (b) that the policies are primary and non- contributing with any
insurance that Lessor may carry, and (c) that the policies cannot be cancelled
or changed except after thirty (30) days prior written notice to Lessor.
Anything in this lease to the contrary notwithstanding, Lessor
hereby releases and waives unto Lessee (including all stockholders, officers,
directors, employees and agents thereof), its successors and assigns, and
Lessee hereby releases and waives unto Lessor (including all partners,
stockholders, officers, directors, employees and agents thereof), its
successors and assigns, all rights to claim damages for any injury, loss, cost
or damage to persons or to the premises or any other casualty, as long as the
amount of which injury, loss, cost or damage has been paid either to Lessor,
Lessee, or any other person, firm or corporation, under the terms of any fire,
extended coverage, public liability or other policy of insurance, to the extent
such releases or waivers are permitted under applicable law. All policies of
insurance carried or maintained pursuant to this Lease shall contain, or be
endorsed to contain, a provision whereby the insurer waives all rights of
subrogation against either Lessee or Lessor.
- 6 -
<PAGE> 7
Subject to the terms of the preceding paragraph, Lessee shall
indemnify and hold Lessor harmless from and against any and all claims arising
out of (a) Lessee's use of the premises or any part thereof, (b) any activity,
work, or other thing clone, permitted or suffered by Lessee in or about the
premises or the building, or any part thereof, (c) any breach or default by
Lessee in the performance of any of its obligations under this Lease, or (d)
any act or negligence of Lessee, or any officer, agent, employee, contractor,
servant, invitee or guest of Lessee; and in each case from and against any and
all damages, losses, liabilities, lawsuits, cost and expenses (including
attorneys' fees at all tribunal levels) arising in connection with any such
claim or claims as described in (a) through (d) above, or any action brought
thereon. If such action be brought against Lessor, Lessee upon notice from
Lessor shall defend the same through counsel selected by Lessee's insurer, or
other counsel, which counsel in either case must be acceptable to Lessor.
Lessee assumes all risk of damage or loss to its property or injury or death to
persons in, on, or about the premises, from all causes except those for which
the law imposes liability on Lessor, regardless of any attempted waiver
thereof, and Lessee hereby waives such claims in respect thereof against
lessor. The provisions of this paragraph shall survive the termination of this
Lease.
The amounts of insurance coverage required by this Lease are
subject to review at the end of each three year period following the
Commencement Date. At each review, if necessary to maintain the same level of
coverage that existed on the Commencement Date, the amounts of coverage shall
be increased to the lesser of: (a) the amounts of coverage carried by prudent
lessor and lessee of comparable first class office buildings in the Guilford
County, North Carolina area; or (b) fifteen percent (15%) higher than the
previous insurance amounts.
Insurance policies required by this Lease shall: (a) be
issued by insurance companies licensed to do business in the state of North
Carolina with general policyholder's ratings of at least "A" and a financial
rating of at least "VI" in the most current Best's Insurance Reports available
on the Commencement Date (if the Best's ratings are changed or discontinued,
the parties shall agree to an equivalent method of rating insurance companies);
(b) name the nonprocuring party and Lessor's managing agent as additional
insureds as their interest may appear; (c) provide that the insurance not be
cancelled or materially changed in the scope or amount of coverage unless
thirty (30) days advance notice is given to the nonprocuring party; (d) be
primary policies - not as contributing with, or in excess of, the coverage that
the other party may carry; (e) provide that any loss shall be payable
notwithstanding any act or negligence of Lessor or Lessee which might result in
a forfeiture thereunder of such insurance or the amount of proceeds payable;
(t) have deductibles not greater than $5,000.00; and (g) be maintained during
the entire term and any extension terms.
By the Commencement Date and upon each renewal of its
insurance policies, each party shall give certificates of insurance to the
other party. Each such certificate shall specify amounts, types of coverage,
the waiver of subrogation, and the insurance criteria listed in this paragraph.
The policies shall be renewed or replaced and maintained by the party
responsible for that policy. If either party fails to give the required
certificate within thirty (30) days after notice of demand for it, the other
party may obtain and pay for that insurance and be entitled to receive
immediate reimbursement from the party required to have the insurance.
- 7 -
<PAGE> 8
18. As used in this Paragraph 18, the term "Hazardous Materials"
means (i) any substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", or "toxic substances"
under any applicable Federal, State, or local laws, ordinances, rules or
regulations now or hereafter in effect, (ii) flammable explosives, radioactive
materials, asbestos-containing materials, electrical transformers, batteries,
and any paints, solvents, chemicals, petroleum products, automobile waste oil
and fluids, or other materials with hazardous characteristics, and (iii) any
other solid, semi-solid, liquid gaseous substances that are toxic, ignitable,
corrosive, carcinogenic, or otherwise dangerous to human, plant or animal
health and well-being; and the "release" of Hazardous Materials includes
discharging, spilling, leaking, leaching, dumping, emitting, emptying and
seeping.
(a) Lessee shall promptly advise Lessor, in writing, of
the following matters as soon as Lessee has actual knowledge of:
(1) Any and all enforcement, clean-up, removal,
or other governmental or regulatory actions instituted, completed or threatened
by any governmental authority pursuant to any applicable present or future
Federal, State or local laws, ordinances, rules or regulations relating to any
"Hazardous Materials" affecting the premises ("Hazardous Materials Laws"); and
(2) All claims made or threatened by any
non-governmental party against Lessee or the premises relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials affecting the premises (the matters set forth in (1) and
(2) hereof are hereinafter referred to as "Hazardous Materials Claims").
(b) Lessee shall comply with, and not cause the premises
to be in violation of, any Hazardous Materials Laws or any Federal, State or
local laws, ordinances, rules or regulations relating to the environmental
conditions on, under, or about the premises, including but not limited to soil
and ground water conditions.
(c) Lessee's proposed operations in the premises will not
violate any Hazardous Materials Laws, and Lessee will obtain all governmental
licenses or permits necessary therefor under any Hazardous Material Laws,
including the storage, treatment and disposal of all waste products, except for
such licenses and permits that would not normally be obtained at this time and
can be obtained in the ordinary course of business. Lessee agrees to apply for
and obtain all necessary permits and licenses in a timely manner as and when
required for the operations to be conducted on the premises except with respect
to permits relating to the construction of the Phase I Project and Phase II
Project which permits shall be obtained by the Lessor.
(d) Lessee shall not cause any intentional or
unintentional release of Hazardous Materials at or from the premises other than
those licensed under applicable Hazardous Materials Laws. Lessee shall
promptly notify the appropriate governmental agencies of any such release and
shall accept full responsibility for such release.
- 8 -
<PAGE> 9
(e) Each party hereby agrees to indemnify the other party
and its agents and hold the other party and its agents and its directors,
officers, employees, successors, and assigns harmless from and against any and
all claims, losses, damages (including all foreseeable and unforeseeable
consequential damages), liabilities, fines, penalties, charges, administrative
and judicial proceedings and orders, judgments, remedial action requirements,
enforcement actions of any kind, and all costs and expenses incurred in
connection therewith (including but not limited to attorneys' fees and
expenses), directly or indirectly resulting or arising in whole or in part from
any Hazardous Materials Claims resulting or arising out of or from such party's
use or ownership of the premises.
19. Lessor will keep in force policies of fire and extended
coverage insurance which shall insure the premises against such perils or loss
as Lessor may deem appropriate including vandalism and malicious mischief, in
an amount equal to one hundred percent (100%) of the replacement cost of the
premises and improvements installed thereon by the Lessor. The cost of such
policies is included in the terms of Paragraph 4.
20. Lessee takes all risk of any damage to Lessee's property that
may occur by reason of water or the bursting or leaking of any pipes about the
premises, or from any act of negligence of any co-tenant or occupants of the
premises, or of any other person, or fire, or hurricane, or other act of God,
or from any cause whatsoever. Lessee shall maintain at its expense throughout
the term of the Lease insurance against fire and such other risks as are from
time-to-time included in standard extended coverage endorsements, insuring
Lessee's stock-in-trade, trade fixtures, furnishings, floor and wall coverings,
special equipment and all other items of personal property of Lessee located on
or within the premises and all improvements made by Lessee to the premises.
21. Simultaneously with the execution and delivery of this Lease,
the Lessee has deposited with Lessor the sum of Fifty Thousand and No/100
Dollars ($50,000.00), a portion of which sum up to $25,000.00 shall be applied
to Lessee's first month's rental when due (and if less than $25,000.00 are so
applied in connection with the first month rental payment, then any sum
remaining of such $25,000.00, shall be applied to the following month's rental)
and the remaining $25,000 shall be and constitute a security fund to be held by
Lessor as security for the performance by Lessee of all the terms and
conditions in this Lease contained on Lessee's part to be performed, and with
reference to such security and the provisions of this paragraph, the parties
covenant and agree as follows:
(a) If the Lease is canceled for default by Lessee, then
no part of the security fund shall be returned to Lessee by Lessor, nor shall
the Lessor be bound to account for any part thereof; the Lessor may either
retain the security fund as liquidated and agreed upon damages or else the
Lessor may apply it towards the actual damage sustained by it because of
Lessee's breach or default, without in any way affecting the right of Lessor to
assert any and all other remedies available to Lessor under the terms of this
Lease and/or under State law against the Lessee by reason of such default or
breach;
(b) No interest shall be paid on any part of the security
fund, nor shall any part be considered as rent;
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<PAGE> 10
(c) Lessor may commingle said security fund together with
its own general funds;
(d) Upon the termination of this Lease, if Lessee has
fully complied with all of the terms hereof, the said security fund will be
returned to Lessee by Lessor.
22. Lessee shall make prompt payment when due of all costs and
expenses in carrying out its agreements herein and shall not do or permit to be
done anything which creates a lien upon the premises. The filing of any lien
against the premises shall constitute an event of default under this Lease.
23. Lessee pledges with and assigns unto the Lessor all the
furniture, fixtures, goods and chattels of Lessee, which is brought or put on
said premises, as security for the payment of the rent herein reserved, and
agrees that the Lessor's lien for the payment of said rent may be enforced by
distress, foreclosure or otherwise, at the option of the Lessor, and Lessee
agrees that such lien is hereby granted to the Lessor and vested in said
Lessor.
24. If Lessee: (a) fails to pay all rent (including but not
limited to any additional rent) as provided in this Lease when due and within
five (5) days after written notice thereof fails to pay such rent provided
Lessor shall only be required to give such written notice two (2) times within
any three (3) year period during the term of this Lease; or (b) breaches any
other agreements or obligations herein set forth and within fifteen (15) days
after notice thereof fails to commence to cure such breach, or diligently
prosecute to complete cure such breach after commencing cure; or (c) files (or
has filed against it) any petition or action for relief under any creditor's
law (including bankruptcy, reorganization or similar actions), either in state
or federal court and such petition or action is not discharged within thirty
(30) days thereof; or (d) becomes insolvent, makes any transfer in fraud of
creditors, has a receiver appointed for its assets, or makes an assignment for
benefit of creditors, then, in addition to any other lawful right or remedy
which it may have, Lessor, without notice, may do any one or more of the
following: (i) with or without terminating this Lease, may immediately or at
any time thereafter reenter the premises to correct or repair any condition
which shall constitute a failure on Lessee's part to keep or perform or abide
by any term, condition, covenant or agreement of this Lease or of the general
rules and regulations for Lessee now in effect or hereafter adopted, and Lessee
shall reimburse and compensate Lessor, as additional rent, within fifteen (15)
days of rendition of any statement to Lessee by Lessor, for any expenditures
made by Lessor in making such corrections or repairs; (ii) declare the rent for
the balance of the term immediately due and payable and collect the same by
distress or otherwise; (iii) seize and hold any personal property of Lessee
located in the premises and assert against the same a lien for monies due
Lessor; (iv) without obtaining any court authorization, lock the premises and
deny Lessee access thereof; (v) terminate this Lease; or (vi) repossess the
premises, and with or without terminating, relet the same at such amount as
Lessor deems reasonable, and if the amount is less than Lessee's rent, Lessee
shall immediately pay the difference on demand to Lessor, but if in excess of
Lessee's rent, the entire amount shall belong to Lessor free of any claim of
Lessee thereof. All expenses of Lessor in repairing, restoring or altering the
premises for reletting, together with leasing fees and all other expenses in
seeking and obtaining a new tenant, shall be charged to and a liability of
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<PAGE> 11
Lessee. Lessor's reasonable attorney's fees in pursuing any of the foregoing
remedies, or in collecting any rents due by Lessee hereunder shall be paid by
Lessee.
Lessee further agrees that Lessor may obtain an order for
summary ejectment from any court of competent jurisdiction without prejudice to
Lessor's rights to otherwise collect rents from Lessee.
All rights and remedies of Lessor are cumulative, and the
exercise of any one shall not be an election excluding Lessor at any other time
from exercise of a different or inconsistent remedy. No exercise by Lessor of
any right or remedy granted herein shall constitute or effect a termination of
this Lease unless Lessor shall so elect by written notice delivered to Lessee.
No waiver by Lessor of any covenant or condition shall be
deemed to imply or constitute a further waiver of the same at a later time, and
acceptance of rent by Lessor, even with knowledge of a default by Lessee, shall
not constitute a waiver of such default.
25. The failure of Lessor in one or more instances to insist upon
strict performance or observance of one or more of the covenants or conditions
hereof, or to exercise any remedy, privilege or option herein conferred upon or
reserved to Lessor, shall not operate or be construed as a relinquishment or
waiver for the future of such covenant or condition or of the right to enforce
the same or to exercise such privilege, option or remedy, but the same shall
continue in full force and effect. The receipt by Lessor of Minimum Rent,
additional rent or any other payment required to be made by the Lessee, or any
part thereof, shall not be a waiver of any other additional rent or payment
then due, nor shall such receipt, though with knowledge of the breach of any
covenant or condition hereof operate as or be deemed to be a waiver of such
breach, and no waiver by Lessor of any provision hereof, or any of the Lessor's
rights, remedies, privileges or options hereunder shall be deemed to have been
made unless made by the Lessor in writing. If the Lessor shall consent to the
assignment of this Lease or to a subletting of all or a part of the premises,
no further assignment or subletting shall be made without the written consent
of Lessor first obtained. No surrender of the premises for the remainder of
the term hereof shall be valid unless accepted by Lessor in writing.
26. At the expiration of the term, Lessee shall quietly and
peaceably deliver the premises to Lessor, broom clean, in the same repair and
condition in which they were received, normal wear and tear excepted.
27. Upon expiration of the initial Lease term, this Lease shall
stand renewed for a successive additional term of three (3) years upon the same
terms contained herein unless either party not less than one (1) year prior to
the expiration of the then current term shall terminate the same by written
notice to the other party. If Lessee shall occupy said premises after the
termination of this Lease, and rent is accepted by Lessor, such occupancy and
payment shall be construed as an extension of this Lease for the term of one
month only from the date of such expiration, and occupation thereafter shall
operate to extend the Lease from month-to-month only unless other terms of such
extension are endorsed herein or hereon in writing and signed by both Lessor
and Lessee.
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<PAGE> 12
Minimum Rent adjustments after the initial Lease term shall be calculated in
the same manner as set forth in Paragraph 38 and, if applicable, Paragraph 39.
28. If the premises shall be partially damaged by fire or other
casualty insured under Lessor's insurance policies, and if Lessor's lender(s)
shall permit insurance proceeds paid as a result thereof to be so used, then
upon Lessor's receipt of the insurance proceeds, Lessor shall, except as
otherwise provided herein, promptly repair and restore the same (exclusive of
Lessee's improvements, trade fixtures, decorations, signs and contents)
substantially to the condition thereof immediately prior to such damage or
destruction; limited, however, to the extent of the insurance proceeds actually
received by Lessor. If by reason of such occurrence: (a) the premises are
rendered wholly untenantable; or (b) the premises are damaged in whole or in
part as a result of a risk which is not covered by Lessor's insurance policies;
or (c) Lessor's lender does not permit a sufficient amount of the insurance
proceeds to be used for restoration purposes; or (d) the premises are damaged
in whole or in part during the last year of the initial Lease term or during
the last year of any extended Lease term; or (e) the building containing the
premises is damaged (whether or not the premises are damaged) to an extent of
fifty percent (50%) or more of the fair market value thereof, Lessor may elect
either to repair the damage as aforesaid, or to cancel this lease by written
notice of cancellation given to Lessee within sixty (60) days after the date of
such occurrence, and thereupon this Lease shall terminate. Lessee shall vacate
and surrender the premises to Lessor within fifteen (15) days after receipt of
such notice of termination. In addition, Lessee may also terminate this Lease
by written notice given to Lessor at any time between the one hundred
twenty-first (121st) and one hundred fiftieth (150th) day after occurrence of
any such casualty, if Lessor has failed to restore the damaged portions of the
building (including the premises) within one hundred and twenty (120) days of
such casualty. However, if Lessor is prevented by strike, act of God,
unavailability of materials, weather, Lessee induced delays or other cause
beyond its reasonable control, from completing the restoration within said one
hundred and twenty (120) day period, then Lessor shall have an additional
period beyond said one hundred and twenty (120) days, equal to the period
Lessor is delayed by causes beyond its reasonable control, in which to restore
the damaged areas of the building; and Lessee may not elect to terminate this
lease until said additional period required for completion has expired with the
building not having been substantially restored. In such case, Lessee's thirty
(30) day notice of termination period shall begin to run upon the expiration of
Lessor's additional period for restoration set forth in the preceding sentence,
provided that Lessor is diligently pursuing the repair and restoration of the
premises, and provided further that Lessee may elect to terminate this Lease if
restoration of the premise has not been substantially completed within one
hundred and eighty (180) days of such casualty. Upon the termination of this
Lease as aforesaid, Lessee's liability for the Minimum Rent and other charges
reserved hereunder shall cease of the effective date of the termination of this
Lease, subject, however, to the provisions for the prior abatement of Minimum
Rent hereinafter set forth.
Unless this Lease is terminated as aforesaid, this Lease shall
remain in full force and effect, and Lessee shall promptly repair, restore or
replace Lessee's improvements, trade fixtures, decorations, signs and contents
in the premises in a manner and to a condition substantially equal to that
existing prior to their damage or destruction, and the proceeds of all
insurance carried by
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<PAGE> 13
Lessee on said premises shall be held in trust by Lessee for the purposes of
such repair, restoration or replacement.
If, by reason of such fire or other casualty, the premises are
rendered wholly untenantable, the Minimum Rent and other charges payable by
Lessee shall be fully abated, or if only partially damaged, such Minimum Rent
and other charges shall be abated proportionately as to that portion of the
premises rendered untenantable, in either event (unless the Lease is
terminated, as aforesaid) from the date of such casualty until fifteen (15)
days after notice by Lessor to Lessee that the premises have been substantially
repaired and restored, or until Lessee resumes its business operations in the
premises, whichever shall first occur. Lessee shall continue the operation of
Lessee's business in the premises or any part thereof not so damaged during any
such period to the extent reasonably practicable from the standpoint of prudent
business management, except for such abatement of Minimum Rent and other
charges as hereinabove set forth. Except for the abatement of the Minimum Rent
and other charges hereinabove set forth, Lessee shall not be entitled to, and
hereby waives, all claims against Lessor for any compensation or damage for
loss of use of the whole or any part of the premises and/or for any
inconvenience or annoyance occasioned by, any such damage, destruction, repair
or restoration.
29. If all of the premises, or such part thereof as will make the
same unusable for the purposes contemplated by this Lease, be taken under the
power of eminent domain (or a conveyance in lieu thereof), then this Lease
shall terminate as of the date possession is taken by condemnor, and Minimum
Rent and other charges payable by Lessee shall be adjusted between Lessor and
Lessee as of such date. If only a portion of the premises are taken and Lessee
can continue use of the remainder, then this Lease will not terminate, but
Minimum Rent shall abate in a just and proportionate amount to the loss of use
occasioned by the taking. Lessee shall have no right or claim to any part of
any award made to or received by Lessor for any taking and no right or claim
for any alleged value of the unexpired portion of this Lease; provided,
however, that Lessee shall not be prevented from making a claim against the
condemning party (but not against Lessor) for any moving expenses, loss of
profits, or taking of Lessee's personal property (other than its leasehold
estate) to which Lessee may be entitled.
30. This Lease shall be subject and subordinate to any mortgage or
deed of trust now on the premises or which may hereafter be made on account of
any bona fide loan to be placed on the premises by Lessor to the full extent of
all debts and charges secured thereby, and to any renewals or extensions of all
or any part thereof, which said Lessor may hereafter at any time elect to place
on the premises, and said Lessee agrees upon request to hereafter execute any
paper or papers which counsel for the Lessor may deem necessary to accomplish
that end, and in default of Lessee's so doing, Lessor is hereby empowered to
execute such papers in the name of Lessee and as the act and deed of Lessee and
this authority is declared to be coupled with an interest and not revocable;
provided that the Lessee shall have obtained a non-disturbance agreement in a
form reasonably acceptable to Lessee from the holder of such mortgage or deed
of trust. Lessee shall also, within thirty (30) days after written request
from Lessor, furnish financial statements reflecting Lessee's current financial
condition.
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<PAGE> 14
31. (a) Lessor shall, construct the building and all
improvements on the demised premises, in substantial conformity with the plans,
specifications and working drawings with respect to the Phase I Project
construction as set forth in Exhibit B.
(b) Lessor shall use its best efforts to complete
construction in a workmanlike manner and in conformity with the plans,
specification and working drawings of the Phase I Project on or prior to
September 30, 1996. In the event construction of the Phase I Project has not
been completed by September 30, 1996, Lessor agrees that Lessee shall receive
an abatement of up to 50% of Minimum Rent payments due for the time period
beginning on the Commencement Date and for each month thereafter until such
time that the aggregate amount of such abatement is equal to the additional
costs and expenses over and above the rent and any additional costs and
expenses under its current lease with Highwoods/Forsyth Limited Partnership
which additional costs and expenses (including increased rent payments incurred
due to holding over under said Lease) are set forth in said lease and actually
incurred by Lessee on and after September 30, 1996 in connection with its
holding over under its said current lease or in connection with Lessee's
additional costs and expenses actually incurred and documented to Lessor in
relocating to and leasing of temporary space after September 30, 1996 and prior
to the Commencement Date, as the case may be.
(c) Lessor shall not be responsible in damages for
failure to deliver possession of the Phase I Project within the time specified
in this Lease (except with respect to the abatement of Minimum Rent as
described in paragraph 31 (b) above).
(d) In the event that Lessor shall be unable to secure
financing for the acquisition of the premises and construction of the Phase I
Project on or before December 15, 1995 or if Lessor is unable to acquire the
premises for any reason Lessor may terminate this Lease by written notice to
Lessee or with Lessor's consent Lessee may, at its option, either extend the
time to secure financing and/or the premises or terminate this Lease by giving
Lessor written notice of its election to do so; provided, however, if this
Lease is so terminated, all rights of either party against the other shall
terminate and the $50,000 in security funds deposited with Lessor shall be
returned to Lessee less the amounts described in paragraph 37 hereof.
(e) In the event that the parties shall be unable to
agree on the propriety of any change in or deviation from the plans,
specification and working drawings of the Phase I Project building within [ten
(10)] days after the issue shall arise, each party shall, within a further [ten
(10)] days, appoint a duly registered architect to represent it as arbitrator
in determining the question or questions thus in dispute. If the two
arbitrators are unable to agree on a proper determination of the issues, they
shall designate a registered architect, a licensed professional engineer, or a
building contractor of not less than fifteen (15) years' experience to serve as
an umpire. The determination of any two of the three persons designated on any
issue in dispute with respect to the building shall be binding on each of the
parties to this lease agreement. Each of the parties shall pay the fees and
charges of the arbitrator selected by it, and the fees of the umpire or third
arbitrator shall be paid by each of the parties in equal shares. Each party
agrees that any time period that accrues under this paragraph 31(e) shall be
added to the relevant time periods otherwise described in this Lease and
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<PAGE> 15
any right to any abatement or rents, other concessions, remedies or rights to
terminate this Lease shall be tolled with respect to such additional time
period.
(f) Except as otherwise provided for in this Lease, all
expenses incident to the construction of the Phase I Project shall be borne by
Lessor.
(g) During the construction of the Phase I Project and
during the term of this Lease, Lessor shall pay all governmental inspection and
license fees incident to the permanent structure of the building, including oil
storage tank and sprinkler inspection fees should the same be required.
32. Whenever notice is required to be given hereunder it is agreed
that written notice mailed certified, return receipt requested, sent by
facsimile transmission, or delivered by hand or by a nationally recognized
overnight courier to Lessee's address first written above prior to the
Commencement Date, or, if after the Commencement Date, to the premises, shall
constitute sufficient notice to the Lessee, and written notice mailed
certified, return receipt requested, sent by facsimile transmission, or
delivered by hand or by a nationally recognized overnight courier to the Lessor
at the place last designated as the place at which rental payments are to be
made shall constitute sufficient notice to Lessor; provided, that, in the case
of facsimile transmission, notice shall be effective if an original of such
notice is sent by mail or overnight courier to the Lessor or Lessee, as the
case may be. Where the Lessor or Lessee shall constitute more than one party,
notice to one shall constitute notice to all.
33. In the event Lessor is joined as a party in any lawsuit or
other legal proceeding or legislative or executive hearing arising out of or
because of this Lease, or the occupation of Lessee hereunder, or in the event
Lessee defaults in any of the terms or conditions of this Lease and by reason
thereof the Lessor employs the services of an attorney to enforce the
performance thereof, or to evict the Lessee, or to collect monies due by the
Lessee, or to perform any service based upon said defaults, then in any of said
events, whether suit be brought or not, the Lessee agrees to pay a reasonable
attorney's fee and all expenses and costs incurred by Lessor pertaining thereto
or in the enforcement of any remedy available to Lessor.
34. The terms Lessor and Lessee as herein contained shall include
singular and/or plural, masculine, feminine and/or neuter, wherever the context
so requires.
35. The term "Lessor" as used in this Lease means only the fee
owner with the right to possession of the premises as of the Commencement Date
and/or its Assigns. If Lessor defaults in any of its obligations under this
Lease, Lessee shall look solely to the equity of Lessor in the premises for the
satisfaction of Lessee's remedies. It is expressly understood and agreed that
Lessor's liability to Lessee under this Lease shall in no event exceed the loss
of its equity interest in the premises.
36. This Lease shall be construed in accordance with the laws of
the State of North Carolina.
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<PAGE> 16
37. This Lease is contingent upon each of Lessor and Lessee
approving the plans, specifications and working drawing for the construction of
the Phase I Project and each party's full cooperation in Lessor's efforts to
obtain financing for the purchase and/or construction of the improvements on
the premises. Said documents and specifications shall be in accordance with
and shall not exceed the development costs set forth in Exhibit C which by this
reference is incorporated herewith, unless the parties agree otherwise in
writing provided the said development costs shall be increased by the actual
costs to the Lessor made necessary by any subsurface conditions which increase
the cost of construction and the Minimum Rent shall be increased by an amount
equal to $.12528 per year for each $1.00 expended on any subsurface conditions
provided such total sum expended on subsurface conditions shall not exceed
$250,000.00 without the consent of Lessee. In the event that said documents
are not approved and/or Lessor has not obtained approval for financing from a
lender on or prior to December 15, 1995 (or such later date agreed to by the
parties), this Agreement shall be null and void in the discretion of either
Lessor or Lessee or Lessee with Lessor's consent may extend the time within
which Lessor may obtain financing and after any termination of this Lease,
Lessee's deposit shall be refunded less the amount of Lessor's actual
predevelopment costs and expenses incurred on or prior to termination of this
Lease in accordance with the terms hereof which predevelopment costs and
expenses shall include all of Lessor's costs and expenses actually incurred in
connection with the acquisition and development of the premises including
attorney's fees and earnest money deposits not refunded to Lessor.
38. At the end of the initial Lease term, if the term of this
Lease is extended pursuant to the terms and conditions hereof, with respect to
Minimum Rent applicable to the Phase I Project, the Minimum Rental specified in
this Lease shall be subject to increase in accordance with changes in the
Consumer Price Index in effect on the Commencement Date. The Consumer Price
Index shall mean the average for "all items" shown on the "United States city
average for urban wage earners and clerical workers, all items, groups,
sub-groups, and special groups of items as promulgated by the Bureau of Labor
Statistics of the United States Department of Labor", using the years 1982-84
as a base of 100.
For each lease year, or any part thereof, after the initial
seven (7) year term of this Lease, the Minimum Rent with respect to the Phase I
Project office shall be in an amount equal to the product of $21,458.30 times a
fraction, the numerator of which is the Consumer Price Index available on the
first day of each such Lease year and the denominator of which shall be the
Consumer Price Index in effect on the Commencement Date. The Minimum Rent
shall be adjusted annually after the initial seven (7) year term of this Lease
notwithstanding that the initial termination date may be extended in accordance
with Paragraph 39 hereof.
In no event, however, shall the Minimum Rent as adjusted after
the initial Lease term be less than the Minimum Rent during the initial Lease
term nor less than the Minimum Rent for any previous year.
In the event that the Consumer Price Index ceases to
incorporate a significant number of items, or if a substantial change is made
in the method of establishing the Consumer Price Index, then the Consumer Price
Index shall be adjusted to the figure that would have resulted had no
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<PAGE> 17
change occurred in the manner of computing the Consumer Price Index. In the
event that the Consumer Price Index (or a successor or substitute index) is not
available, a reliable governmental or other nonpartisan publication, evaluating
the information thereto for use in determining the Consumer Price Index, shall
be used in lieu of the Consumer Price Index.
39. At any time during the term of this Lease, Lessee shall be
permitted to exercise an option (the "Phase II Option") pursuant to which the
Lessor will expand the building and other improvements in accordance with the
general description of Phase II as set forth in Exhibit B (the "Phase II
Project"); provided, however, that Lessor's obligation to undertake to
construct the Phase II Project is contingent upon (i) there being no default
uncured by Lessee under the terms of this Lease, (ii) Lessor's ability, using
its best efforts, to obtain necessary financing to construct the Phase II
Project, and (iii) there being no governmental regulations that would make such
Phase II Project unfeasible.
Lessee shall notify Lessor in writing of its exercise of the
Phase II Option. Lessor shall use its best efforts promptly to obtain
financing for the construction of the Phase II Project and to complete
construction of Phase II Project. The upfit and building construction shall
conform generally with the quality and appearance of existing Phase I Project
building and parking area. Plans, specifications and working drawings shall be
jointly approved by Lessee and Lessor. The terms and conditions of this Lease
shall be the same herein, except as to Minimum Rent with respect to the Phase
II Project, which Minimum Rent shall be equal to one twelfth (1/12th) of the
product of (i) the number of square feet of useable building space added by the
Phase II Project construction times (ii) the number obtained by multiplying
10.30 by a fraction the numerator of which is the Consumer Price Index in
effect on the date of delivery to Lessee of possession of the Phase II Project
and the denominator of which shall be the Consumer Price Index in effect on the
Commencement Date. The Minimum Rent as so determined for the Phase II Project
shall be adjusted annually thereafter after the initial seven (7) years of
payment of rent for the Phase II Project.
Furthermore, Lessor agrees to construct the Phase II Project
pursuant to terms and conditions similar to those set forth for the Phase I
Project in paragraph 31 hereof and in Exhibit B.
Upon delivery of the Phase II Project's improvements to
Lessee, the initial termination date of the Lease shall be extended to the date
which is seven (7) years from the date of delivery to Lessee of possession of
the Phase II Project.
Notwithstanding anything contained in this paragraph 39 or
this Lease to the contrary after three (3) years have elapsed from the
Commencement Date, in the event Lessor shall receive a bona fide offer to lease
the Phase II Project from a third party unaffiliated with, and otherwise
unrelated to, Lessor or Lessor's stockholders, owners, officers, agents or
employees, during the term of this Lease, and the offer to lease shall be
satisfactory to Lessor, Lessor shall give Lessee the right of first refusal to
lease the Phase II Project in accordance with the terms of this Lease. This
privilege shall be given by a notice sent to Lessee at the premises by
registered mail, which notice shall require Lessee to lease the Phase II
Project within the period of thirty (30) days after the mailing of
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<PAGE> 18
the notice. The failure of Lessee to exercise its right of first refusal and
lease the Phase It Project within the period provided shall nullify and void
the Lessee's said right of first refusal TO lease and the Phase II Option
provided only that the Lessor actually enters into a lease with said third
party the term of which shall not exceed the Phase II Option Lease term, unless
and until Lessee has determined not to exercise his option to purchase
hereunder or said option has terminated in accordance with the terms of this
Lease and if such lease is so entered into the Minimum Rent under this Lease
shall be credited for the initial Lease term by an amount equal to $.80 per
square foot of building actually built in the Phase II Project which adjusted
Minimum Rent shall be utilized to calculate any rent adjustments under the
terms of this Lease.
40. In the event Lessor shall receive a bona fide offer to
purchase the demised premises from a third party unaffiliated with, and
otherwise unrelated to, Lessor or Lessor's stockholders, owners, officers,
agents or employees, during the term of this Lease, and the offer of purchase
shall be satisfactory to Lessor, Lessor shall give Lessee the right of first
refusal to purchase the premises in accordance with the option to purchase all
of Lessor's right, title and interest in the premises in the amount set forth
in provisions of the second paragraph of Paragraph 41. This privilege shall be
given by a notice sent to Lessee at the demised premises by registered mail,
which notice shall require Lessee to accept the offer in writing within the
period of thirty (30) days after the mailing of the notice and to sign promptly
thereafter and in any event within fifteen (15) days a suitable contract to
purchase the demised premises prepared by Lessor.
The failure of Lessee to accept the offer to purchase within
the period provided and to sign a purchase contract promptly thereafter shall
nullify and void the right of first refusal to Lessee, and Lessor shall be at
liberty to sell the demised premises to any other person, firm, or corporation.
Any subsequent sale of the demised premises, except to Lessee, shall be subject
to this Lease and any renewals or extensions of this Lease; provided, however,
upon such sale of the premises to such third party, the option to purchase
shall be null and void.
41. At any time after three (3) years have elapsed from the
Commencement Date, or if the Phase II Project has been or is then being
constructed, after three (3) years have elapsed from the delivery of the Phase
II Project improvements, and prior to the expiration of the initial termination
date of the Lease, Lessee shall be permitted to exercise an option to purchase
all of Lessor's right, title and interest in the premises by notifying Lessor
in writing thirty (30) days prior to the day on which Lessee desires to
exercise the option provided the option and right of first refusal to purchase
shall terminate five (5) years from the Commencement Date.
Lessee shall pay an amount equal to Lessor's costs and
expenses (as described on Exhibit C attached hereto) plus any additional costs
and expenses to Lessor arising from or in any way connected with the transfer
of the premises to Lessee including but not limited to assumption fees and
prepayment penalties plus 10% of the costs and expenses described on Exhibit C
as the total purchase price of the demised premises, provided that only the
Phase I Project has been undertaken. In the event that the Phase II Project
has been, or is then being constructed, Lessee shall pay additional
consideration in an amount equal to Lessor's costs and expenses (as calculated
using the same or similar variables contained in the cost projection model used
in the Phase I Project) plus any
- 18 -
<PAGE> 19
additional costs and expenses to Lessor arising from or in any way connected
with the transfer of the premises as described above in this Paragraph 40. In
the event that a part of the premises are taken by the power of eminent domain
in accordance with paragraph 29 thereby reduced, the purchase price of the
premises shall be reduced by an amount equal to the condemnation award received
by the Lessor.
IN WITNESS WHEREOF, Lessee and Lessor have executed this Lease as of
the day and year first above written.
LESSEE:
R.F. MICRO DEVICES, INC.
BY: /s/ David A. Norbury
-----------------------------------
President
ATTEST:
/s/ Powell T. Seymour
- ------------------------------
Secretary
(CORPORATE SEAL)
LESSOR:
PIEDMONT LAND COMPANY
BY: /s/ R. Caron
-----------------------------------
President
ATTEST:
/s/ David Kirk
- ------------------------------
Secretary
(CORPORATE SEAL)
- 19 -
<PAGE> 20
AMENDMENT TO LEASE
THIS AMENDMENT made and entered into as of this the 15th day of
December, 1995, by and between Piedmont Land Company, a North Carolina
corporation, and/or its Assigns, having a business address at: 556-M Arbor Hill
Road, Kernersville, NC 27284, hereinafter referred to as "Lessor," and R.F.
Micro Devices, Inc., a North Carolina corporation, having a business address
at: 7341-D West Friendly Avenue, Greensboro, NC 27410, hereinafter referred to
as "Lessee".
RECITALS
A. The Lessor and Lessee entered into a lease dated October 31,
1995, covering certain real property described therein and being located on
Thorndike Road, in Deep River Corporate Park, Guilford County, North Carolina
("Lease"),
B. The Lessor and Lessee desire to amend certain of the terms and
provisions of the Lease.
NOW, THEREFORE, for and in consideration of the sum of $10.00 and
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledge the undersigned do hereby agree as follows;
1. Paragraphs 40 of the Lease is hereby deleted in its entirety
and the following inserted in lieu thereof:
40. At any time after five (5) years from the Commencement Date,
of this Lease and provided the Lessee is not in default under this Lease, in
the event Lessor shall receive a bona fide offer to purchase the demised
premises from a third party unaffiliated with, and otherwise unrelated to,
Lessor or Lessor's stockholders, owners, officers, agents or employees, during
the term of this Lease, and the offer of purchase shall be, satisfactory to
Lessor, Lessor shall give Lessee the right of first refusal to purchase the
premises in accordance with the terms of said offer to purchase. This
privilege shall be given by a notice sent to Lessee at the demised premises by
registered mail, which notice shall require Lessee to accept the offer in
writing within the period of thirty (30) days after the mailing of the notice
and to sign promptly thereafter and in any event within fifteen (15) days a
suitable contract to purchase, the demised premises prepared by Lessor.
At any time after five (5) years from the Commencement Date of this
Lease and provided the Lessee is not in default under this Lease, the Lessor
may offer to sell the demised premises to the Lessee at a purchase price equal
to the fair market value as determined by an appraiser with a MAI designation
chosen by Lessor. In the event the Lessee does not agree with the purchase
price as determined by said appraiser, it shall have the right to chose an MAI
designated appraiser from the Guilford County area and said two appraisers so
chosen shall choose a third MAI designated appraiser from the Guilford County
area. The three appraisers so chosen shall appraise the premises and the
purchase price shall be the average of the three appraised valuations. The
costs of the
<PAGE> 21
appraisals shall be borne equally by Lessor and Lessee. This privilege shall
be given by a notice sent to Lessee at the demised premises by registered mail,
which notice shall require Lessee to accept Lessor's offer to sell within the
period of thirty (30) days after the mailing of the notice and to sign promptly
thereafter and in any event within fifteen (15) days a suitable contract to
purchase the demised premises prepared by Lessor which shall be on the standard
North Carolina Bar Association Offer to Purchase and Contract form.
The failure of Lessee to accept the offer to purchase or the offer to
sell within the period provided and to sign a purchase contract promptly
thereafter shall nullify and void the right of first refusal and the right to
purchase, and Lessor shall be at liberty to sell the demised premises to any
other person, firm, or corporation. Any subsequent sale of the demised
premises, except to Lessee, shall be subject to this Lease and any renewals or
extensions of this Lease; provided, however, upon such sale, of the premises to
such third party, the right to purchase shall be null and void.
2. Paragraph 41 of the lease is hereby deleted in its entirety
and the following inserted in lieu thereof:
41. At any time within five (5) years from the Commencement Date,
the Lessee upon written notification from Lessor or Lessor's desire to sell the
premises shall be permitted to exercise its right to purchase all of Lessor's
right, title and interest in the premises by notifying Lessor in writing within
thirty (30) days from written notice to Lessee. Lessor shall not sell the
premises to any third party for a period of three (3) years from the
Commencement Date. Lessor shall not sell the premises to any third party in
years four and five from the Commencement Date, unless it first offers Lessee
the right to purchase and Lessee does not purchase the premises hereunder.
Lessee shall pay an amount equal to Lessor's costs and expenses (as
described on Exhibit C attached hereto) plus any additional costs and expenses
to Lessor arising from or in any way connected with the transfer of the
premises to Lessee including but not limited to assumption fees and prepayment
penalties plus 10% of the costs and expenses described on Exhibit C as the
total purchase price of the demised premises, provided that only the Phase I
Project has been undertaken. In the event that the Phase II Project has been,
or is then being constructed, Lessee shall pay additional consideration in an
amount equal to Lessor's costs and expenses (as calculated using the same or
similar variables contained in the cost projection model used in the Phase I
Project) plus 10% of the costs and expenses and any additional costs and
expenses to Lessor arising from or in any way connected with the transfer of
the promises as described above in this Paragraph 41. In the event that a part
of the premises are taken by the power of eminent domain in accordance with
paragraph 29, the purchase price of the premises shall be reduced by an amount
equal to the condemnation award received by the Lessor.
3. The following Paragraph 42 is added to the Lease:
42. Lessee shall deposit with Lessor an additional security fund
in the amount of $75,000 to be held by Lessor as security for the performance
by Lessee of all the terms and conditions in this Lease contained on Lessee's
part to be performed, and with reference to such additional security
- 2 -
<PAGE> 22
funds and in addition to any other rights of the Lessor hereunder, the parties
covenant and agree as follows:
(a) If the Lease, is canceled for default by Lessee, then no part
of the additional security fund shall be returned to Lessee by Lessor, nor
shall the Lessor be bound to account for any part thereof; the Lessor may
either retain the additional security fund as liquidated and agreed upon
damages or else the Lessor may apply it and any interest thereon towards the
actual damage sustained by it because of Lessee's breach or default, without in
any way affecting the right of Lessor to assert any and all other remedies
available to Lessor under the terms of this Lease and/or under State law
against the Lessee by reason of such default or breach;
(b) The additional security deposit shall be collected funds but
may be represented by a letter of credit, or otherwise as is acceptable to the
Lessor in Lessor's sole discretion. If the additional security deposit is
given in cash, the Lessor shall deposit the additional security fund in an
interest bearing account in a federally insured institution in its discretion.
If the Lessee is entitled to a return of the additional security fund under the
terms of this paragraph, the Lessee shall be entitled to all interest earned
thereon;
(c) Lessor may commingle said additional security fund together
with its own general funds; and
(d) Upon the lapse of three (3) year from the Commencement Date
and if Lessee is not in default under the terms of this Lease and the
additional security fund has not been applied in accordance with Paragraph
42(a), the said additional security fund will be returned to Lessee by Lessor.
4. Except as herein amended, all and singular the terms of the
Lease shall remain in full force and effect.
- 3 -
<PAGE> 23
IN WITNESS WHEREOF, Lessor and Lessee have caused this instrument to
be executed the day and year first above written.
LESSEE:
R.F. MICRO DEVICES, INC.
BY: /s/ David A. Norbury
-----------------------------------
President
ATTEST:
/s/ Powell T. Seymour
- ------------------------------
Secretary
(CORPORATE SEAL)
LESSOR:
PIEDMONT LAND COMPANY
BY: /s/ R. Caron
-----------------------------------
President
ATTEST:
/s/ David Kirk
- ------------------------------
Secretary
(CORPORATE SEAL)
- 4 -
<PAGE> 1
EXHIBIT 10.14
NORTH CAROLINA }
}
GUILFORD COUNTY } LEASE AGREEMENT
THIS LEASE, made and entered into this the 9th day of October, 1996,
by and between HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, a North Carolina Limited
Partnership, hereinafter referred to as "Landlord" and R.F. MICRO DEVICES,
INC., a North Carolina Corporation, hereinafter referred to as "Tenant".
RECITALS
Landlord is seized of the business premises described herein, having
space therein to let. Tenant desires to lease such space from Landlord. The
parties desire to enter into a Lease Agreement defining their respective
rights, duties and liabilities relating to the premises.
IN CONSIDERATION of the mutual covenants contained herein, the parties
agree as follows:
1. DESCRIPTION OF PREMISES: Landlord is the owner of a 45,000
rentable square foot building (the "Building") located on certain real property
at Thorndike Road, Suite 100, Greensboro, Guilford County, North Carolina,
being more fully described on Exhibit "A" attached hereto and hereby made a
part hereof.
The Leased Space shall consist of the real property described on
Exhibit "A" attached hereto together with the Building and other improvements
in the amount of 45,000 rentable square feet, as outlined in red on Exhibit "B"
attached hereto, said space and real property, hereinafter referred to as the
"Premises". The entire Premises shall be for the exclusive use of Tenant, its
agents, servants, employees and invitees for office and related uses. The
Premises are more commonly known as Suite 100.
Landlord represents and warrants that it is the owner in fee simple of
the Premises and that there are no covenants, restrictions or zoning or other
regulations which prevent, or are violated by, this Lease or the use of the
Premises as contemplated herein.
2. TERM: The term of this Lease shall be for a period of fifteen
(15) years, beginning upon the completion of the Building. The exact
Commencement Date and Termination Date shall be determined at the time of
completion of the Building, and will be specified in an addendum to the Lease.
For purposes of this Lease, the Building shall be deemed completed upon
issuance of a certificate of occupancy from the applicable governmental
authority, and a certificate of architect from Lockwood Greene indicating that
the property has been substantially completed in accordance with Tenant
approved construction drawings. The Lease, along with Tenant's rental
obligation, shall commence upon the Issuance of a certificate of occupancy and
certificate of architect supplied by Lockwood Greene.
<PAGE> 2
3. BASE RENT: Tenant shall pay rent as set forth in Exhibit F,
attached hereto.
Rent shall increase on the third anniversary of the Commencement Date
by 4.5% from the previous Lease year. Rent shall also increase on the sixth,
ninth, and twelfth anniversaries of the Commencement Date by the same
percentage as eighty percent (80%) of the percentage increase in the Consumer
Price Index - All Items - All Urban Consumers ("CPI"), issued by the U.S.
Department of Labor, for each prior thirty-six (36) month period. However, in
no event shall the base rent decrease as a result of a decrease in CPI.
As soon as practicable after the CPI for the anniversary date becomes
available, the Landlord shall furnish to Tenant a statement for setting forth
the adjustment, if any, to Rent as required by this paragraph 3. From the
beginning of each Lease Year until Landlord shall furnish Tenant with a
statement as aforesaid, Tenant shall Continue to pay Rent at the rate It shall
have been obligated to pay during the preceding Lease Year. Beginning with the
first day of the calendar month following the date upon which Landlord shall
have delivered to Tenant each such statement, Tenant shall pay rent at the rate
required by this paragraph 3 and shall pay Landlord any difference between Rent
it shall have paid Landlord for such year and the adjusted Rental it shall have
been obligated to pay Landlord for such year under this paragraph 3. It is
agreed that in the event the aforesaid index is discontinued or revised, any
other index with which it is replaced shall be used in order to obtain
substantially the same results as would be obtained If there had been no such
discontinuation or revision.
All rental payments are payable in advance on the first (1st) day of
each month without prior offset or deduction, except as set forth in the Lease,
to Landlord at Landlord's address specified in Section 41 hereof entitled
"NOTICES" or at such other place as Landlord may direct. In the event any
Tenant check tendered to Landlord in payment of its obligations hereunder is
returned by Tenant's bank for insufficient funds, any and all reasonable
charges incurred by Landlord as a result shall be billed to Tenant by Landlord
as additional rent hereunder.
4. OCCUPANCY AND ACCEPTANCE OF PREMISES: Landlord shall deliver
actual possession of the Premises to Tenant on the Commencement Date according
to the specifications indicated in Exhibit "B" attached hereto and by this
reference made a part hereof, provided Landlord is able to furnish to Tenant
evidence obtained from local governmental authorities having jurisdiction that
the Premises have been duly inspected and approved for Tenant's occupancy. If
the Premises are ready for Tenant's occupancy prior to the Commencement Date,
Landlord shall so notify Tenant and Tenant may accept such early occupancy,
provided, however, in such event Tenant shall pay to Landlord base rental
calculated on a daily basis assuming a 365 day year, for each day Tenant shall
occupy the Premises prior to the Commencement Date. If permission is given to
Tenant to occupy the Demised Premises prior to the date of commencement of the
term hereof, such occupancy shall be subject to all the provisions of this
Lease except those relating to the term of this Lease.
Upon Tenant's occupancy of the Premises Tenant shall render to
Landlord, within ten (10) days of such occupancy date, a written notice listing
each and every respect in which the Premises are incomplete according to such
building specifications as noted above; Landlord shall then have sixty (60)
days from its receipt of said notice to complete those items contained in such
listing. The existence of such items shall not alter the Tenant obligation to
pay rent pursuant to Section 3.
2
<PAGE> 3
During Tenant's move-in, a representative of the Tenant must be
on-site with any moving company to ensure proper treatment of Premises.
Elevators in multi-story office buildings must remain in use for the general
public during business hours. Any specialized use of elevators must be
coordinated with the Landlord's Property Manager. All packing materials and
refuse must be properly disposed of. Any damage or destruction due to moving
will be the sole responsibility of the Tenant.
Tenant shall, at its own expense, comply with all future governmental
regulations to include those relating to the Americans with Disabilities Act
("ADA"). Landlord warrants that the Premises complies with such governmental
regulations as of the Commencement Date of this Lease.
Notwithstanding anything stated above to the contrary, the Tenant
shall have the right to enter into the Premises prior to the Commencement Date
to begin work necessary for the Tenant's upfitting of the Premises. All work
performed by the Tenant and the Tenant's contractors or subcontractors shall be
coordinated with the Landlord and the Landlord's contractors so as to not
interfere with the work performed by the Landlord's contractors. Tenant agrees
to indemnify and hold the Landlord harmless from any loss, cost and expense
suffered by the Landlord as a result of the Tenant or Tenant's contractors'
presence on the Premises prior to the Commencement Date. Should Landlord fall
to deliver the Premises in accordance with Tenant approved construction
drawings by _______, then Tenant shall have the right to terminate the Lease.
5. AUDIT: If Tenant disputes the amount of operating expenses as
set forth in the invoice from the Landlord within forty-five days after receipt
thereof, and provided Tenant is not then in default under this Lease, Tenant
shall have the right upon notice to have Landlord's book and records relating
to operating expenses audited by a qualified professional selected by Tenant or
by Tenant itself. If after such audit Tenant still disputes the amount of
operating expenses, a certification as to the proper amount shall be made by
Landlord's independent certified public accountant in consultation with
Tenant's professional, which certification shall be final and conclusive. If
such audit reveals that operating expenses were overstated by five percent (5%)
or more in the calendar year audited Landlord shall within thirty (30) days
after the certification pay to Tenant the amount of any overstatement which it
had collected from Tenant. However, if such certification does not show that
Landlord had made such an overstatement then Tenant shall pay both the costs of
its professional as well as the reasonable charges of Landlord's independent
certified public accountant engaged to determine the correct amount of
operating expenses. If the certification shows that Landlord has undercharged
Tenant then Tenant shall within thirty (30) days pay to Landlord the amount of
any undercharge.
Books and records necessary to accomplish any audit permitted under
this Section shall be retained for twelve months after the end of each calendar
year, and on receipt of notice of Tenant's dispute of the operating expenses
shall be made available to Tenant to conduct the audit, which may be either at
the Premises, or at Landlord's office in Winston-Salem, North Carolina.
In the event that the Tenant elects to have a professional audit
Landlord's operating expenses as provided in this Lease, such audit must be
conducted by an independent nationally or regionally recognized accounting firm
that is not being compensated by Tenant on a contingency fee basis. All
information obtained through such audit as well as any compromise, settlement
or adjustment reached
3
<PAGE> 4
as a result of such audit shall be held in strict confidence by Tenant and its
officers, agents, and employees and as a condition to such audit, the Tenant's
auditor shall execute a written agreement agreeing that the auditor is not
being compensated on a contingency fee basis and that all information obtained
through such audit as well as any compromise, settlement or adjustment reached
as a result of such audit, shall be held in strict confidence and shall not be
revealed in any manner to any person except upon the prior written consent of
the Landlord, which consent shall not be unreasonably withheld in Landlord's
sole discretion, or if required pursuant to any litigation between Landlord and
Tenant materially related to the facts disclosed by such audit, or if required
by law.
No subtenant shall have any right to conduct an audit and no assignee
shall conduct an audit for any period during which such assignee was not in
possession of the Premises.
6. LATE PAYMENT OF RENT: All monthly installments of rent herein
stipulated are due in advance without prior offset or deduction, except as set
forth in this Lease, on the first (lst) day of each month during the term
hereof, as set forth in Section 3 hereof entitled "BASE RENT". All rents not
received on the first (lst) day of the month shall be deemed "past due" and all
rents not received by the Landlord by the tenth (10th) day of each month during
the term hereof shall be subject to a charge of 5% of the amount due.
In any such event, Landlord shall so invoice Tenant for any such
charge, which shall become due immediately upon Tenant's receipt of the invoice
but in no event later than ten (10) days from the invoice date.
Once any payment of rent is thirty (30) days past due, the total due,
including the 5% charge, shall bear interest at eighteen (18) percent per
annum.
7. NO ACCORD AND SATISFACTION: No acceptance by Landlord of a
lesser sum than the Base Rent, late charges, additional rent and other sums
then due shall be deemed to be other than on account of the earliest
installment of such payments due, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed as accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such installment or pursue any
other remedy in this Lease provided.
8. USE: Premises shall be used for such office, assembly,
storage, distribution and manufacturing activities as are allowed under
existing zoning and recorded covenants. Tenant shall not conduct, or allow to
be conducted, on or within the Premises any business or permit any act which in
any way increases the cost of fire insurance on the building or constitutes a
nuisance or is contrary to or in violation of the laws, statutes or ordinances
of local state or federal governments having jurisdiction and Tenant agrees to
comply, at Tenant's expense, with all governmental regulations, to include
those relating to the Americans with Disabilities Act (ADA). Tenant will pay
to bring the Premises into compliance with any revisions to the Americans with
Disabilities Act (ADA) after the Commencement Date of the Lease. Any violation
of this provision by Tenant shall be a material breach of this Lease, entitling
Landlord to exercise any rights or remedies contained herein or provided by law
or other authority. Landlord and Tenant hereby agree that the manufacturing of
wafers as contemplated by the Tenant does not violate existing zoning or any
recorded restrictive covenants.
4
<PAGE> 5
It is hereby agreed and understood that the following functions are
prohibited outside the building walls or in the parking or service areas:
storage of any item; manufacture or assembly of any product; refuse
accumulation; rallies or meetings; any conduct of business. Personal property
of Tenant of any type or size shall be permitted outside the Premises only
during times of loading or unloading operations.
9. QUIET ENJOYMENT: The Landlord covenants that Tenant, upon
paying the Landlord the rental stipulated herein together with all other
charges reserved herein, and performing the covenants. promises and agreements
herein, shall peaceably and quietly have, hold and enjoy the Premises and all
rights, easements, appurtenances and privilege belonging or appertaining
thereto, during the full term hereby granted and any extensions or renewals
thereof.
10. COMMON AREAS: Landlord and Tenant plan to enter into a
property management contract, including maintenance of the Common Areas. The
contract to be attached hereto, as Exhibit "K".
11. ASSIGNMENT AND SUBLETTING: Tenant covenants and agrees that
neither this Lease nor the term hereby granted, nor any part thereof, will be
assigned, mortgaged, pledged, encumbered or otherwise transferred, by operation
of law or otherwise, and that neither the Premises, nor any part thereof, will
be sublet or advertised for subletting or occupied, by anyone other than
Tenant, or for any purpose other than as hereinabove set forth, without the
prior written consent of Landlord not to be unreasonably withheld. Landlord's
withholding of consent shall be deemed reasonable if the use or occupancy of
the Premises by such sublessee or assignee could make Landlord responsible for
any costs of compliance with the Americans with Disabilities Act (ADA) or any
other legislation by any governmental body.
12. LANDLORD'S REPAIRS: The Landlord shall maintain and keep in
good condition and repair the roof, parking areas and exterior landscaping,
exterior and supporting walls of the Building together with repairs necessary
due to structural defects, if any. Landlord shall also maintain and repair the
electrical wiring (from the utility company's distribution lines to the
Premises, including the electrical service exclusive of fuses, fuse blocks,
breaker units or meter deposits) servicing the Premises, the water line
servicing the Premises, and the sanitary sewer lines and/or septic tank
servicing the Premises. However, the Landlord shall not be responsible for
such maintenance and repairs in the event the same are required as a result of
the negligence or willful act of the Tenant or its clients, customers,
licensees, assignees, agents, employees or invitees and further, in any such
event the cost of such maintenance and repairs so required shall be the sole
responsibility of the Tenant.
To the extent any repairs required to be performed by the Landlord are
required, the Tenant shall immediately notify the Landlord that such repairs
are necessary. Provided Tenant's request is reasonable, Landlord shall
immediately commence such repairs and complete such repairs as soon as
possible. Tenant shall have the right to complete any repairs not completed by
the Landlord in a timely fashion, and offset such cost in the next month's rent
(not to exceed one month). Tenant shall provide to Landlord written
documentation of said costs.
5
<PAGE> 6
13. TENANT REPAIRS; ALTERATIONS: The Tenant shall effect, at its
sole cost and expense, all maintenance and repairs to the interior of said
Premises, including without limitation, the floor and wall coverings (whether
paint or otherwise); lights, light fixtures, and light bulbs; interior and
exterior doors and door locks, overhead doors; ceiling tiles; water heaters;
windows, frames, glass, window blinds; ail heating, ventilating and air
conditioning equipment; all plumbing and electrical not described in Section 12
above; security systems and any other improvements not required to be
maintained by Landlord in the immediately preceding Section hereof, except in
the event the improvements installed by Landlord may be defective in material
or labor in installation. All such repairs and replacements required by this
section shall be made only by persons approved in advance by Landlord, not to
be unreasonably withheld. Should Tenant fail to comply with the maintenance
and repairs required above, the Landlord shall have the right, after ten (10)
days prior written notice to Tenant, to enter on the Premises and make
necessary repairs and perform and maintenance required. Any reasonable cost
incurred by Landlord shall be paid by the Tenant at cost plus ten percent (10%)
overhead and ten percent (10%) for profit.
Tenant shall submit to the Landlord for Landlord's prior written
approval all of the plans and specifications for any alterations, additions or
improvements in and to the Premises which tenant may deem desirable or
necessary in its use and occupancy thereof. Such alterations, additions or
improvements shall not be made without the prior written approval of Landlord.
If any changes are made to the plans by the Landlord, Tenant shall review final
plans and provide written approval prior to Landlord starting upfit
construction All such alterations, additions or improvements shall be made in
accordance with applicable city, county, state and federal laws and ordinances,
and building and zoning rules and regulations and all present and future
governmental regulations relating to the Americans with Disabilities Act
("ADA"). Landlord's approval hereunder shall not be deemed as warranty that
Tenant's alterations meet such ADA regulations, however, such consent shall
carry a requirement that such alterations will be constructed by Tenant, at its
own expense, in full compliance with all existing ADA governmental regulations.
Tenant shall be liable for all damages or injuries which may result to any
person or property by reason of or resulting from any alterations, additions or
improvements made by it to the Premises and shall hold the Landlord harmless
with respect thereto. All additions and improvements made by the Tenant,
except trade fixtures, shall become a part of the Premises and shall, upon the
termination or expiration of this Lease, belong to Landlord except as may be
otherwise set forth in a letter agreement or other written instrument executed
by the parties hereto and attached to this Lease as an amendment hereto and
thereby made a part hereof.
In the event Tenant performs any alterations, additions or
improvements to the Premises, Tenant agrees that it shall provide to Landlord a
reproducible set of as-built plans for Landlord's files.
If Tenant fails to perform Tenant's obligations under this Section,
Landlord may at its option enter upon the Premises after ten (10) days prior
written notice to Tenant, perform such obligation on Tenant's behalf, and the
cost thereof together with interest thereon shall become due and payable as
additional rental to Landlord together with Tenant's next rental installment.
At Landlord's option, Landlord may require that Tenant remove any or
all alterations or improvements at Tenant's expense upon termination of the
Lease.
6
<PAGE> 7
14. HEATING, VENTILATION AND AIR CONDITIONING: The Tenant shall
at its sole cost and expense keep in force a maintenance contract for the
entire term of this Lease on all heating, air conditioning and ventilation
equipment pertaining to the Premises, providing for service inspections to be
done on a routine basis as proposed by such contract. Tenant shall submit a
copy of said contract to Landlord within ten (10) days after occupancy of the
Premises. Landlord must approve the terms of the maintenance contract and the
firm Tenant chooses as the maintenance contractor, such approval not to be
unreasonably withheld.
Landlord shall be responsible for replacement of any defective motor
or compressor within the system provided it is not as a result of negligence or
willful act of the Tenant, its clients, customers, licensees, assignees,
agents, employees, or invitees. However, Tenant's failure to provide the
required maintenance contract shall release Landlord form any and all liability
for said equipment.
Upon termination of this Lease, Tenant will deliver the HVAC equipment
in good operating condition.
15. FEDERAL REGULATION AND/OR PROHIBITION OF CFC'S: Due to an
environmental threat that the earth's ozone layer has deteriorated, there is
international concern for the control of Chlorofluorocarbons ("CFC's") and
possible ban thereof. Future legislation could impose:
1) New maintenance standards and procedures on HVAC equipment in
order to reduce the amount of Freon existing in the system; or
2) Conversion of the equipment in order to accommodate the use of
a substitute chemical; or
3) Replacement of the equipment in the event the equipment does
not comply with the required performance and maintenance standards.
Landlord and Tenant hereby acknowledge that any costs associated with
the above shall be considered a maintenance item and shall be paid by Tenant.
Notwithstanding the preceding sentence, in the event that any such
rules and regulations as described above are enacted which require significant
changes to the HVAC equipment of the Premises during the last three years of
the term of this Lease (including the renewal term), the cost of bringing the
HVAC equipment on the Premises into compliance with such rules or regulations
shall be prorated among the Tenant and the Landlord based upon the anticipated
useful life of the HVAC equipment, as modified, and the remaining number of
years left in the term of this Lease.
16. SUBORDINATION AND ATTORNMENT: Tenant agrees that this Lease
is subject and subordinate to any and all mortgages or deeds of trust now or
hereafter placed on the property of which the Premises are a part, and this
clause shall be self operative without any further Instrument necessary to
effect such subordination; however, if requested by Landlord, Tenant shall
promptly execute and deliver to Landlord any such certificates as Landlord may
reasonably request evidencing such subordination of this Lease to or the
assignment of this Lease as additional security for such mortgages or deeds of
trust. Provided, however, In each case, the holder of the mortgage or deed of
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trust shall agree that this Lease shall not be divested by foreclosure or other
default proceedings so long as tenant shall not be in default under the terms
of this Lease beyond any applicable cure period set forth in this Lease.
Tenant shall continue its obligations under this Lease in full force and effect
notwithstanding any such default proceedings under a mortgage or deed of trust
and shall attorn to the mortgagee, trustee or beneficiary of such mortgage or
deed of trust, and their successors or assigns, and to the transferee under any
foreclosure or default proceedings. The subordination contained in this
paragraph 16 shall not apply unless and until the mortgagee or deed of trust
holder agrees to the nondisturbance provisions set forth above.
In the event of the sale, assignment, or transfer by Landlord of its
interest in the Premises to a successor in interest who expressly assumes the
obligation of the Landlord hereunder, and who is financially sound and
adequately capitalized, the Landlord shall thereupon be released or discharged
from all of its covenants and obligations hereunder, except such obligations
shall have accrued prior to any such sale, assignment or transfer and Tenant
agrees to look solely to any successor in interest of the Landlord for
performance of any such obligations. Tenant shall have ten (10) days from its
receipt of Landlord's request to deliver any such fully executed documents to
Landlord. Tenant's failure to execute and deliver any such documents shall
constitute a default hereunder.
17. CHANGE IN OWNERSHIP OF PREMISES: If the ownership of the Premises or
the name or address of the party entitled to receive rent hereunder shall be
changed, the Tenant may, until receipt of proper notice of such change(s),
continue to pay the rent and other charges herein reserved accrued and to
accrue hereunder to the party to whom and in the manner in which the last
preceding installment of rent or other charge was paid, and each such payment
shall, to the extent thereof, exonerate and discharge the Tenant.
18. CONDEMNATION: If the whole of the Building, or such
substantial portion thereof as will make Premises unusable for the purposes
referred to herein, shall be condemned by any legally constituted authority for
any public use or purpose, then in either of said events the term hereby
granted shall cease from the time when possession thereof is taken by the
condemning authority, and rental shall be accounted for as between Landlord and
Tenant as of that date. In the event the portion condemned is such that the
remaining portion can, after restoration and repair, be made usable for
Tenant's purposes, then this Lease shall not terminate; however, the rent shall
be reduced equitably to the amount of the Premises taken. In such an event,
Landlord shall make such repairs as may be necessary as soon as the same can be
reasonably accomplished, not to exceed 120 days. Such termination, however,
shall be without prejudice to the rights of either Landlord or Tenant, or both,
to recover compensation and damage caused by condemnation from the condemnor.
It is further understood and agreed that neither the Tenant nor Landlord shall
have any rights in any award made to the other by any condemnation authority.
Any minor condemnation or taking of the Premises for the construction
or maintenance of streets or highways shall not be considered a condemnation or
taking for the purposes of this Section 18 so long as the Premises shall not be
materially or adversely affected, ingress and egress for the remainder of the
Premises shall be adequate for the business of Tenant, and the provisions of
any loan documents of Landlord's lender which encumber the Premises are
complied with, and provided sufficient parking spaces remain as required under
applicable zoning requirements.
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19. RIGHT OF LANDLORD TO ENTER; "FOR RENT" SIGNS: The Tenant
agrees that the Landlord or its agents may at all reasonable times enter upon
the Premises for the purpose of inspection or repair of the Building or the
building systems and such other purposes as Landlord may deem necessary or
proper for the reasonable protection of Landlord's interest in the Premises.
In addition, the Landlord may enter the Premises at all reasonable times to
exhibit the Premises to prospective purchasers. During the two (2) months
immediately preceding the final expiration of the term created hereunder or any
renewal thereof, the Landlord, may exhibit the Premises to prospective tenants
and/or affix a notice that the premises are for rent; such notice shall not be
greater than four (4) square feet in area, and shall be affixed to a suitable
part thereof, exclusive of doors and windows and so as not to obstruct the
Tenant's signs.
20. TAXES: Tenant agrees to pay before they become delinquent all
taxes, assessments and governmental charges of any kind and nature whatsoever
(hereinafter referred to as "taxes") lawfully levied or assessed against the
Premises during the term of the Lease. To the extent that taxes are levied or
assessed for any year in which the Tenant occupies the Premises for only a
portion of such year, taxes shall be prorated between the Tenant and the
Landlord based upon the actual number of days that the Tenant occupies the
Premises during such year.
If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any
taxes, assessments or governmental charges levied, assessed or imposed on real
estate and the improvements thereof, there shall be levied, assessed or imposed
on Landlord a capital levy or other tax directly on the rents received
therefrom and/or a franchise tax, assessment levy or charge measured by or
based, in whole or in part, upon such rents for the present or any future
building or building on the Premises, then all such taxes, assessments, levies
or charges, or the part thereof so measured or based, shall be deemed to be
included with the term "taxes" for the purposes hereof.
21. FIRE, EXTENDED COVERAGE AND LIABILITY INSURANCE: Landlord
agrees to keep in force policies of fire and extended coverage insurance which
shall insure the Building against such perils or loss as Landlord may deem
appropriate including loss of rents, vandalism and malicious mischief, in an
amount equal to one hundred percent (100%) of the replacement cost of the
Building and the improvements installed by the Landlord. Landlord shall
deliver certificates of such insurance to Tenant prior to commencement of this
Lease and at least ten days prior to expiration of any existing certificate.
Such certificate shall provide that the insurance cannot be terminated by the
insurer without providing thirty (30) days prior written notice to Tenant.
Tenant agrees to maintain and keep in force, at its expense and
throughout the entire term hereof, insurance against fire and such other risks
as are from time to time included in standard extended coverage endorsements
including vandalism and malicious mischief, insuring Tenant's stock-in-trade,
trade fixtures, furniture, furnishings, special equipment and all other items
of personal property of Tenant located on or within the Premises and all such
other improvements as are made by the Tenant to the Premises. Tenant shall
furnish to Landlord a certificate evidencing Tenant's maintenance of such
insurance policies throughout the term hereof. All the furnishings, fixtures,
equipment effects and property of every kind, nature and description of Tenant
and of all persons claiming by, through or under Tenant which, during the
continuance of this Lease or any occupancy of the Premise by Tenant or anyone
claiming under Tenant, may be the Premises or elsewhere in the
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Building shall be at the sole risk and hazard of Tenant, and if the whole or
any part thereof shall be destroyed or damaged by fire, water or otherwise, or
by leakage or bursting of water pipes, steam pipes or other pipes, by theft, or
from any other cause, no part of said loss or damage is to be charged to or to
be borne by Landlord unless the same shall be due to the gross negligence or
willful misconduct of Landlord.
In addition to the policies of fire and extended coverage insurance to
be kept and maintained by Landlord and Tenant herein, Landlord and Tenant shall
each obtain and keep in force during the term hereof and any extension or
renewal terms, policies of comprehensive general liability providing bodily
injury and liability property damage with combined single limits of at least
Five Hundred Thousand Dollars ($500,000.00). In addition thereto, Tenant shall
provide "umbrella coverage" in the amount of One Million Dollars
($1,000,000.00). The Tenant shall, in addition, name the Landlord as an
additional insured under such liability policies and shall provide the Landlord
a certificate of same within thirty (30) days after the execution of this
Lease, as shown on Exhibit "D".
Tenant agrees to pay to the Landlord its proportionate share of the
entire cost that Landlord may incur in the cost of maintaining the policies
required hereunder. Tenant's proportionate share shall be the relation of
Tenant's rentable square foot area to the 45,000 rentable square feet of total
building area, or 100%.
During the term hereof, Landlord shall notify Tenant of its
proportionate share due for such cost. Landlord shall have the option through
the Lease term to require Tenants reimbursement on either a monthly, quarterly
or annual basis, at Landlord's sole discretion, to become due and payable as
additional rent within ten (10) days, if invoiced monthly or thirty (30) days
if invoiced quarterly or annually from the date of invoice.
22. DAMAGE AND DESTRUCTION: If the Building, improvements or
other portions of the Premises are rendered partially or wholly untenantable
from fire or other casualty, and if such damage cannot, in Landlord's
reasonable estimation, be materially restored within one hundred eighty (180)
days of such damage, then Landlord may, In its sole option, terminate this
Lease as of the date of such fire or casualty. landlord shall exercise its
option provided herein by written notice to Tenant within sixty (60) days of
such fire or casualty. For purposes hereof, the Building, or other portions of
the Premises shall be deemed "materially restored" if they are in such
condition as would not prevent or materially interfere with Tenant's use of the
Premises for the purposes for which it was then being used.
If this Lease is not terminated pursuant to the above paragraph, then
Landlord shall proceed with all due diligence to repair and restore the
Building, at Landlord's cost, once it has been assured of the existence of and
payment of the insurance proceeds (except that Landlord may elect not to
rebuild if such damage occurs during the last year of the term of the Lease
exclusive of any option which is unexercised at the date of such damage).
If the Lease shall be terminated pursuant to the above paragraph, the
term of this Lease shall end on the date of such damage as if the date had been
originally fixed in this Lease for the expiration of term hereof. If the Lease
shall not be terminated by Landlord pursuant to the above paragraph and in the
event that the Landlord should fail to complete such repairs and material
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restoration within one hundred eighty (180) days after the date of such damage,
Tenant may at Its option and as its sole remedy terminate this Lease by
delivering written notice to Landlord whereupon the Lease shall end on the date
of such notice as if the date of such notice were the date originally fixed in
this Lease for the expiration of the term hereof; provided, however, that if
construction is delayed because of changes, deletions or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
war, material or labor shortages, governmental regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount of time Landlord is so
delayed.
Tenant agrees that during any period of restoration or repair of the
Premises, Tenant shall continue the operation of the Tenant's business within
the Premises to the extent practicable, During the period from the date of
damage until the daft that the untenantable portion of the Premises is
materially restored, the rent shall be reduced to the extent of the proportion
of the Premises which is untenable, however, there shall be no abatement of
other sums to be paid by Tenant to Landlord as required by this Lease.
In no event shall Landlord be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements which
may have been placed in or about the Premises by Tenant after the Commencement
Date, however, Landlord has the right but not the obligation to rebuild, repair
or replace at Tenant's expense so much of the partitions, fixtures, additions
and other improvements as may be necessary to insure that the Premises are
materially restored.
23. LIABILITIES OF THE PARTIES: Tenant waives all claims against
Landlord for damages to goods or for injuries to persons on or about the
Premises or common areas from any cause arising at any time other than damages
or injuries directly resulting from Landlord or Landlord's agents or employees
negligence or willful misconduct. The tenant will indemnify Landlord on account
of any damage or injury to any persons, or to tire goods of any person, arising
from the use of the Promises by the Tenant, or arising form the failure of
Tenant to keep the Premises in good condition as provided herein. The Landlord
shall not be liable to the Tenant for any damage by or from any act or
negligence of any occupant of the same Building, or by any owner or occupant of
adjoining or contiguous property.
Landlord waives all claims against Tenant for damages to goods or for
injuries to persons on or about the Premises or common areas from any cause
arising at any time other than damages or Injuries directly resulting from
Tenant or Tenant's agents or employees negligence or willful misconduct or
Tenant's breach of its obligation under this Lease. The Landlord will
indemnify Tenant on account of any damage or injury to any persons, or to the
goods of any person arising from the negligence or willful misconduct of
Landlord, its agents or employees.
The Tenant agrees to pay for all damages to the Building, as well as
all damage or injuries suffered by Tenant or occupants thereof caused by misuse
or neglect of the Premises by the Tenant to the extent not covered by
insurance.
Landlord is specifically not responsible under any circumstance for
any damage to any computer, computer component, or computer peripheral,
hardware or software damaged by any
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interruption, usage or variation for whatever reason in the electrical
distribution system in the building.
Notwithstanding any other term or provision herein contained, it is
specifically understood and agreed that there shall be no personal liability of
Landlord (nor Landlord's agent, if any) in respect to any of the covenants,
conditions or provisions of this Lease. In the event of a breach or default by
Landlord of any of its obligations under this Lease, Tenant shall look solely
to the equity of the Landlord in the property for the satisfaction of Tenant's
remedies.
24. PARKING: The Landlord warrants that it will, without charge
and throughout the term of this Lease and any extensions or renewals thereof,
provide the Tenant with parking around the demised Premises which complies with
applicable city or county code. Tenant agrees to comply with the parking rules
contained in the Parking Rules and Regulations attached hereto as Exhibit "E"
together with all reasonable modifications and additions thereto which Landlord
may from time to time make.
25. SIGNS: Landlord hereby agrees to allow Tenant to have a
lighted or spot-lighted sign, as long as such sign complies with standard
building finished. Said sign shall be at the sole expense of the Tenant.
26. UTILITIES: Landlord will provide utility service connections
to the Premises, including electrical service, natural gas (where available),
water and sewer.
Tenant shall procure for its own account and shall pay the cost of all
water, gas, electric power and fuel consumed or used In or at said Premises,
including appropriate deposits as required. Landlord shall not be liable to
Tenant in damages or otherwise for any interruptions, curtailment or suspension
of utility service. Tenant's responsibility for the payment of said utilities
shall begin upon entering the Premises for the purpose of construction and
fixturing.
Tenant shall be directly responsible for the cost and expense
associated with all utilities used by the Tenant in the Premises.
27. HEAT, VENTILATION, AND CLIMATE CONTROL COMFORT: Landlord has
installed HVAC equipment to provide adequate comfort (72 - 76 degrees) for
normal office user load requirements (one ton per 300 square feet). If
determined before or during Tenant's occupancy that the Tenant's use of high
heat output equipment or other intensive uses (i.e.: computer rooms, telephone
rooms or work stations at greater density then one person per 100 square feet),
requires additional cooling equipment, Landlord will install necessary
additional HVAC equipment at Tenant's sole expense.
28. PLATE GLASS BREAKAGE: Notwithstanding anything herein to the
contrary, except by negligence of Landlord, Tenant shall be solely responsible
for repair and replacement in the event of plate glass damage or breakage.
29. GARBAGE REMOVAL: Tenant will be responsible for providing a
container for garbage and arrange for its systematic pickup.
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30. JANITORIAL SERVICES: Tenant shall provide janitorial services
and supplies to the Premises, at its own expense.
31. FIRE EXTINGUISHERS: Tenant covenants during the Term and such
further time as Tenant occupies any part of the Premises to keep the Premises
equipped with all safety appliances, included but not limited to an operating
fire extinguisher, required by law or ordinance or any other regulation of any
public or private authority having jurisdiction over the Premises (including
insurance underwriters or rating bureaus) because of any use made by Tenant and
to procure all licenses and permits so required because of such use and, if
required by Landlord, to do any work so required because of such use, it being
understood that the foregoing provisions shall not be construed to broaden in
any way Tenant's permitted uses.
32. EXTERMINATION: The Tenant shall, at its sole cost and
expense, on at least a quarterly basis, employ professional exterminators to
control pests within the Premises and supply Landlord with a copy of the
contract therefor.
33. STORING OF FLAMMABLE MATERIALS: The Tenant agrees that it
will store any Dangerous/Flammable Materials in accordance with all applicable
laws.
34. REPLACEMENT OF LIGHT BULBS: Tenant shall, at its sole cost
and expense, replace all light bulbs within the Premises.
35. KITCHEN APPLIANCES AND EQUIPMENT: In the event of installation
of a kitchen or kitchen equipment by either Landlord or Tenant, such
maintenance and repair of all items contained within the area shall be at
the sole cost and expense of Tenant, to include but not limited to:
maintenance, repair and replacement of a microwave oven, refrigerator, stove,
ice maker, coffee maker, garbage disposal, dishwasher, sink, faucet or any
other item within the area. Tenant hereby acknowledges to Landlord that any
fixtures, excluding trade fixtures, described herein are to become a part of
the Premises and notwithstanding Section 36 herein, upon Tenant's vacating the
Premises, all fixtures shall remain the property of Landlord.
36. REMOVAL OF TENANT'S FIXTURES: The Tenant shall have the
privilege at any time, on or before vacating the Premises, of removing any or
all of its personal property, equipment and fixtures, and Tenant shall repair
any damage caused by the removal thereof and shall leave the Premises in good
and clean condition and repair.
37. DEFAULT BY TENANT: In the event Tenant shall fail to pay the
monthly rental rate by the due date; and such failure continues for five (5)
business days after Tenant receives notice of such nonpayment, which notice
shall not be given more than two (2) times annually during the term of this
Lease, or if Tenant is adjudicated a bankrupt; or if Tenant files a petition in
bankruptcy under any section or provision of the bankruptcy law; or if an
involuntary petition in bankruptcy is filed against Tenant, and same is not
withdrawn or dismissed within sixty (60) days from filing thereof, or if a
receiver or trustee is appointed for Tenants property and the order appointing
such receiver or trustee remains in force for thirty (30) days after the entry
of such order, or if, whether voluntarily or involuntarily, Tenant takes
advantage of any debtor relief proceedings under any present or future
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law, reduced payment thereof deferred; or if Tenant makes an assignment for the
benefit of the creditors; or if Tenant's effects shall be levied upon or
attached under process against Tenant, not satisfied or dissolved within thirty
(30) days after written notice from Landlord to Tenant to obtain satisfaction
thereof, or if Tenant shall vacate or abandon the Premises; or if Tenant shall
fail to perform or observe any other covenant, agreement, or condition to be
performed or kept by the Tenant under the terms and provisions of this Lease,
and such failure shall continue to thirty (30) days after written notice
thereof has been given by Landlord to the Tenant; then in any one of such
events, Landlord shall have the right, at the option of the Landlord, then or
at any time thereafter while such defaults continue, to elect either: (1) to
cure such default or defaults at the expense of Tenant and without prejudice to
any other remedies which it might otherwise have, any payment made or expenses
incurred by Landlord in curing such default shall bear interest thereon at 10%
per annum, or at such maximum legal rate as permitted by North Carolina law,
whichever shall be lower, to be and become additional rent to be paid by Tenant
with the next installment of rent failing due thereafter, or (2) to re-enter
the Premises and dispossess Tenant and anyone claiming under tenant, with or
without an order of the court, and remove their effects, and take complete
possession of the Premises and then elect to take any one or (to the extent not
inconsistent) more of the following actions: (i) declare this Lease forfeited
and the term ended; or (ii) elect to continue this Lease in full force and
effect, but with the right at any time thereafter to declare this Lease
forfeited and the term ended; or (iii) declare Tenant's right to possession of
the Premises to be terminated; or (iv) exercise any other remedies or maintain
any action permitted to landlords pursuant to the laws of the State of North
Carolina, or any other applicable law. In such re-entry the Landlord may,
without committing trespass, have all persons and Tenants personal property
removed from the Premises. Tenant hereby covenants in such event for itself and
all others occupying the Premises under Tenant; to peacefully yield up and
surrender the Premises to the Landlord. Should Landlord declare either (i) this
Lease forfeited and the term ended; (ii) the termination of Tenant's right to
possession of the Premises; then in any one such events, Landlord shall be
entitled to recover from Tenant the rental and all other sums due and owing by
Tenant to the date of termination, plus the costs of curing all of Tenants
defaults existing at or prior to the date of termination, plus rental for the
balance of the term under this Lease less any rental obtained by Landlord on
another Lease for the balance of the term remaining under this Lease. Should
Landlord, following default as aforesaid, elect to continue this Lease in full
force, Landlord shall use its best efforts to rent the Premises by private
negotiations, with or without advertising, and on the best terms available for
the remainder of the term hereof, or for such longer or shorter period as
Landlord shall deem advisable. Tenant shall remain liable for payment of all
rentals and other charges and costs imposed on Tenant herein, in the amounts,
at the times and upon the conditions as herein provided, but Landlord shall
credit against such liability of the Tenant all amounts received by Landlord
from such re-letting after first reimbursing itself for all costs incurred in
curing Tenant's defaults and re-entering, preparing and refinishing the
Premises for re-letting, and the Premises, and for the payment of any
procurement fee and commission paid to obtain another tenant, and for all
attorney fees and legal costs incurred by Landlord.
As used in this Lease the term "attorney's fees" or "reasonable attorney's
fees" shall mean actual fees Incurred at customary hourly rates notwithstanding
any statutory presumption.
38. RE-ENTRY BY LANDLORD: No re-entry by Landlord or any action brought by
Landlord to oust Tenant from the premises shall operate to terminate this Lease
unless Landlord shall give written notice of termination to Tenant, in which
event Tenant's liability shall be as above provided.
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No right or remedy granted to Landlord herein is intended to be exclusive of
any other right or remedy, and each and every right and remedy herein provided
shall be cumulative and in addition to any other right or remedy hereunder or
now or hereafter existing in law or equity or by statute. In the event of
termination of this Lease, Tenant waives any and all rights to redeem the
Premises either given by any statute now in effect or hereafter enacted.
39. WAIVER OF RIGHTS: No waiver by Landlord of any provision
hereof shall be deemed to be a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
The acceptance of rent hereunder by Landlord shall not be a waiver of any
preceding breach by Tenant of any provision hereof other than the failure of
Tenant to pay the particular rent as accepted regardless of Landlord's
knowledge of said preceding breach at the time of acceptance of such rent.
40. SECURITY DEPOSIT: Tenant shall deposit with Landlord the sum
of ________ to be held by Landlord as security for Tenant's satisfactory
performance of the terms, covenants and conditions of this Lease including the
payment of Basic Rent (either pro-rated or entire month) and Late Payment of
Rent Charges (as specified in Section 6 herein).
(a) Application of Security Deposit. Landlord may use, apply or
retain the whole or any part of the security so deposited to the extent
required for payment of any Basic Rent (pro-rated or entire month), Additional
Rent or Late Payment of Rent Charges or any other sum as to which Tenant is in
default or for any sum which Landlord may expend or may be required to expend
by reason of Tenant's default in respect of any of the terms, covenants and
conditions of this Lease including any damages or deficiency in the reletting
of the demised premises or other reentry by Landlord.
(b) Replenishment of Security Deposit. If Landlord uses, applies
or retains the whole or any part of the security, Tenant shall replenish the
security to its original sum of _________ within five (5) days after being
notified by the Landlord of the amount due. Tenant shall be in default of this
Lease is the amount due is not paid within the required period of time.
(c) Transfer of Property. In the event of a sale or leasing of
the Real Property or any part thereof, of which the demised premises form a
part, Landlord shall have the right to transfer the security to the vendee or
lessees, provided the Vendee has assumed the obligations of Landlord under this
Lease, and Landlord shall ipso facto be released by Tenant from all liability
for the return of said security; and Tenant agrees to look solely to the new
Landlord for the return of said security; and it is agreed that the provisions
hereof shall apply to every transfer of assignment made of the security to a
new landlord.
(d) Prohibition on Tenant Assignment. Tenant covenants that it
shall not assign or encumber the security deposit given to Landlord pursuant to
this Lease. Neither Landlord, its successors or assigns shall be bound by any
such assignment of encumbrance or any attempted assignment or encumbrance.
(e) When Returned. In the event that Tenant shall fully and
faithfully comply with all the terms, covenants and conditions of Lease, any
part of the security not used or retained by
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Landlord shall be returned to Tenant after the Expiration Date of the Lease and
inspection and approval of the Premises by Landlord, normal wear and tear
expected and after delivery of exclusive possession of the demised premises to
Landlord.
41. NOTICES: All notices provided for herein shall be in writing
and shall be deemed to have been given when deposited in the United States
mails, postage fully prepaid, and directed to the parties hereto at their
respective addresses given below.
Landlord: HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
380 Knollwood Street, Suite 430
Winston-Salem, North Carolina 27103
Tenant: R.F. MICRO DEVICES, INC.
7625 Thorndike Road
Greensboro, North Carolina 27409
Either party may, in addition, deliver written notice by hand
delivery. Further, the parties hereto may give or receive notice by or from
their respective attorneys and may, by like notice, designate a new address to
which subsequent notice shall be directed.
42. COMPLIANCE WITH LAWS: In addition to other provisions herein,
Tenant shall promptly execute and comply with all laws, ordinances, rules,
regulations and requirements of any or all federal, state and municipal
authorities having jurisdiction over the manner in which the Tenant's business
is conducted, but only insofar as these laws, ordinances, rules and regulations
and requirements are violated by the conduct of Tenant's business.
43. RULES AND REGULATIONS: Tenant, its agents, servants and
invitees shall observe faithfully and comply strictly with the rules and
regulations set forth on the schedule designated BUILDING RULES AND
REGULATIONS, attached hereto as Exhibit "C" and by this reference made a part
hereof. Landlord shall have the right, from time to time, during the term of
this Lease to make reasonable changes in, and additions to, said rules and
regulations, provided such changes and additions do not unreasonably affect the
conduct of Tenant's business in the Premises. Any failure by Landlord to
enforce any said rules and regulations now or hereafter in effect, either
against Tenant or any other tenant in the Building, shall not constitute a
waiver of such rules and regulations. The defined words in this Lease,
whenever used in said rules and regulations, shall have the same meanings as
herein.
44. HAZARDOUS WASTE: As used in this agreement, "Hazardous
Materials" shall mean any hazardous or toxic substance, material, water, or
similar term which is regulated by local authorities, the State of North
Carolina or the United States of America, including, but not limited to, any
material, substance, waste or similar term which is (i) defined as a hazardous
material under the laws of the State of North Carolina; (ii) defined as a
hazardous substance under Section 311 of the Federal Water Pollution
Control act (33 U.S.C. Section 1317); (iii) defined as a hazardous waster under
Section 1004 of the Federal Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.); (iv) defined as a hazardous waste substance under
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, (42 U.S.C. Section 9601 et seq.); (v)
16
<PAGE> 17
defined as a hazardous waste or toxic substance, waste, material or similar
term in rules and regulations, as amended from time to time, which are adopted
by any administrative agency including, but not limited to, the Environmental
Protection Agency, the Occupational Safety and Health Administration, and any
such similar local, state or federal agency having jurisdiction over the
Premises whether or not such rules and regulations have the force of law; (vi)
defined as a hazardous or toxic waste, substance, material or similar term in
any statute, regulation, rule or law enacted or adopted at any time after the
date of this agreement by local authorities, the State of North Carolina, or
the federal government.
The Tenant agrees that any discharge from the Premises of any
Hazardous Material shall comply with applicable laws and/or permit. Tenant
shall immediately notify the Landlord of any discharge that does not materially
comply with applicable laws and/or permitted levels.
The Tenant shall promptly pay, discharge, or remove any lien upon the
Premises relating to the presence of any Hazardous Material, and shall
indemnify and hold harmless the Landlord, from any and all loss, damage or
expense resulting from such Hazardous Material that exists upon or is
discharges from the Premises in violation of law by Tenant.
This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision
because of Hazardous Materials present in the soil or ground water on or under
the Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises and Building caused or permitted by Tenant results in
levels of Hazardous Materials, Tenant shall promptly take all actions at its
sole expense that are necessary to return the same to the condition existing
prior to the introduction of any such hazardous material thereto, provided that
Landlord's approval of such actions shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
Premises and Building. The foregoing indemnity shall survive the expiration or
earlier termination of this Lease. If Tenant fails to take such action and
unless Tenant's failure is due to Landlord's unreasonably withholding approval
of Tenant's actions, Landlord may take action and Landlord shall be entitled to
recover from Tenant, upon demand In writing, all costs of such action. This
indemnification excludes any and all environmental conditions that are
currently present on the Premises.
45. SURRENDER: The Tenant shall surrender the Premises in good
and clean condition and repair, excepting only normal wear and tear and damage
by fire or other casualty damage covered by insurance and paid to Landlord.
Tenant shall not remain in the Premises without the benefit of a written Lease
or renewal agreement executed by the parties hereto prior to the expiration of
the then existing term. No other holding over of the Premises shall be allowed
on any basis whatsoever.
The delivery of keys or other such tender of possession of the
Premises to Landlord or to an employee of Landlord shall not operate as a
termination of this Lease or a surrender of the Premises.
Any pro-rated rent or damages in excess of the security deposit held
by Landlord shall be invoiced by Landlord and payable by Tenant within ten (10)
days from the date of invoice.
17
<PAGE> 18
46. HOLDOVER: In the event Tenant remains in possession of the
leased premises after the expiration of the term of this Lease, without having
first extended this Lease by written agreement with Landlord, such holding over
shall not be construed as a renewal or extension of this Lease. Such holding
over shall be deemed to have created and be construed as tenancy from month to
month, terminable on 30 days notice in writing from either party to the other.
The monthly rental to be paid shall be 150% of the monthly rental payable
during the last month of the term of this Lease. All other terms and
conditions of this Lease shall continue to be applicable for both Landlord and
Tenant.
If Tenant fails to surrender the Premises to Landlord on expiration of
the term as required by this Section, Tenant shall hold Landlord harmless from
all damages resulting from Tenant's failure to surrender the Premises,
including without limitation, claims made by the succeeding Tenant resulting
from Tenant's failure to surrender the Premises.
47. LIENS: If Tenant shall cause any material to be furnished to
the Premises or labor to be performed thereon or therein, Landlord shall not
under any circumstances be liable for the payment of any expenses incurred or
for the value of any work done or material furnished. All such work shall be
at Tenant's expense and Tenant shall be solely and wholly responsible to all
contractors, laborers, and materialmen furnishing labor and material to the
Premises. Nothing herein shall authorize the Tenant or any person dealing
through, with or under Tenant to charge the Premises or any interest of the
Landlord therein or this Lease with any mechanic's liens or other liens or
encumbrances whatsoever. On the contrary, (and notice is hereby given) the
right and power to charge any lien or encumbrance of any kind against the
Landlord or its estate is hereby expressly denied.
48. BENEFITS, BURDENS AND ENTIRE AGREEMENT: This Lease is binding
on and benefits the parties hereto and their respective heirs, legal
representatives, successors, nominees and assigns. Liability hereunder shall
be joint and several upon all who sign this agreement. Throughout this
agreement the masculine gender shall be deemed to include the feminine, the
feminine the masculine, the singular the plural and the plural the singular.
This Lease contains the entire agreement between the parties hereto
with respect to the Premises leased hereunder, further, this Lease may not be
modified, altered or amended except by an instrument in writing, executed by
the parties hereto or their respective heirs, legal representatives,
successors, nominees or assigns and which instrument shall be attached hereto
as an amendment to this Lease and shall thereby become a part hereof.
49. ATTORNEY'S FEES: If either Landlord or Tenant files an action
to enforce any agreement contained in this Lease, or for breach of any covenant
or condition, the prevailing party in any such action, or the party settling to
its benefit, shall be reimbursed by the other party for reasonable attorneys'
fees in the action.
In the event Landlord refers a default by Tenant to an attorney for
collection and a suit is not filed, Tenant agrees to pay reasonable attorney
fees if action is not filed thereunder.
18
<PAGE> 19
50. GOVERNING LAW: This Lease shall be governed by and construed
under the laws of the State of North Carolina.
51. ESTOPPEL CERTIFICATES: Tenant shall execute and deliver to
Landlord, upon its occupancy of the Premises, a certificate/statement provided
by Landlord, certifying that this Lease is unmodified and in full force and
effect and other factual data relating to the Lease or the Premises which
Landlord may reasonably request. Furthermore, Tenant may be required, from
time to time during the term of the Lease, to execute and deliver to Landlord a
certificate/statement for purposes of refinancing, syndication, sale of
property, etc. In such event, Tenant shall have ten (10) days from its receipt
thereof from Landlord to execute and deliver such fully executed
certificate/statement to Landlord. Tenant's failure to execute said
certificate shall constitute a default hereunder. During the term of this
Lease, the Landlord will, upon written request by Tenant, provide Tenant with
similar estoppel certificates as described above.
52. BROKERAGE FEES: Landlord and Tenant represent to each other
that no broker ("Broker") has represented either party in respect to this
transaction.
53. CHRONIC DEFAULTS: Tenant will be in "Chronic Default" under
this Lease if Tenant commits a default (either a Monetary or Non-Monetary
Default) during any 365-day period in which any of the following combinations
of default has already occurred (even though said defaults may have been timely
cured):
(1) Two Monetary Defaults; or
(2) Three Non-Monetary Defaults; or
(3) One Monetary Default and two Non-Monetary Defaults
(a) Remedies. If Tenant is in Chronic Default, Landlord may
immediately exercise any or all remedies available under this Lease or at law
or in equity, all without giving Tenant any notice or an opportunity to cure
the last default causing Tenant's Chronic Default (notwithstanding any notice
and cure provision or other lease provision to the contrary).
(b) Definitions. For the purpose of this Section, (1) a Monetary
Default occurs if Tenant fails to pay any sum of money when due (including, but
not limited to, Base Rent, Additional Rent, Percentage Rent, Escalation Rent,
Common Area Maintenance Charges, Utility Charges, Pass-thru Expenses, or other
Rent); (2) a Non-Monetary Default occurs if Tenant fails to perform any of its
obligations under this Lease other than the timely payment of money.
54. EVIDENCE OF AUTHORITY: If requested by Landlord, Tenant shall
furnish appropriate legal documentation evidencing the valid existence and good
standing of Tenant and the authority of any parties signing this Lease to act
for Tenant. If Tenant signs as a corporation, each of the persons executing
this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is
a duly authorized and existing corporation, that Tenant has and is qualified to
do business in North Carolina, that the corporation has full right and
authority to enter into this Lease and that each of the persons signing on
behalf of the corporation is authorized to do so.
19
<PAGE> 20
55. LEASE REVIEW; DATE OF EXECUTION: The submission of this Lease-to
Tenant for review does not constitute a reservation of or option for the
Premises, and this Lease shall become effective as a contract only upon
execution and delivery by both Landlord and Tenant. The date of execution shall
be entered an the top of the first page of this Lease by Landlord, and shall be
the date on which the last party signed the Lease, or as otherwise may be
specifically agreed by both parties. Such date, once inserted, shall be
established as the final date of ratification by all parties to this Lease, and
shall be the date for use throughout this Lease as the "date of execution" or
"execution date".
56. OPTION TO RENEW: Provided Tenant is not in default hereunder,
Tenant shall have an option to renew this Lease for two (2) periods of ten (10)
years. The rental rate for the initial renewal period of ten years will be
$11.25 per square foot, adjusted for changes in the Consumer Price Index during
the preceding fifteen (15) year period. The rental rate for the initial year
of the renewal term will be the basis for all future Consumer Price Index
adjustments. Rent shall be adjusted in same manner as described in this Lease
on the 16th, 18th, 20th, 22nd, 24th, 26th, 28th, 30th, 32nd, and 34th
anniversaries of the Commencement Date. Tenant shall provide Landlord six (6)
month prior written notice of its intent to renew the Lease.
57. TENANT IMPROVEMENTS: Tenant agrees to provide credit
enhancements, as set forth in Exhibit "H" for all project costs as set forth in
Exhibit "G" in excess of $80.00 per square foot.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement or have caused their duly authorized representatives to execute same
in two (2) original counterparts, as of the day and year first above written.
LANDLORD:
HIGHWOODS/FORSYTH LIMITED
PARTNERSHIP, a North Carolina Limited
Partnership
Attest:
/s/ Kimberly Saunders By: /s/ John E. Reece, II
- ---------------------------- ------------------------------------
Secretary Vice President
(Corporate Seal)
TENANT:
R.F. MICRO DEVICES, INC., a North Carolina
Corporation
Attest:
/s/ Powell T. Seymour By: /s/ David A. Norbury
- ---------------------------- ------------------------------------
Secretary President
(Corporate Seal)
20
<PAGE> 21
North Carolina )
)
Guilford County ) FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE, made and entered into this 4th day of
December, 1996, by and between HIGHWOODS/FORSYTH LIMITED PARTNERSHIP, a North
Carolina Limited Partnership, hereinafter referred to as "Landlord" and R.F.
MICRO DEVICES, INC., a North Carolina Corporation, hereinafter referred to as
"Tenant". Tenant leases from Landlord space in the amount of 45,000 square
feet, located at Thorndike Road, Greensboro, Guilford County, North Carolina.
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered in to a Lease (the "Lease") dated
October 9, 1996. Said Lease is incorporated herein by reference as is set
forth in this First Addendum to Lease in full.
WHEREAS, Landlord and Tenant desire to amend said Lease as follows:
1. Both Tenant and Landlord acknowledge that Landlord has agreed to build
a building to Tenant's specifications, and as a result the costs are
controlled by Tenant. Tenant further acknowledges that Landlord's
Investment Committee has agreed to a project cost of up to one hundred
fifty-five dollars and 00/100 ($155.00) per square foot, as set forth
in the Lease.
In the event total project cost exceeds $155.00 per square foot and
Landlord elects not to include the cost in excess of $155.00 in the
project cost, Tenant agrees to pay the contractor directly for the
cost in excess of $155.00 per square foot upon receipt of an invoice
from Landlord.
2. Building plans are attached hereto and incorporated herein, as Exhibit
A.
3. All other terms and conditions of the Lease shall remain in full force
and effect.
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this First
Addendum to Lease or have caused their duty authorized representatives to
execute same in two (2) original counterparts, as of the day and year first
above written.
LANDLORD:
HIGHWOODS/FORSYTH LIMITED
PARTNERSHIP, a North Carolina Limited
Partnership
Attest:
/s/ Kimberly Saunders By: /s/ John E. Reece, II
- ---------------------------------- ----------------------------------------
Assistant Secretary Vice President
(Corporate Seal)
TENANT:
R.F. MICRO DEVICES, INC., a North Carolina
Corporation
Attest:
/s/ Powell T. Seymour By: /s/ David A. Norbury
- ---------------------------------- ----------------------------------------
Secretary President
(Corporate Seal)
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated January 24, 1997, in the Registration Statement (Form
S-1 No. 33-00000) and the related Prospectus of RF Micro Devices, Inc. for the
registration of _________ shares of its common stock.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 28, 1997
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