<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997
REGISTRATION NO. 333-22625
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
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:
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<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. []
---------------------
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 MAY 2, 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 $9.00 and $11.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been 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 payable by the Company, 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 into an aggregate of 7,954,320 shares of Common Stock upon
the consummation of this offering and (ii) 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 has grown,
wireless service providers have continued to improve the quality and
functionality of their services and have sought to offer greater bandwidth for
increased capacity. Capacity and functionality have been 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 have relied 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. The Company
believes this trend has been particularly evident in the RF segment due to the
scarcity of RFIC engineers and the design complexity of RF technology.
TRW Inc. ("TRW"), which is the Company's largest shareholder and will
beneficially own 31.1% of the Common Stock of the Company after the consummation
of this offering, is currently manufacturing all of the Company's GaAs HBT
products using TRW's proprietary technologies 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 based on sales. 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, Samsung, Motorola 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 each OEM's 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........................................ 13,740,330 shares(1)
Use of proceeds................................. To finance a portion of 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."
Nasdaq National Market symbol................... RFMD
SUMMARY FINANCIAL DATA(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 1,688 $ 9,515 $28,802
(Loss) income from operations............................... (4,163) (5,244) 1,647
Net (loss) income........................................... (4,122) (5,188) 1,652
Pro forma net (loss) income per share(3).................... $ (0.47) $ (0.48) $ 0.14
Pro forma weighted average shares outstanding(3)............ 8,734 10,861 12,049
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,330 $ 2,330 $ 9,335
Working capital......................................... 7,313 7,313 14,846
Cash restricted for capital additions................... 12,358 12,358 27,358
Total assets............................................ 36,265 36,265 58,270
Long-term debt.......................................... 10,829 10,829 10,712
Shareholders' (deficiency) equity....................... (9,472) 18,785 41,435
</TABLE>
- ---------------
(1) Excludes (i) 1,111,111 shares of Common Stock issuable upon the conversion
of an outstanding convertible note in the principal amount of $10 million
held by TRW (the "TRW Convertible Note") at a price of $9.00 per share, (ii)
1,031,336 shares of Common Stock issuable upon exercise of options
outstanding at March 31, 1997 at a weighted average price of $2.09 per
share, (iii) 1,000,000 shares of Common Stock issuable upon exercise of an
outstanding warrant held by TRW at a price of $10.00 per share if certain
conditions are met (the "TRW Warrant") and (iv) 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" and
"Description of Capital Stock -- TRW Convertible Note and 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 1995, 1996 and 1997 fiscal years 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 conversion of
outstanding shares of Preferred Stock upon the consummation of this
offering.
(4) Pro forma as adjusted data give effect to the conversion of outstanding
shares of Preferred Stock 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 $10.00 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 gallium arsenide heterojunction bipolar transistor ("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 manufacturing, assembly and test yields
related to the Company's development of a Code Division Multiple Access ("CDMA")
chipset for QUALCOMM Incorporated ("QUALCOMM"). There can be no assurance that
the Company will not experience similar problems while developing future
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
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. In fiscal 1997, sales
to QUALCOMM and Samsung Electronics Co., Ltd. ("Samsung") accounted for 32.1%
and 23.4%, respectively, of the Company's revenues, and sales to the Company's
five most significant customers in the aggregate accounted for 73.0% 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 60.7% 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 to replace revenues generated by former key customers in prior periods
with revenues generated from existing or new customers in future periods.
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. Further, the Company believes that
certain prospective original equipment manufacturer ("OEM") customers have been
reluctant to use the Company's GaAs HBT
5
<PAGE> 9
products in their devices due to the Company's capacity constraints with respect
to such products. Although TRW 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 sales 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 condition 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
condition 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 year ended March 31,
1997, sales of GaAs HBT products constituted approximately 85% 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, which quantities decline significantly
from current levels beginning in 1999. The Company currently is purchasing from
TRW a number of wafers that approximates the minimum number of wafers required
to be delivered by TRW to the Company under the supply contract. However, the
Company believes that in future periods it may purchase from TRW 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 HBT 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, to continue to allocate to the Company a substantial
portion of TRW's commercial wafer production or to successfully defend against
any claim that its GaAs HBT process infringes on third parties' intellectual
property rights 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 prevent or delay an 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
6
<PAGE> 10
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 are granted without representation or warranty as to validity or
noninfringement and may be terminated by TRW if the Company's facility is not
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 or a determination that its GaAs HBT processes
infringe a third party's intellectual property rights 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." The Company expects to be able to manufacture GaAs HBT
products at a cost that is less than the price paid by the Company to TRW for
such products; however, there is no assurance that the Company will be able to
do so. Further, 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.
7
<PAGE> 11
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 all or substantially all of its GaAs HBT products 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."
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 gallium arsenide metal semiconductor
field effect transistor ("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 year ended March 31, 1997,
approximately 85% 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 131
employees on March 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
8
<PAGE> 12
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.
RELATIONSHIP WITH NOKIA
The Company, TRW and Nokia Mobile Phones Ltd. ("Nokia") have agreed in
principle to cooperate to develop and supply Nokia with RFICs that are
manufactured using TRW's GaAs HBT processes. 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 March 31, 1997, the Company had an accumulated deficit of approximately $12.7
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 year ended March 31, 1997,
there can be no assurance, due to the Company's history of annual and quarterly
operating losses, its planned substantial expansion of 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. The Company is and will remain
dependent on a small number of independent foundries to manufacture and
9
<PAGE> 13
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" and
"Business -- Manufacturing, Packaging and Testing."
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
10
<PAGE> 14
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. See
"Business -- Research and Development."
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
expects to use approximately $15 million of the net proceeds from this offering
to finance a portion of the cost of constructing the first phase of the
fabrication facility, and to finance the remainder of such phase with cash on
hand and previously obtained financing commitments. 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 "Use of Proceeds" and
"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 27%, 24% and 42% of total revenues for fiscal 1995, 1996 and 1997,
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
11
<PAGE> 15
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. See Note 2 of Notes to Financial Statements.
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 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. See
"-- Dependence on TRW."
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 (including TRW) collectively will beneficially own
approximately 53.9% of the Common Stock (52.6% if the
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<PAGE> 16
Underwriters' over-allotment option is exercised in full), and TRW, the
Company's largest shareholder, will beneficially own approximately 31.1% of the
Common Stock (30.3% 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" and "Principal and Selling Shareholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
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."
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.
SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of approximately $7.22 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 13,740,330 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 8,519,400 additional shares of Common Stock will
become eligible for sale in the public market, subject to the provisions of Rule
144 or Rule 701. In addition, up to 1,111,111 shares of Common Stock could
become eligible for sale at such time if the TRW Convertible Note were to be
converted. 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 were or 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
13
<PAGE> 17
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.
14
<PAGE> 18
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 $22.7
million assuming an initial public offering price of $10.00 per share and after
deducting the underwriting discount and estimated offering expenses
(approximately $26.2 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 the first phase of
a new GaAs HBT wafer fabrication facility that will be located adjacent to the
Company's existing facility in Greensboro, North Carolina. The 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 expects to
finance the remainder of the first phase with cash on hand and previously
obtained financing commitments. 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company intends to use a portion 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 March
31, 1997 under a revolving line of credit that bears interest at prime plus
0.75% and matures in December 1997 and approximately $295,000 outstanding at
March 31, 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 the TRW Convertible Note, the Company is prohibited from
authorizing, declaring or paying any dividends until the Company's wafer
fabrication facility becomes operational. 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."
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<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 on an actual, pro forma and pro forma as adjusted basis. The pro
forma capitalization gives effect to the conversion of outstanding shares of
Preferred Stock into an aggregate of 7,954,320 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>
MARCH 31, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................ $ 10,829 $ 10,829 $ 10,712
Redeemable convertible preferred stock(1)................. 28,257 -- --
Shareholders' (deficiency) equity:
Preferred Stock, no par value; 1,200,000 shares
authorized and none issued and outstanding, actual;
5,000,000 shares authorized and none issued and
outstanding, pro forma and pro forma as adjusted..... -- -- --
Common Stock, no par value; 50,000,000 shares
authorized, 3,286,010 shares issued and outstanding,
actual, 11,240,330 shares issued and outstanding, pro
forma, and 13,740,330 shares issued and outstanding,
pro forma as adjusted................................ 2,960 31,217 53,867
Additional paid-in capital................................ 550 550 550
Deferred compensation(2).................................. (269) (269) (269)
Accumulated deficit....................................... (12,713) (12,713) (12,713)
-------- -------- --------
Total shareholders' (deficiency) equity(3)........... (9,472) 18,785 41,435
-------- -------- --------
Total capitalization............................ $ 29,614 $ 29,614 $ 52,147
======== ======== ========
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) Excludes (i) 1,111,111 shares of Common Stock issuable upon the conversion
of the TRW Convertible Note at a price of $9.00 per share, (ii) 1,031,336
shares of Common Stock issuable upon exercise of options outstanding at
March 31, 1997 at a weighted average price of approximately $2.09 per
share, (iii) 1,000,000 shares of Common Stock issuable upon the exercise of
the TRW Warrant at a price of $10.00 per share and (iv) 149,591 shares of
Common Stock issuable upon the exercise of the Lender Warrants at a
weighted average price of approximately $6.48 per share. See
"Management -- Stock Option Plans," "Certain Transactions" and "Description
of Capital Stock -- TRW Convertible Note and Warrants."
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<PAGE> 20
DILUTION
At March 31, 1997, the pro forma net tangible book value of the Company was
approximately $15.6 million or $1.39 per share. "Pro forma net tangible book
value" per share 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. 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 $10.00 per share and after deducting the
underwriting discount and estimated offering expenses, the pro forma net
tangible book value of the Company at March 31, 1997 would have been $38.2
million or $2.78 per share. This represents an immediate increase in the pro
forma net tangible book value of $1.39 per share to existing shareholders and an
immediate dilution of $7.22 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..................... $10.00
Pro forma tangible book value per share as of March 31,
1997................................................... $1.39
Increase per share attributable to new investors.......... 1.39
Pro forma net tangible book value per share after this
offering.................................................. 2.78
------
Dilution per share to new investors......................... $ 7.22
======
</TABLE>
The following table summarizes, as of March 31, 1997, after giving effect
to this offering and the conversion of all outstanding shares of Preferred
Stock, 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
$10.00 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...... 11,240,330 82% $31,217,000 56% $ 2.78
New investors.............. 2,500,000 18 25,000,000 44 10.00
---------- --- ----------- ---
Total............ 13,740,330 100% $56,217,000 100%
========== === =========== ===
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option or outstanding stock options or warrants to purchase Common Stock and no
conversion of the TRW Convertible Note. There are (i) 1,111,111 shares of Common
Stock issuable upon the conversion of the TRW Convertible Note at a price of
$9.00 per share, (ii) 1,031,336 shares of Common Stock issuable upon exercise of
options outstanding at March 31, 1997 exercisable at a weighted average price of
approximately $2.09 per share, (iii) 1,000,000 shares of Common Stock issuable
upon exercise of the TRW Warrant exercisable at a price of $10.00 per share and
(iv) 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," "Certain Transactions" and "Description of
Capital Stock -- TRW Convertible Note and Warrants."
17
<PAGE> 21
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, 1995, 1996 and 1997, and the selected balance sheet data as of
March 31, 1995, March 31, 1996 and March 31, 1997, 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 years
ended March 31, 1993 and 1994, and the selected balance sheet data as of March
31, 1993 and March 31, 1994, are derived from the historical financial
statements of the Company, which are not included herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(1)
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales.............................. $ -- $ 574 $ 1,254 $ 8,212 $27,852
Engineering revenue........................ 256 412 434 1,303 950
------- ------- ------- ------- -------
Total revenues..................... 256 986 1,688 9,515 28,802
Cost and expenses:
Cost of goods sold......................... 59 724 1,215 7,471 15,826
Research and development................... 1,216 1,553 2,836 4,245 6,178
Marketing and selling...................... 400 808 1,180 1,817 3,760
General and administrative................. 498 725 620 1,226 1,391
------- ------- ------- ------- -------
Total costs and expenses........... 2,173 3,810 5,851 14,759 27,155
------- ------- ------- ------- -------
(Loss) income from operations................ (1,917) (2,824) (4,163) (5,244) 1,647
Interest expense............................. (11) (62) (27) (81) (399)
Interest income.............................. 16 40 68 137 513
------- ------- ------- ------- -------
(Loss) income before income taxes............ (1,912) (2,846) (4,122) (5,188) 1,761
Income tax expense........................... -- -- -- -- (109)
------- ------- ------- ------- -------
Net (loss) income............................ $(1,912) $(2,846) $(4,122) $(5,188) $ 1,652
======= ======= ======= ======= =======
Pro forma net (loss) income per share(2)..... $ (0.43) $ (0.52) $ (0.47) $ (0.48) $ 0.14
Pro forma weighted average shares
outstanding(2)............................. 4,421 5,495 8,734 10,861 12,049
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 1,110 $ 3,341 $ 2,223 $ 6,638 $ 2,330
Working capital.............................. 838 3,443 2,686 7,912 7,313
Cash restricted for capital additions........ -- -- -- -- 12,358
Total assets................................. 1,643 4,519 4,343 13,192 36,265
Long-term debt............................... -- -- 59 153 10,829
Shareholders' equity (deficiency)............ 1,049 (5,047) (9,169) (14,357) (9,472)
</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, March 31, 1996 and March
31, 1997 was a 52 week year.
(2) Pro forma data give effect to the conversion of outstanding shares of
Preferred Stock upon the consummation of this offering.
18
<PAGE> 22
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 personal communication
services ("PCS"), cordless telephony, wireless local area networks ("wireless
LANs"), wireless local loop ("WLL"), industrial radios, 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: GaAs HBT, GaAs MESFET and silicon bipolar transistor. For fiscal
1996 and fiscal 1997, approximately 58% and 85%, respectively, of the Company's
revenues were derived from the sale of GaAs HBT products. The Company may
continue to rely heavily on sales of GaAs HBT products in future periods.
Prior to fiscal 1995, the Company was in the development stage. After
emergence from the development stage, 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. In fiscal 1997, sales to QUALCOMM and Samsung accounted for 32.1% and
23.4%, respectively, of revenues, and sales to the Company's five most
significant customers in the aggregate accounted for 73.0% 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
19
<PAGE> 23
the aggregate accounted for 60.7% of revenues. Further, only two of the
Company's five most significant customers for fiscal 1996 were among the
Company's five most significant customers for fiscal 1997. 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, March 31, 1996 and
March 31, 1997, the Company's gross profit margins were approximately 28.0%,
21.5% and 45.1%, 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 a
CDMA chipset for QUALCOMM. The Company believes the poor yields related to the
development of such chipset were attributable to the fact that such chipset was
used in one of the first CDMA phones designed for commercial production, which
caused several unexpected changes in product specifications during development
and the use of very precise specification requirements for final products.
Further, QUALCOMM was the first large OEM to order from the Company significant
volumes of RFICs, and the related increase in production volumes initially
resulted in an unacceptable amount of product scrap. Although the Company
believes it has learned how to better control product yields for new products,
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>
YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold................................. 72.0 78.5 54.9
Research and development........................... 168.0 44.6 21.4
Marketing and selling.............................. 69.9 19.1 13.1
General and administrative......................... 36.7 12.9 4.8
------ ------ -------
Total costs and expenses................... 346.6 155.1 94.2
(Loss) income from operations........................ (246.6) (55.1) 5.8
Other income (expense), net.......................... 2.4 0.6 0.4
------ ------ -------
(Loss) income before income taxes.................... (244.2) (54.5) 6.2
Income tax expense................................... 0.0 0.0 (0.4)
------ ------ -------
Net (loss) income.................................... (244.2)% (54.5)% 5.8%
====== ====== =======
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Revenues. Revenues increased 203% from $9.5 million for the year ended
March 31, 1996 to $28.8 million for the year ended March 31, 1997. The increase
primarily reflected an overall increase in the volume
20
<PAGE> 24
of products shipped to existing and new customers, primarily in the cellular and
PCS handset markets. The Company sells products in intensely competitive
markets, and the Company believes that downward pressure on average selling
prices will occur in the future. For the years ended March 31, 1996 and March
31, 1997, 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 year ended March 31, 1997,
approximately 85% 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 13.7% of revenues for the year ended March 31, 1996 compared to
3.3% of revenues for the year ended March 31, 1997. For the year ended March 31,
1997, sales to QUALCOMM and Samsung accounted for 32.1% and 23.4%, 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 21.5% for the year ended
March 31, 1996 to 45.1% for the year ended March 31, 1997. The increase was
primarily attributable to an increase in production volumes during the year
ended March 31, 1997, 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 year
ended March 31, 1997.
During the year ended March 31, 1997, the Company increased its inventory
allowance by approximately $766,000, and at March 31, 1997 the Company's
inventory allowance of $847,000 represented approximately 8.4% of the gross cost
of inventories. As indicated in Note 2 of Notes to Financial Statements, the
Company's inventories are stated at the lower of cost or market determined using
the average cost method, and the Company provides for potential obsolete or slow
moving inventory based on management's analysis of inventory levels and future
sales forecasts. The increase in the Company's inventory allowance during the
year ended March 31, 1997 was primarily attributable to the significant increase
in sales and corresponding increase in inventory levels during such period, the
concentrated nature of the Company's customer base, which has caused the Company
to make significant investments in certain products to meet certain of its large
OEM customers' high volume requirements, and the uncertain effect of
technological and product changes on the wireless products manufactured by the
Company's customers.
Research and development. Research and development expenses increased
45.5% from $4.2 million for the year ended March 31, 1996 to $6.2 million for
the year ended March 31, 1997. The increase was primarily attributable to
increased salaries and benefits related to increased headcount and additional
spending on development mask sets, wafers and prototype assembly for both
standard and custom-designed products. As a result of revenue growth, research
and development expenses as a percentage of revenues decreased from 44.6% for
the year ended March 31, 1996 to 21.4% for the year ended March 31, 1997.
General and administrative. General and administrative expenses increased
13.5% from $1.2 million for the year ended March 31, 1996 to $1.4 million for
the year ended March 31, 1997. 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 12.9% for the
year ended March 31, 1996 to 4.8% for the year ended March 31, 1997.
Marketing and selling. Marketing and selling expenses increased 106.9%
from $1.8 million for the year ended March 31, 1996 to $3.8 million for the year
ended March 31, 1997. The increase was primarily attributable to increased
commissions reflecting the increase in sales during fiscal 1997 and, to a lesser
degree, increased salaries and benefits relating to increased headcount and
additional spending on promotional activities. Marketing and selling expenses as
a percentage of revenues decreased from 19.1% for the year ended March 31, 1996
to 13.1% for the year ended March 31, 1997.
21
<PAGE> 25
Other income (expense), net. Other income (expense), net increased from
$56,000 for the year ended March 31, 1996 to $114,000 for the year ended March
31, 1997. The increase was principally attributable to higher interest income
earned on higher average cash balances during the year ended March 31, 1997.
Income tax expense. The effective tax rate for the year ended March 31,
1997 was 6.2%, 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 year ended March 31, 1996 as a result of the loss
incurred in such fiscal year.
Fiscal 1996 Compared to Fiscal 1995
Revenues. Revenues increased 464% 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 an
increase in volume principally related 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 Microwave accounted
for 31.3% and 11.9%, respectively, of revenues. Engineering revenues as a
percentage of revenues were 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 28.0% 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 related to increased headcount and an increase in expenditures on
development mask sets, wafers and prototype assembly related to increased
developmental activities and development contracts with QUALCOMM and other
customers. 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
97.7% 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 54.0% 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 increased headcount 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.
22
<PAGE> 26
Quarterly Results of Operations
The following table presents unaudited quarterly results of operations 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
---------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................. $ 1,001 $1,893 $ 2,925 $ 3,696
Costs and expenses:
Cost of goods sold...... 657 1,216 2,286 3,312
Research and
development........... 899 857 1,069 1,420
Marketing and selling... 334 376 568 539
General and
administrative........ 161 183 295 587
------- ------ ------- -------
Total costs and
expenses....... 2,051 2,632 4,218 5,858
------- ------ ------- -------
(Loss) income from
operations.............. (1,050) (739) (1,293) (2,162)
Other income (expense),
net..................... 21 16 15 4
------- ------ ------- -------
(Loss) income before
income taxes............ (1,029) (723) (1,278) (2,158)
Income tax expense........ 0 0 0 0
------- ------ ------- -------
Net (loss) income......... $(1,029) $ (723) $(1,278) $(2,158)
======= ====== ======= =======
Pro forma net (loss)
income per share(1)..... $ (0.10) $(0.07) $ (0.12) $ (0.20)
======= ====== ======= =======
Pro forma weighted average
shares outstanding(1)... 10,861 10,861 10,861 10,861
<CAPTION>
FISCAL 1997 QUARTER ENDED
---------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................. $ 3,611 $6,011 $10,032 $ 9,148
Costs and expenses:
Cost of goods sold...... 2,479 3,027 5,467 4,853
Research and
development........... 1,294 1,421 1,664 1,799
Marketing and selling... 608 791 1,189 1,172
General and
administrative........ 256 209 495 431
------- ------ ------- -------
Total costs and
expenses....... 4,637 5,448 8,815 8,255
------- ------ ------- -------
(Loss) income from
operations.............. (1,026) 563 1,217 893
Other income (expense),
net..................... 38 41 30 5
------- ------ ------- -------
(Loss) income before
income taxes............ (988) 604 1,247 898
Income tax expense........ 0 0 (75) (34)
------- ------ ------- -------
Net (loss) income......... $ (988) $ 604 $ 1,172 $ 864
======= ====== ======= =======
Pro forma net (loss)
income per share(1)..... $ (0.08) $ 0.05 $ 0.10 $ 0.07
======= ====== ======= =======
Pro forma weighted average
shares outstanding(1)... 12,049 12,049 12,049 12,049
</TABLE>
- ---------------
(1) Pro forma data give effect to the conversion of outstanding shares of
Preferred Stock.
<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, MARCH 31,
1995 1995 1995 1996 1996 1996 1996 1997
-------- ------------- ------------ --------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of goods sold... 65.6 64.2 78.2 89.6 68.7 50.4 54.5 53.0
Research and
development......... 89.8 45.3 36.5 38.4 35.8 23.6 16.6 19.7
Marketing and
selling............. 33.4 19.9 19.4 14.6 16.8 13.2 11.9 12.8
General and
administrative...... 16.1 9.7 10.1 15.9 7.1 3.5 4.9 4.7
------ ----- ----- ----- ----- ----- ----- -----
Total costs and
expenses..... 204.9 139.1 144.2 158.5 128.4 90.7 87.9 90.2
------ ----- ----- ----- ----- ----- ----- -----
(Loss) income from
operations............ (104.9) (39.1) (44.2) (58.5) (28.4) 9.3 12.1 9.8
Other income (expense),
net................... 2.1 0.8 0.5 0.1 1.1 0.7 0.3 0.0
------ ----- ----- ----- ----- ----- ----- -----
(Loss) income before
income taxes.......... (102.8) (38.3) (43.7) (58.4) (27.3) 10.0 12.4 9.8
Income tax expense...... 0.0 0.0 0.0 0.0 0.0 0.0 (0.7) (0.4)
------ ----- ----- ----- ----- ----- ----- -----
Net (loss) income....... (102.8)% (38.3)% (43.7)% (58.4)% (27.3)% 10.0% 11.7% 9.4%
====== ===== ===== ===== ===== ===== ===== =====
</TABLE>
23
<PAGE> 27
Revenues increased each quarter in fiscal 1996 as a result of increased
unit product shipments. Revenues generally increased in each quarter of fiscal
1997 with the exception of the fourth quarter. The increase in revenues during
1997 reflects increased unit shipments to the cellular and PCS handset market
segments, and the decrease in revenues in the fourth quarter of fiscal 1997
reflects a decline in sales to QUALCOMM. Gross profit margins experienced wide
fluctuations throughout the eight 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 product sales mix and pricing, improved manufacturing,
assembly and test yields and increased absorption of manufacturing overhead due
to higher sales volume and a reduction in average wafer costs. The Company's
research and development expense increased over the two-year period to $1.8
million in the fourth quarter of fiscal 1997. The Company's marketing and
selling and general and administrative expenses generally increased over the
two-year period to $1.2 million and $431,000, respectively, in the fourth
quarter of fiscal 1997, reflecting increased salaries and benefits related to
increased headcount, commissions, promotional activities and general corporate
expenses.
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 March 31, 1997, there was
approximately $645,000 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. 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 to
such 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 clean room facility at the Company's
proposed wafer fabrication facility and for the sale and lease-back of such
facility between the Company and the financing company when the facility has
been completed. The facility 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 facility is completed, 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 facility 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
facility 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 facility.
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<PAGE> 28
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 $170.00 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 $170.00 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 $170.00 per square
foot. The Company currently anticipates that the fabrication facility will
comprise approximately 50,000 square feet, will be constructed at an aggregate
cost of approximately $8.5 million and will require the Company to make
guarantees in secured cash or corporate guarantees of approximately $4.6
million, which must be made at such time as the aggregate cost of such facility
exceeds $80.00 per square foot. The actual cost of the Company's fabrication
facility is subject to a number of factors outside of the Company's control, and
such cost may be in excess of the Company's estimates. See "Risk
Factors -- Construction and Operation of Fabrication Facility."
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, comprising facility, equipment and
other costs of $14 million, $22 million and $4 million, respectively, and the
second of which involves an expansion of production capacity at a budgeted cost
of $30 million, consisting of additional facility, equipment and other costs of
$8 million, $16 million and $6 million, respectively. The Company has obtained
financing for approximately $6.4 million of its phase one facility costs
(consisting of the clean room financing and real estate lease agreement
discussed above) and approximately $10 million of its phase one equipment costs
(consisting of the equipment lease agreement discussed above). The Company
intends to use approximately $15 million of the net proceeds to the Company from
this offering and cash on hand to finance the remaining portion of the cost of
constructing the first phase of the fabrication facility. The Company currently
believes its fabrication facility will be operating at commercial levels (i.e.,
capable of producing approximately 2,500 wafers per year) in the second half of
1998. Further, the Company believes that upon completion of the first phase of
construction, its fabrication facility will have a capacity of 10,000 wafers per
year and that, upon completion of its second phase of construction, such
facility will have a capacity of 25,000 wafers per year. See "Risk
Factors -- Construction and Operation of Fabrication Facility." 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. Further, there can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all. Under
the terms of the TRW Convertible Note, the Company is prohibited from incurring
debt in excess of $25 million, other than debt incurred for the construction and
operation of the wafer fabrication facility.
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<PAGE> 29
BUSINESS
INTRODUCTION
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, 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: 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.
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"), Samsung,
Motorola 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 CDMA, and certain hybrid
standards. For PCS, the FCC has approved seven different air interface
standards. The handsets 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
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<PAGE> 30
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 digital, 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 speeds 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.
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
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<PAGE> 31
linear signal (i.e., one that is not altered or distorted when amplified). 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 based on sales. 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, Samsung, Motorola 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 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 important 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 more 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 semiconductor process technologies to augment its
Optimum Technology Matching(R) program and to meet its customers' future
wireless equipment needs.
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<PAGE> 32
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 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 its 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 low noise amplifiers 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. See "Risk
Factors -- Construction and Operation of Fabrication Facility" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." 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.
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,
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<PAGE> 33
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
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 other markets. For example, the
Company has applied its RF power amplifier design expertise to develop high
performance power line amplifiers for the cable television ("CATV") market and
markets various GaAs HBT and MESFET components for satellite and microwave
communications applications. In addition, certain of its
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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> 36
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 March 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 reading
- 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 antenna 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 form 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> 38
CUSTOMERS
The following table identifies, by market, customers of the Company that
have generated revenues for the Company of greater than $50,000 during fiscal
1997. 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 Phones Ltd. Motorola, Inc.
QUALCOMM Incorporated NEC Corporation
Samsung Electronics Co., Ltd. Powerwave Technologies, Inc.
SCI Systems, Inc.
WIRELESS DATA Spectrian Corp.
- ---------------
AT&T Corp
International Business Machines Corporation
Metricom, Inc.
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)
Northern Telecom Limited (WLL handsets)
Sensus Technologies, Inc. (wireless meter
reading)
Shure Brothers, Inc. (wireless microphones)
Telrad Telecommunication and Electronic
Ind. Ltd.
(WLL handsets)
Viewsonics, Inc. (CATV)
</TABLE>
For the year ended March 31, 1997, sales to QUALCOMM and Samsung were
approximately $9.3 million and $6.7 million, respectively, representing
approximately 32.1% and 23.4%, 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 certain components and to look to
other sources for other components to replace all products 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 expects to be a leading supplier of GaAs HBT RFICs based on sales after
giving effect to the expected loss of sales to QUALCOMM. For information with
respect to export sales by geographic area, see Note 2 of Notes to Financial
Statements.
The Company, TRW and Nokia have agreed in principle to cooperate to develop
and supply Nokia with RFICs that are manufactured using TRW's GaAs HBT
processes. 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
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<PAGE> 39
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."
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 outsources all stages of production.
The Company uses independent foundries located in the United States to
manufacture its products. The Company uses two independent foundries to supply
its silicon-based product requirements and two independent foundries to supply
its GaAs MESFET devices. The Company purchases all GaAs HBT wafers from TRW. See
"-- Strategic Relationship with TRW." Although TRW 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 products and is constructing a
fabrication facility at which it plans to fabricate such products. 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 specified commercial production yields are attained, which is
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
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<PAGE> 40
"Risk Factors -- Construction and Operation of Fabrication Facility,"
"-- Adoption of GaAs HBT Components," "-- Need for Additional Capital" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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 -- Variability of Operating
Results; Dependence on a Limited Number of Customers; GaAs HBT Capacity
Constraints" and "-- 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, which means
that their operations have in each case been determined by independent examiners
to comply with certain internationally developed quality control standards. 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 which generally are more brittle than
silicon-based products and therefore more susceptible to breakage. 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 by TRW in
RFMD, 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 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
36
<PAGE> 41
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 has 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 are granted
without representation or warranty as to validity or noninfringement and may be
terminated by TRW if the Company's wafer fabrication facility is not operational
by December 31, 1998. In addition, upon any termination of the License Agreement
for default, whether due to the default of the Company or otherwise, the
Company's rights to TRW's technologies shall cease. 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, which quantities decline
significantly from current levels beginning in 1999. The Company currently is
purchasing from TRW a number of wafers that approximates the minimum number of
wafers required to be delivered by TRW to the Company under the Supply
Agreement. However, the Company believes that in future periods it may purchase
from TRW a quantity of wafers in excess of the minimum quantity of wafers
required to be supplied by TRW under such contract. See "Risk
Factors -- Dependence on TRW" and "Certain Transactions -- TRW -- Supply
Agreement."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused primarily on the
development of new integrated circuit products. At March 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 1995, 1996 and 1997, the Company incurred
approximately $2.8 million, $4.2 million and $6.2 million, respectively, of
research and development expenses. 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 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
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<PAGE> 42
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 to protect its
proprietary technology under U.S. and foreign laws affording protection for
trade secrets and for integrated circuit designs. The Company owns one U.S.
patent and has one pending U.S. patent application. The U.S. patent was issued
on March 4, 1997 and will expire in 2015.
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 types 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 wireless 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 March 31, 1997, the Company's backlog was approximately $19.2 million.
At March 31, 1996, the Company's backlog was approximately $15.0 million.
Purchase orders from QUALCOMM represented approximately $1.5 million and $3.8
million of the Company's backlog at March 31, 1997 and March 31, 1996,
respectively. 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.
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<PAGE> 43
EMPLOYEES
At March 31, 1997, the Company had 131 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. See "Risk Factors -- Management
of Growth" and "-- Dependence Upon Key Personnel."
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 finance a portion of the cost of constructing the first phase
of this facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." 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 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.
If, and at such time as, the Company's planned wafer fabrication facility
becomes operational, the Company will be subject to a variety of extensive and
changing federal, state and local governmental laws, regulations and ordinances
related to the use, storage, discharge and disposal of toxic, volatile or
otherwise hazardous chemicals used in the RFIC manufacturing process. Any
failure to comply with such requirements then in effect or subsequently adopted
could result in the imposition of fines on the Company, the suspension of
production or a cessation of operations. In addition, such requirements could
restrict the Company's ability to expand its facilities or require the Company
to acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up discharges. The Company 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.
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<PAGE> 44
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................ 36 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 May 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
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<PAGE> 45
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 Executive Vice President of Allen Telecom Inc. ("Allen
Telecom") (formerly The Allen Group Inc.), a telecommunications company based in
Cleveland, Ohio, since February 1997. He was Vice President of Allen Telecom
from February 1993 to February 1997, and President and Chief Executive Officer
of Allen Telecom Group, Inc., a wholly owned subsidiary of Allen Telecom that
has since been merged into Allen Telecom, from August 1992 to February 1997.
From June 1990 to August 1992, he was President of The Antenna Specialists
Company, a manufacturer of mobile telecommunications antennae 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 16
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 seven
to nine members, as 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.
The Company, Messrs. Pratt, Seymour and Neal (the "Management
Shareholders"), certain affiliates of the Management Shareholders who hold
shares of Common Stock and all of the current holders of Preferred Stock (the
"Investor Shareholders") are parties to a shareholders' agreement dated June 6,
1996 (the "Shareholders' Agreement"). The Shareholders' Agreement provides that
the Board of Directors shall consist of nine members, and that the Management
Shareholders and their affiliates and the Investor Shareholders will vote their
shares in order to elect to the Board of Directors the following: (i) the chief
executive officer of the Company; (ii) three members designated by the Investor
Shareholders, each of whom must be an employee, officer or partner of an
Investor Shareholder, (iii) one member designated by TRW; (iv) one member
designated by the Management Shareholders, who must be a Management Shareholder;
(v) two members designated by the Investor Shareholders, who may not otherwise
be affiliated with the Investor Shareholders; and (vi) one member designated by
the Management Shareholders, who may not otherwise be affiliated with the
Company. The Shareholders' Agreement will terminate upon the completion of this
offering.
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, employee, 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
41
<PAGE> 46
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 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. During the fiscal year ended March 31, 1996, Mr.
Pratt served on the Compensation Committee. Mr. Pratt has been Chairman and
Chief Technical Officer of the Company since September 1992. Mr. van der Kaay
also served on the Compensation Committee during such fiscal year. Mr. van der
Kaay is Executive Vice President of Allen Telecom, from which the Company
obtained a total of $1.5 million in bridge financing in 1995. 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 or she 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.
The Company has adopted 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 upon the anniversary of his or her initial grant so long as he or
she remains a member of the Board of Directors. See "-- Stock Option
Plans -- Directors' Option Plan."
42
<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during the Company's fiscal year ended March 31, 1997 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(1) (NO. OF SHARES)
--------------------------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
David A. Norbury................................ 1997 $164,615 $64,000 50,000
Chief Executive Officer and President
William J. Pratt................................ 1997 $148,558 $49,350 50,000
Chairman and Chief Technical Officer
Jerry D. Neal................................... 1997 $125,016 $36,000 30,000
Vice President of Sales and Marketing
Powell T. Seymour............................... 1997 $104,616 $30,000 20,000
Vice President of Operations and Secretary
William A. Priddy, Jr........................... 1997 $ 81,154 $22,500 27,000
Vice President of Finance and Treasurer
</TABLE>
- ---------------
(1)The Compensation Committee has adopted a discretionary bonus program pursuant
to which bonuses may be awarded to officers of the Company from time to time
in amounts reflecting the Compensation Committee's subjective evaluation of
such officers' contributions to the Company.
43
<PAGE> 48
OPTION GRANTS DURING FISCAL 1997
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the year ended March
31, 1997.
<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(1)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME GRANTED FISCAL 1997 SHARE DATE 5% 10%
- ---- ---------- ---------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Norbury........... 50,000(2) 10.8% $6.50 12/3/06 $204,390 $517,965
Chief Executive
Officer and President
William J. Pratt........... 50,000(2) 10.8% $6.50 12/3/06 204,390 517,965
Chairman and Chief
Technical Officer
Powell T. Seymour.......... 20,000(2) 4.3% $6.50 12/3/06 81,756 207,186
Vice President of
Operations and Secretary
Jerry D. Neal.............. 30,000(2) 6.5% $6.50 12/3/06 122,634 310,779
Vice President
of Sales and Marketing
William A. Priddy, Jr...... 27,000(2) 5.9% $6.50 12/3/06 110,371 279,702
Vice President of
Finance and Treasurer
</TABLE>
- ---------------
(1) 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 (the "Commission") and do not represent the Company's estimate
or projection of the future Common Stock price.
(2) Such options vest and become exercisable in five equal installments on the
first five anniversaries of the date of grant.
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 Internal
Revenue Code of 1986, as amended (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
44
<PAGE> 49
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. Shares issued upon the exercise
of options granted under the 1992 Option Plan are subject to repurchase by the
Company at fair market value, at the Company's option, upon the death,
disability or other termination of the optionholder's employment with the
Company.
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 or 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 March 31, 1997, the Company had granted options to employees
(including certain officers; see "-- Option Grants During Fiscal 1996" and
"Principal and Selling Shareholders") for 1,065,116 shares of Common Stock under
the 1992 Option Plan, of which options for 18,080 shares have been exercised and
options for 15,700 shares have been forfeited. The exercise prices of
outstanding options granted under the 1992 Option Plan range from $0.15 to $9.00
per share, with a weighted average of $2.09 per share. 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
The Company has adopted the 1997 Key Employees' Stock Option Plan (the
"1997 Option Plan"), which provides for the grant of options to purchase Common
Stock to key employees and independent contractors in the service of the
Company. The 1997 Option Plan permits 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 may not exceed
1,300,000 shares, subject to adjustment in the event of certain events affecting
the Company's capitalization.
The 1997 Option Plan is administered by the Compensation Committee of the
Board of Directors (see "-- Board Committees"), which is 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
45
<PAGE> 50
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 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.
Directors' Option Plan
The Company has adopted the Directors' Option Plan, the purpose of which is
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 are
entitled to receive options to acquire shares of Common Stock in accordance with
the terms of the plan. An aggregate of 200,000 shares of Common Stock have been
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 eligible to participate in the Directors' Option
Plan.
The Directors' Option Plan is administered by the Compensation Committee of
the Board of Directors. Subject to the provisions of the plan, the Compensation
Committee has 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 has any discretion with respect to the granting of options pursuant
to the plan.
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.
46
<PAGE> 51
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
The Company has adopted the Employee Stock Purchase Plan (the "Stock
Purchase Plan"), which is 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, may participate in the Stock
Purchase Plan. Directors who are not employees will not be eligible. An
aggregate of 500,000 shares of Common Stock have been reserved for offering
under the Stock Purchase Plan and are 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 makes no cash contributions to the Stock Purchase Plan, but
bears the expenses of its administration. The Stock Purchase Plan is
administered by the Compensation Committee, which has 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.
47
<PAGE> 52
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 the License Agreement, and the
TRW Convertible Note and the TRW Warrant, which 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 Preferred 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 classes 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 Executive Vice
President of Allen Telecom, and Messrs. Paul, Colburn and Youdelman are
President and Chief Executive Officer, Chairman of the Board of Directors
and Executive Vice President and Chief Financial Officer, respectively, of
Allen Telecom.
(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 Partners Limited Partnership, which is a general
partner of Kitty Hawk Capital Limited Partnership II.
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
48
<PAGE> 53
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 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 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 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 has 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 has granted to David
A. 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
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
49
<PAGE> 54
respect to the Common Stock. 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.
Under the terms of the TRW Convertible Note, the Company is prohibited from
authorizing, declaring or paying any dividends until the Company's wafer
fabrication facility becomes operational. The Company is also prohibited from
incurring debt in excess of $25 million, other than debt incurred for the
construction and operation of the wafer fabrication facility.
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 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. If the initial public offering price of
shares of Common Stock in this offering is $12.00 per share or more, the TRW
Convertible Note will automatically be converted into 1,111,111 shares of Common
Stock immediately prior to the closing of this offering. If such price is less
than $12.00 per share, however, there will be no mandatory conversion, and the
TRW Convertible Note will continue to represent debt of the Company, unless
converted at the option of TRW.
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 full, 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.
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 wafer
starting material until December 31, 2000. See "Risk Factors -- Dependence on
TRW" and "Business -- Strategic Relationship with TRW."
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<PAGE> 55
Standstill Agreement
TRW has agreed with the Company and the current holders of 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; and (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 a subsidiary of 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
Executive Vice President. 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 such
subsidiary 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 such subsidiary 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 the
Allen Telecom subsidiary, which shares are now owned directly by 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 current holders of 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."
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<PAGE> 56
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Common Stock as of March 31, 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 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 37.4 -- 4,621,487 31.1
Robert G. Paul(2).............................. 1,046,562 8.4 -- 1,046,562 7.0
Allen Telecom(3)............................... 1,021,224 8.2 -- 1,021,224 6.8
Advanced Technology Ventures III, L.P.(4)...... 943,313 7.6 -- 943,313 6.4
Dr. Albert E. Paladino(5)...................... 943,313 7.6 -- 943,313 6.4
Brantley Ventures Partners II, L.P.(6)......... 908,449 7.4 -- 908,449 6.1
Norwest Equity Partners IV(7).................. 760,136 6.2 -- 760,136 5.1
Norwest Equity Partners V(8)................... 760,136 6.2 -- 760,136 5.1
Kitty Hawk Capital Limited Partnership II(9)... 755,293 6.1 -- 755,293 5.1
Walter H. Wilkinson, Jr.(10)................... 755,293 6.1 -- 755,293 5.1
NationsBanc Capital Corporation(11)............ 744,048 6.0 -- 744,048 5.0
William J. Pratt(12)........................... 384,206 3.1 20,000 364,206 2.5
Powell T. Seymour(13).......................... 146,531 1.2 7,000 139,531 *
Jerry D. Neal(14).............................. 101,088 * 10,000 91,088 *
David A. Norbury(15)........................... 81,399 * -- 81,399 *
William A. Priddy, Jr.(16)..................... 24,836 * -- 24,836 *
Erik H. van der Kaay(17)....................... 12,669 * -- 12,669 *
Directors and executive officers as a group (11
persons)(18)................................. 2,449,335 19.6 37,000 2,412,335 16.1
</TABLE>
- ---------------
* Indicates less than one percent
(1) Includes (i) 1,111,111 shares of Common Stock issuable upon the conversion
of the TRW Convertible Note 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. Ms.
Zinkiewicz does not hold any voting or investment power over such shares.
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 Allen Telecom. Mr. Paul
disclaims beneficial ownership of such shares.
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<PAGE> 57
(3) 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
Executive Vice President 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 Allen Telecom, (iii) 25,338 shares of Common
Stock held by Phillip W. Colburn, who is Chairman of the Board of Directors
of Allen Telecom, and (iv) 12,609 shares of Common Stock held by Robert A.
Youdelman, who is Executive Vice President and Chief Financial Officer of
Allen Telecom. The address of Allen Telecom is 25101 Chagrin Boulevard,
Beachwood, Ohio 44122.
(4) The address of Advanced Technology Ventures III, L.P. is 281 Winter Street,
Waltham, Massachusetts 02154.
(5) 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 shares voting and
investment power over such shares with Jos C. Henkens and Pieter J.
Schiller, each of whom is also a general partner of ATV Associates III,
L.P. Dr. Paladino disclaims beneficial ownership of such shares.
(6) The address of Brantley Ventures Partners II, L.P. ("Brantley") is Suite
1150, Tower East, 20600 Chagrin Boulevard, Cleveland, Ohio 44122. The
Company has been advised by Brantley that any general partner of Brantley
has voting and investment power over all shares of Common Stock of the
Company held by Brantley. None of the general partners of Brantley is
affiliated with the Company.
(7) 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. Mr. Fleming no longer holds any voting or investment power over such
shares. The address of Norwest Equity Partners IV is Wellesley Office Park,
40 William Street, Suite 305, Wellesley, Massachusetts 02181.
(8) 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. Mr. Fleming no longer holds any voting or investment power over
such shares. The address of Norwest Equity Partners V is Wellesley Office
Park, 40 William Street, Suite 305, Wellesley, Massachusetts 02181.
(9) The address of Kitty Hawk Capital Limited Partnership II is Suite 202, 2700
Coltsgate Road, Charlotte, North Carolina 28211.
(10) 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 Partners Limited Partnership, which is a
general partner of Kitty Hawk Capital Limited Partnership II. Mr. Wilkinson
shares voting and investment power over such shares with W. Chris Hegele,
who is also a general partner of Kitty Hawk Partners Limited Partnership.
(11) The address of NationsBanc Capital Corporation is 901 Main Street, 66th
Floor, Dallas, Texas 75202.
(12) 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."
(13) 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.
(14) 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
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<PAGE> 58
2,500 shares of Common Stock held by each of Jerry D. Neal, II, James A.
Pendergrass, Judith M. Neal and Annette L. Neal-Smith, who are children of
Mr. Neal.
(15) 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."
(16) 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."
(17) Does not include 1,021,224 shares of Common Stock held by Allen Telecom, of
which Mr. van der Kaay is Executive Vice President. Mr. van der Kaay does
not hold any voting or investment power over such shares.
(18) Includes (i) 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; (ii) 755,293 shares of Common Stock held by Kitty Hawk
Capital Limited Partnership II, of which Mr. Wilkinson is a general partner
of the general partner; and (iii) 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."
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon completion of this 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 13,740,330 shares of Common Stock
and no shares of Preferred Stock will be issued and outstanding. Upon completion
of this offering, and assuming no conversion of the TRW Convertible Note and no
exercise of outstanding options or warrants, the Company will have 3,287,478
shares of Common Stock reserved for issuance pursuant to the TRW Convertible
Note and outstanding options and warrants, including a warrant that the Company
may issue in the event certain financing is provided. 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. As of March 31, 1997, there were 14 record holders
of Common Stock.
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 classes or
series within a class 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 class or series, may fix the designation, powers, preferences and rights of
the shares of each such class or series and any qualifications, limitations or
restrictions thereof, and may increase or decrease the number of shares of any
such class or 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.
As of March 31, 1997, the Company had 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 outstanding
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.
TRW CONVERTIBLE NOTE AND WARRANTS
The Company has outstanding the TRW Convertible Note, under which it has
borrowed $10 million from TRW, and the related Deficit Warrant. The TRW
Convertible Note and the Deficit Warrant may be converted or exercised at TRW's
option at any time before December 31, 1998 into up to an aggregate of 1,111,111
shares of Common Stock at a price of $9.00 per share, and must be converted in
the event of a public offering meeting certain criteria, at which time the
Deficit Warrant would expire without having been exercised. In the absence of a
mandatory conversion of the TRW Convertible Note, the Deficit Warrant will
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<PAGE> 60
expire on December 31, 1998. See "Certain Transactions -- TRW -- TRW Convertible
Note." The Company also 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 (i) upon the earlier of (a) the
second anniversary of the date it becomes exercisable or (b) 90 days after the
Common Stock has traded for at least 20 consecutive trading days at a price
greater than $12.00 per share or (ii) if the Company's wafer fabrication
facility does not become operational by December 31, 1998 or such other date as
may be agreed upon. See "Certain Transactions -- TRW -- TRW Warrant." 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 per share 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 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.
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 that 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
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<PAGE> 61
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 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.
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<PAGE> 62
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.
LISTING
The Common Stock has been approved for quotation 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 13,740,330 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option, no exercise of outstanding options and
warrants to purchase Common Stock and no conversion of the TRW Convertible Note.
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 6,804,354 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) 8,519,400 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." In
addition, 1,111,111 shares of Common Stock issuable to TRW upon conversion of
the TRW Convertible Note will be eligible for immediate sale 180 days after the
date of this Prospectus upon expiration of a lock-up agreement executed by TRW.
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 one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any
58
<PAGE> 63
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 137,403 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. 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 two 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. 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 were or 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 March 31, 1997, options to purchase 1,031,336
shares of Common Stock were issued and outstanding under the 1992 Option Plan
and options covering 18,080 shares of Common Stock had been exercised. See
"Management -- Compensation of Directors" and "-- Stock Option Plans."
59
<PAGE> 64
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 380,550 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,537,000 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.
60
<PAGE> 65
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 employees and 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 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, and 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. A stabilizing bid means the placing of
any bid or the effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. 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.
61
<PAGE> 66
EXPERTS
The Financial Statements of the Company as of and for the fiscal years
ended March 31, 1995, 1996 and 1997 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 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.
62
<PAGE> 67
RF MICRO DEVICES, INC.
AUDITED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, MARCH 31, 1996 AND MARCH 31, 1997
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> 68
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, 1996 and 1997 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, 1997. 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, 1996 and 1997 and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
April 18, 1997
F-2
<PAGE> 69
RF MICRO DEVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, SHAREHOLDERS' EQUITY
------------------- MARCH 31, 1997
1996 1997 (NOTE 2)
-------- -------- ----------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 6,638 $ 2,330
Accounts receivable, less allowance for doubtful
accounts of $489 and $510 at March 31, 1996 and
1997.............................................. 2,299 2,401
Inventories (Note 3)................................. 3,014 9,216
Other current assets................................. 32 17
-------- --------
Total current assets......................... 11,983 13,964
Property and equipment (Note 4):
Machinery and equipment.............................. 1,193 2,999
Furniture, fixtures and improvements................. 139 692
Computer equipment and software...................... 314 805
-------- --------
1,646 4,496
Less accumulated depreciation........................ (537) (1,041)
-------- --------
1,109 3,455
Construction in progress............................. -- 2,771
-------- --------
1,109 6,226
Cash restricted for capital additions.................. -- 12,358
Other assets........................................... 100 515
Technology license (Note 13)........................... -- 3,202
-------- --------
Total assets................................. $ 13,192 $ 36,265
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable..................................... $ 3,276 $ 5,108
Accrued liabilities.................................. 302 699
Income tax payable................................... -- 49
Line of credit (Note 5).............................. 350 350
Current maturities of long-term debt (Note 5)........ 81 178
Current obligations under capital leases (Note 4).... 62 267
-------- --------
Total current liabilities.................... 4,071 6,651
Long-term debt, less current maturities (Note 5)....... 77 117
Obligations under capital leases, less current
maturities (Note 4).................................. 76 411
Note and accrued interest payable to shareholder (Note
6)................................................... -- 10,301
-------- --------
4,224 17,480
Redeemable convertible preferred stock (Note 9)........ 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; 50,000,000 shares
authorized, 3,286,010 shares issued and
outstanding, 11,240,330 issued and outstanding pro
forma............................................. 8 2,960 $ 31,217
Additional paid-in capital........................... -- 550 550
Deferred compensation................................ -- (269) (269)
Accumulated deficit.................................. (14,365) (12,713) (12,713)
-------- -------- --------
Total shareholders' (deficiency) equity...... (14,357) (9,472) $ 18,785
-------- -------- ========
Total liabilities and shareholders'
(deficiency) equity........................ $ 13,192 $ 36,265
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 70
RF MICRO DEVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product sales............................................ $ 1,254 $ 8,212 $27,852
Engineering revenue...................................... 434 1,303 950
-------- -------- --------
Total revenue 1,688 9,515 28,802
Costs and expenses:
Cost of goods sold....................................... 1,215 7,471 15,826
Research and development................................. 2,836 4,245 6,178
Marketing and selling.................................... 1,180 1,817 3,760
General and administrative............................... 620 1,226 1,391
-------- -------- --------
Total costs and expenses 5,851 14,759 27,155
-------- -------- --------
(Loss) income from operations.............................. (4,163) (5,244) 1,647
Interest expense........................................... (27) (81) (399)
Interest income............................................ 68 137 513
-------- -------- --------
(Loss) income before income taxes.......................... (4,122) (5,188) 1,761
Income tax expense......................................... -- -- (109)
-------- -------- --------
Net (loss) income.......................................... $(4,122) $(5,188) $1,652
======== ======== ========
Pro forma income per share................................. $ 0.14
========
Weighted average number of shares used in pro forma per
share calculations....................................... 12,049,207
==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 71
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, 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 31, 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 year ended
March 31, 1997................. -- -- -- -- --
------ ------ ------ ------- -------
Balance, March 31, 1997............ $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, 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 31, 1996............ 8 -- -- (14,365) (14,357)
Issuance of common stock......... 2,952 -- -- -- 2,952
Issuance of warrant.............. -- 250 -- -- 250
Issuance of Class C preferred
stock.......................... -- -- -- -- --
Deferred compensation related to
grant of stock options......... -- 300 (300) -- --
Amortization of deferred
compensation................... -- -- 31 -- 31
Net income for the year ended
March 31, 1997................. -- -- -- 1,652 1,652
------ ---- ----- -------- --------
Balance, March 31, 1997............ $2,960 $550 $(269) $(12,713) $ (9,472)
====== ==== ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 72
RF MICRO DEVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income........................................... $(4,122) $(5,188) $ 1,652
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Depreciation........................................... 139 245 502
Accrued interest converted to preferred stock.......... -- 31 --
Amortization of deferred compensation.................. -- -- 31
Changes in operating assets and liabilities:
Accounts receivable............................... (56) (1,947) (102)
Inventories....................................... (801) (1,781) (6,202)
Other assets...................................... -- (125) (400)
Accounts payable.................................. 446 2,525 1,832
Accrued liabilities............................... 56 48 698
Income tax payable................................ -- -- 49
Deferred revenue.................................. -- -- --
------- ------- --------
Net cash used in operating activities....................... (4,338) (6,192) (1,940)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (225) (686) (4,793)
------- ------- --------
Net cash used in investing activities....................... (225) (686) (4,793)
FINANCING ACTIVITIES
Proceeds from bridge financing.............................. -- 1,500 --
Repayment of capital lease obligations...................... (114) (109) (286)
Proceeds from issuance of redeemable preferred stock........ 3,500 9,469 4,932
(Decrease) increase in line of credit....................... (15) 350 --
Proceeds from note payable to shareholder................... -- -- 10,000
Increase in long-term debt.................................. 74 128 273
Increase in cash restricted for capital additions........... -- -- (12,358)
Principal payments on long-term debt........................ -- (45) (136)
------- ------- --------
Net cash provided by financing activities................... 3,445 11,293 2,425
------- ------- --------
Net (decrease) increase in cash............................. (1,118) 4,415 (4,308)
Cash and cash equivalents at beginning of period............ 3,341 2,223 6,638
------- ------- --------
Cash and cash equivalents at end of period.................. $ 2,223 $ 6,638 $ 2,330
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 27 $ 81 $ 134
======= ======= ========
Cash paid during the period for income taxes................ $ -- $ -- $ 60
======= ======= ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for new equipment........ $ -- $ 139 $ 826
Conversion of bridge financing notes payable to preferred
stock..................................................... $ -- $ 1,500 $ --
Issuance of common stock and warrant in consideration for
technology license........................................ $ -- $ -- $ 3,202
</TABLE>
See accompanying notes.
F-6
<PAGE> 73
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 operating at commercial levels in the
second half of 1998. Until then, the Company will purchase all or substantially
all of its GaAs HBT parts 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, ranging from 5 to 7 years, of the related assets.
Inventories
Inventories are stated at the lower of cost or market determined using the
average cost method. The Company's business is subject to the risk of
technological and design changes. The Company provides for potentially obsolete
or slow moving inventory based on management's analysis of inventory levels and
future sales forecasts at the end of each accounting period.
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 1, 1995, March
30, 1996 and March 29, 1997 were 52 week years. For purposes of financial
statement presentation, each fiscal year is described as having ended on March
31.
F-7
<PAGE> 74
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue from product sales is 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 which 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 on the assumption that the Company will become
a public entity and the conditions for conversion, as described in Note 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 85% of the Company's total revenue for 1997. 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 15%, 31% and 32% of the Company's
revenue for the years ended March 31, 1995, 1996 and 1997. Continuation of
capacity limitations may cause existing or potential customers to develop other
sources of supply.
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> 75
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. Revenues from significant customers, those
representing 10% or more of total sales for the respective periods, are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer 1.............................................. 12% -- --
Customer 2.............................................. -- 12% --
Customer 3.............................................. 11% -- --
Customer 4.............................................. 15% 31% 32%
Customer 5.............................................. -- -- 23%
</TABLE>
Additionally, 17%, 34% and 23% of the Company's accounts receivable were
due from such customers at March 31, 1995, 1996 and 1997, respectively.
Sales to customers by geographic area are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
USA..................................................... 73% 76% 58%
Asia.................................................... 15% 12% 33%
Canada.................................................. 8% 10% 2%
Europe.................................................. 4% 2% 7%
</TABLE>
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 costs 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.
F-9
<PAGE> 76
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1997 (see Note 10).
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The Company's adoption of SFAS
121 during 1997 did not have a material effect on the Company's financial
statements.
3. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
------ -------
<S> <C> <C>
Raw materials........................................... $1,118 $ 2,937
Work in process......................................... 782 2,830
Finished goods.......................................... 1,195 4,296
------ -------
3,095 10,063
Inventory allowances.................................... (81) (847)
------ -------
Total inventory............................... $3,014 $ 9,216
====== =======
</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 (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------
1996 1997
----- -----
<S> <C> <C>
Machinery and equipment................................... $ 460 $ 763
Accumulated amortization.................................. (216) (375)
----- -----
$ 244 $ 388
===== =====
</TABLE>
Capital lease amortization totaling approximately $66,000, $77,000 and
$159,000 is included in depreciation expense for the years ended March 31, 1995,
1996 and 1997.
F-10
<PAGE> 77
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under capital and operating leases as of
March 31, 1997 are (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $ 314 $1,009
1998........................................................ 314 838
1999........................................................ 170 590
2000........................................................ -- 258
2001........................................................ -- 258
Thereafter.................................................. -- 451
----- ------
Total minimum payments...................................... 798 $3,404
======
Less interest............................................... (120)
-----
Present value of net minimum payments....................... 678
Less current portion........................................ (267)
-----
Long-term portion........................................... $ 411
=====
</TABLE>
Rent expense under operating leases, including building and equipment was
approximately $167,000, $255,000 and $660,000 for the years ended March 31,
1995, 1996 and 1997.
5. LINES OF CREDIT AND LONG-TERM DEBT
During 1997, 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 $7 million. The line commitment expires on December 19, 1997 at which time
the balance is due and payable. At March 31, 1996 and 1997, the outstanding
balance was $350,000. This line bears interest at the prime rate plus 0.75%
(9.00% at March 31, 1996 and 9.25% at March 31, 1997) and is collateralized by
all the Company's assets. The effective interest rate on outstanding borrowings
under the line of credit for the year ended March 31, 1996 and 1997 was
approximately 8.90% and 9.15%, respectively. 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 1997, the Company increased its equipment line of credit to $2
million. 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, 1996 and
1997, the outstanding balance on the equipment line notes was approximately
$158,000 and $295,000. These borrowings bear interest at the prime rate plus
1.50% (10.50% at March 31, 1996 and 11% at March 31, 1997) and are
collateralized by all the Company's assets. The effective interest rate on these
term loans for the year ended March 31, 1996 and 1997 was approximately 10.25%
and 10.65%, respectively.
Future year maturities under the equipment term loans at March 31, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $178
1999........................................................ 117
----
$295
====
</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
F-11
<PAGE> 78
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and accrued interest is payable in full on June 6, 2003. The Company incurred
interest expense of approximately $301,000 related to this note during 1997, of
which approximately $40,000 has been capitalized. 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 post-IPO market capitalization 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 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 common 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.
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 (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1997
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Accumulated depreciation.................................... $ 81 $ 110
DEFERRED TAX ASSETS:
Net operating loss carryforwards............................ 3,599 1,274
Research and experimental credit carryforwards.............. 660 741
Research and development costs.............................. 1,451 2,629
Allowance for bad debts..................................... 191 200
Software costs.............................................. -- 109
Warranty reserve............................................ -- 53
Inventory valuation......................................... -- 331
Alternative minimum tax credit carryforwards................ -- 109
Other....................................................... 91 73
------- -------
Total deferred tax assets.............................. 5,992 5,519
Deferred tax asset valuation allowance...................... (5,911) (5,409)
------- -------
Net deferred tax assets................................ 81 110
------- -------
Net deferred taxes..................................... $ -- $ --
======= =======
</TABLE>
F-12
<PAGE> 79
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 March 31, 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT %
------ ---
<S> <C> <C>
Income tax expense at statutory federal rate................ $ 614 35%
Increase (decrease) resulting from:
Utilization of loss carryforwards......................... (614) (35)
Alternative minimum tax................................... 109 6
------ ---
$ 109 6%
====== ===
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards and
research and experimental credit carryforwards of approximately $3,258,000 and
$741,000, 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, 1995, 1996 or 1997.
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 million at a price per share which
implies a post-IPO market capitalization of the Company of at least $75 million,
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.
F-13
<PAGE> 80
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. 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. 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 1997.
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, 1997: risk-free interest rate of 6%, no
expected dividends, a volatility factor of .70 and a weighted average expected
life of the options of 5 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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
--------------------------
<S> <C>
Pro forma net (loss) income............................... $1,614,684
Pro forma earnings per share.............................. $ 0.13
</TABLE>
F-14
<PAGE> 81
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS TO PURCHASE SHARES
------------------------------------------- OPTION PRICE
AVAILABLE OPTIONS PER SHARE ------------
FOR GRANT OUTSTANDING RANGE TOTAL
--------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
March 31, 1994................. 203,855 273,645 $ 0.15 - $0.275 $ 41,746
Reserved..................... 175,000 -- -- --
Granted...................... (67,771) 67,771 $ $0.275 18,637
Exercised.................... -- -- -- --
Canceled..................... -- -- -- --
Expired...................... -- -- -- --
March 31, 1995................. 311,084 341,416 $ 0.15 - $0.275 60,383
Reserved..................... -- -- -- --
Granted...................... (255,040) 255,040 $ 0.275 - $0.91 160,675
Exercised.................... -- -- -- --
Canceled..................... 2,250 (2,250) $ 0.15 - $0.275 (525)
Expired...................... -- -- -- --
March 31, 1996................. 58,294 594,206 $ 0.15 - $0.91 220,533
Reserved..................... 773,500 -- -- --
Granted...................... (463,060) 463,060 $ 0.91 - $9.00 1,944,852
Exercised.................... -- (18,080) $ 0.15 - $0.275 (2,839)
Canceled..................... 7,850 (7,850) $ 0.15 - $0.91 (2,370)
Expired...................... -- -- -- --
--------- --------- --------------- ----------
March 31, 1997................. 376,584 1,031,336 $ 0.15 - $9.00 $2,160,176
========= ========= =============== ==========
</TABLE>
Exercise prices for options outstanding as of March 31, 1997, ranged from
$.15 to $9.00. The weighted average remaining contractual life of outstanding
options is 8.47 years. The weighted average exercise price of outstanding
options at March 31, 1997 is $2.09. At March 31, 1997, 1996 and 1995, options to
purchase 103,125, 163,105 and 268,013 shares of common stock were exercisable,
respectively.
The following table summarizes in more detail information regarding the
Company's stock options outstanding at March 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS REMAINING OPTIONS
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------- ----------- ---------------- -----------
<C> <C> <C> <C>
$0.15 249,465 5.63 years 188,997
0.275 178,811 7.92 years 51,016
0.91 183,000 8.83 years 28,000
1.20 169,000 9.45 years --
6.50 222,500 9.69 years --
9.00 28,560 9.86 years --
--------- -------
1,031,336 268,013
========= =======
</TABLE>
11. COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At March 31, 1997, the Company had reserved a total of 11,622,942 of its
authorized 50,000,000 shares of common stock for future issuance as follows:
<TABLE>
<S> <C>
Outstanding stock options................................... 1,031,336
Possible future issuance under stock option plan............ 376,584
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....................................... 11,622,942
==========
</TABLE>
F-15
<PAGE> 82
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME (LOSS) PER SHARE OF COMMON STOCK
Pro forma income (loss) per share of common stock and historical income
(loss) per share of common stock computed in accordance with APB No. 15 and
presented below are computed using the weighted average number of shares of
common stock and the dilutive effect of 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 (cheap
stock), have been included in the pro forma and historical calculations as if
they were outstanding for all periods presented (using the treasury stock method
and the estimated initial public offering price).
Historical (loss) income per share amounts, computed in accordance with APB
No. 15, were $(0.94), $(1.19) and $0.14 for 1995, 1996 and 1997, respectively.
Fully diluted income (loss) per share amounts are not shown as the effect is
anti-dilutive.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
which requires public companies to report basic and diluted earnings (loss) per
share using the calculation methodologies set forth in the statement. The
statement is effective for years ending after December 15, 1997; thus, this
pronouncement will be adopted by the Company for the fiscal year ending March
31, 1998. Application of this pronouncement to the calculation of pro forma
income per share for the year ended March 31, 1997, and continuing the
application of the cheap stock provisions discussed in the preceding paragraph,
would not have changed the pro forma income per share.
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 the license and the
Company correspondingly has the right to redeem as much as one-half of the TRW
shares for a nominal amount. 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 generally accepted accounting principles, following
the date on which the Company's wafer fabrication facility becomes operational:
during the first year, $30 million; during the second year, $65 million; and
during the third year, $125 million.
F-16
<PAGE> 83
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $10.00 per share. The exercise price is 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 $12.00 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 March 31, 1997, 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 term of this
operating lease is 15 years with the option to renew for two separate 10 year
periods. 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 60 month 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.
The term of these capital leases will be 52 months. In connection with this
financing commitment, the Company has issued a warrant to purchase 41,322 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>
TOTAL COSTS
FINANCED
-------------------------
<S> <C>
Fabrication facility commitment............................. Estimated at $8.5 million
Clean room equipment commitment............................. Up to $2.5 million
Equipment lease commitment.................................. Up to $10.0 million
</TABLE>
F-17
<PAGE> 84
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Estimated minimum future lease payments under the leases are (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1998........................................................ $ 1,698 $ 1,041
1999........................................................ 2,912 1,784
2000........................................................ 2,912 1,784
2001........................................................ 2,912 1,811
2002........................................................ 2,184 1,830
Thereafter.................................................. -- 11,549
------- -------
Total minimum payments...................................... 12,618 $19,799
=======
Less interest............................................... (2,618)
-------
Present value of net minimum payments....................... $10,000
=======
</TABLE>
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. The estimated minimum annual purchases are $20.5 million, $20.5
million, $12.3 million and $8.2 million in calendar years 1997, 1998, 1999 and
2000, respectively.
15. SUBSEQUENT EVENTS
In March 1997, the Company's Board of Directors adopted the following which
were approved by the shareholders in the April 10, 1997 shareholder meeting:
- 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 Nonemployee 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, which 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-18
<PAGE> 85
=======================================================
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........................ 15
Dividend Policy........................ 15
Capitalization......................... 16
Dilution............................... 17
Selected Financial Data................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 26
Management............................. 40
Certain Transactions................... 48
Principal and Selling Shareholders..... 52
Description of Capital Stock........... 55
Shares Eligible for Future Sale........ 58
Underwriting........................... 60
Legal Matters.......................... 61
Experts................................ 62
Additional Information................. 62
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> 86
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> 87
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 May 2, 1992 and March 31, 1997, the Registrant granted options for
the purchase of an aggregate amount of 1,065,116 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 $0.15 per share to
$9.00 per share. On March 24, 1997, the Company issued an aggregate of 17,080
shares of Common Stock to two individuals upon the exercise of options
previously granted to them and in exchange for the cash payment of an aggregate
of $2,687.
II-2
<PAGE> 88
Options covering 1,031,336 shares of Common Stock remained outstanding as of
March 31, 1997. The Registrant granted the options and issued the shares of
Common Stock upon the exercise thereof 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, 1995, and Loan
Modification Agreement, dated December 20, 1996, between RF
Micro Devices, Inc. and Silicon Valley Bank*
The registrant hereby undertakes to furnish to the
Securities and Exchange Commission, upon its request, a copy
of any instrument defining the rights of holders of
long-term debt of the registrant not filed herewith pursuant
to Item 601(b)(4)(iii) of Regulation S-K.
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*
</TABLE>
II-3
<PAGE> 89
<TABLE>
<C> <C> <S>
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*
10.15 -- Master Equipment Lease Agreement, dated as of December 2, 1996, between Finova Technology Finance, Inc.
and RF Micro Devices, Inc.*
11 -- Computation of Pro Forma Net Income Per Share
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 (filed in electronic format only)
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment
+ The registrant has requested that certain portions of this exhibit be given
confidential treatment.
(b) Financial Statement Schedules
The following financial statement schedule is included in Part II of this
Registration Statement:
Schedule II -- Valuation and Qualifying Accounts, Years Ended March 31, 1997,
March 31, 1996 and 1995.
All other 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> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Greensboro, State of North Carolina, on May 2, 1997.
RF MICRO DEVICES, INC.
By: /s/ DAVID A. NORBURY
------------------------------------
David A. Norbury
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons on
May 2, 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> 91
REPORT OF INDEPENDENT AUDITORS
Board of Directors
RF Micro Devices, Inc.
We have audited the financial statements of RF Micro Devices, Inc. as of
March 31, 1996 and 1997, and for each of the three years in the period ended
March 31, 1997, and have issued our report thereon dated April 18, 1997
(included elsewhere in the Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the schedule based on our audits.
In our opinion the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
April 18, 1997
II-6
<PAGE> 92
RF MICRO DEVICES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND DEDUCTIONS BALANCE AT
PERIOD EXPENSES FROM RESERVES END OF PERIOD
------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Allowance for doubtful accounts...... $489,131 $ 21,000 -- $510,131
Inventory allowances................. 80,511 766,345 -- 846,856
Year ended March 31, 1996
Allowance for doubtful accounts...... -- 489,131 -- 489,131
Inventory allowances................. -- 80,511 -- 80,511
Year ended March 31, 1995
Allowance for doubtful accounts...... -- -- -- --
Inventory allowances................. -- -- -- --
</TABLE>
II-7
<PAGE> 1
EXHIBIT 5
[Letterhead of Womble Carlyle Sandridge & Rice, PLLC]
May 2, 1997
RF Micro Devices, Inc.
7625 Thorndike Road
Greensboro, North Carolina 27409-9421
Re: Registration Statement on Form S-1
Relating to 2,917,550 Shares of Common Stock
(File No. 333-22625)
Gentlemen:
We are acting as counsel to RF Micro Devices, Inc. (the "Company") in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of 2,917,550 shares of the Company's common stock, no par value
(the "Common Stock"), consisting of 2,880,550 shares of Common Stock to be sold
by the Company (the "Primary Shares") and 37,000 shares of Common Stock to be
sold by certain shareholders of the Company (the "Secondary Shares"). We have
assisted the Company in the preparation of a Registration Statement on Form S-1
relating to the Primary Shares and the Secondary Shares, filed with the
Securities and Exchange Commission (the "Commission") on February 28, 1997,
Amendment No. 1 thereto, filed with the Commission on April 8, 1997, and
Amendment No. 2 thereto, filed with the Commission on May 2, 1997 (the
"Registration Statement"). We are providing this opinion pursuant to the
requirements of Item 16(a) of Form S-1 and Item 601(b)(5) of Regulation S-K
under the Act.
We have reviewed and are familiar with the Registration Statement, the
records relating to the organization of the Company, including its articles of
incorporation and bylaws and all amendments thereto, and all records of all
proceedings taken by the Board of Directors and shareholders of the Company
pertinent to the rendering of this opinion.
Based on the foregoing, it is our opinion that the Secondary Shares
are, and, when sold as described in the Registration Statement, the Primary
Shares will be, duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the use of our name in the
Registration Statement under the caption "Legal Matters" in the prospectus
included as a part thereof. In giving this consent, we do not admit that we are
within the category of persons whose consent is required by Section 7 of the Act
or other rules and regulations of the Commission thereunder.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE,
A Professional Limited Liability Company
By: /s/ Jeffrey C. Howland
----------------------------------
Jeffrey C. Howland
<PAGE> 1
EXHIBIT 10.9
THE REGISTRANT HAS REQUESTED THAT CERTAIN PORTIONS OF THIS EXHIBIT BE
GIVEN CONFIDENTIAL TREATMENT. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
COMMISSION.
LICENSE AND TECHNICAL ASSISTANCE
AGREEMENT
BY AND BETWEEN
ELECTRONICS SYSTEMS & TECHNOLOGY DIVISION
TRW SPACE & ELECTRONICS GROUP
ONE SPACE PARK
REDONDO BEACH, CALIFORNIA 90278
AND
RF MICRO DEVICES, INC.
7341-D WEST FRIENDLY AVENUE
GREENSBORO, NORTH CAROLINA
<PAGE> 2
LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
THIS AGREEMENT, made and entered into as the 6th day of June, 1996 by
and between the Electronics Systems & Technology Division of TRW Inc., an Ohio
corporation, having offices at One Space Park, Redondo Beach, California 90278
(hereinafter "Licensor") and RF Micro Devices, Inc., a North Carolina
corporation, having offices at 7341-D West Friendly Avenue, Greensboro, North
Carolina 27410 (hereinafter "Licensee").
WHEREAS, Licensor has developed, designed and manufactured certain
kinds of gallium arsenide heterojunction bipolar transistors, and has utilized
molecular beam epitaxy processes in the production of such transistors, and
possesses patents rights and technical information and know-how relating
thereto; and
WHEREAS, Licensee intends to design, manufacture and sell GaAs
heterojunction bipolar transistors and products incorporating such GaAs
heterojunction bipolar transistors and, to that end, desires to obtain from
Licensor certain rights to Licensor's patent rights relating thereto and to
receive technical assistance from Licensor to assist in enabling Licensee to
manufacture such heterojunction bipolar transistors.
THEREFORE, in consideration of the mutual promises herein contained
and the mutual benefits to be derived therefrom, Licensor and Licensee agree as
follows:
ARTICLE 1
DEFINITIONS
The following words and phrases shall have the meanings set forth
below unless the context requires a different meaning:
1.1 AGREEMENT: This Agreement and the following Schedules hereto:
Schedule 1.6 Existing RFMD Products
Schedule 1.7 Existing TRW GaAs HBT Patent Rights
Schedule 1.8 Existing TRW MBE Patent Rights
Schedule 1.13 HBT Technical Information
Schedule 1.18 MBE Technical Information
Schedule 2.8.2 Licensor Contractual Obligations
Schedule 3.1 Technical Assistance
1.2 ASSET SALE: the sale of all or substantially all the assets of
Licensee.
1.3 COMMERCIAL: Involving the transfer or sale of products where
the transaction does not require qualification of the product to relevant
specifications in of mil-m-38510, mil-std-883, mil-i-38534, mil-i-38535 or
similar specifications and subsequent versions issued by any agency of the
United States government.
1.4 COMMERCIAL WIRELESS COMMUNICATION APPLICATIONS: The sale or
transfer to Commercial customers of products that provide, facilitate,
support or are otherwise directly related to one or more aspects of Wireless
Communication .
1.5 EFFECTIVE DATE: June 6, 1996.
1.6 EXISTING RFMD PRODUCTS: The products listed on Schedule 1.6.
1.7 EXISTING TRW GAAS HBT PATENT RIGHTS: Licensor's patents and
patent applications, listed in
<PAGE> 3
Schedule 1.7, and any patent and patent applications filed by Licensor after
the Effective Date to protect inventions relating to GaAs HBTs conceived or
first actually reduced to practice prior to the Effective Date, and any United
States and foreign patents which issue from any continuations,
continuations-in-part, divisionals or substitutions thereof, and all
extensions, reexaminations, renewals and reissues therefrom, and all rights to
bring an action against any person to recover damages or profits resulting from
infringement of the foregoing.
1.8 EXISTING TRW MBE PATENT RIGHTS: Licensor's patents and patent
applications, listed in Schedule 1.8, and any patent and patent applications
filed by Licensor after the Effective Date to protect inventions relating to
TRW's MBE processes conceived or first actually reduced to practice prior to
the Effective Date, and any United States and foreign patents which issue from
any continuations, continuations-in-part, divisionals or substitutions thereof,
and all extensions, reexaminations, renewals and reissues therefrom, and all
rights to bring an action against any person to recover damages or profits
resulting from infringement of the foregoing.
1.9 FOUNDRY: A business concern which provides wafer processing
services including: design rules; design support; photomask layout and
fabrication; wafer processing (including in-process testing); wafer dicing and
inspection; and wafer delivery.
1.10 FUTURE TRW GAAS HBT PATENT RIGHTS: Licensor's United States
and foreign patents and patent applications filed by Licensor to protect
inventions relating to GaAs HBTs conceived subsequent to the Effective Date,
and any United States and foreign patents which issue from any continuations,
continuations-in-part, divisionals or substitutions thereof, and all
extensions, reexaminations, renewals and reissues therefrom, and all rights to
bring an action against any person to recover damages or profits resulting from
infringement of the foregoing.
1.11 FUTURE TRW MBE PATENT RIGHTS: Licensor's United States and
foreign patents and patent applications filed by Licensor to protect inventions
relating to MBE processes conceived subsequent to the Effective Date, and any
United States and foreign patents which issue from any continuations,
continuations-in-part, divisionals or substitutions thereof, and all
extensions, reexaminations, renewals and reissues therefrom, and all rights to
bring an action against any person to recover damages or profits resulting from
infringement of the foregoing.
1.12 GAAS HBT: A heterojunction bipolar transistor having a base,
emitter and collector formed on a substrate of gallium arsenide, and the
manufacturing process utilized for forming such transistors on the gallium
arsenide substrate.
1.13 HBT TECHNICAL INFORMATION: All documentation, know-how,
software or other information of Licensor relating to Licensor's GaAs HBT,
whether or not it is considered proprietary or a trade secret by Licensor,
including, without limitation, data and information contained in reports,
documents, computer programs, drawings and graphs, schematics, manuals, files
and notes in any medium or representation, electronic or otherwise, including
but not limited to those items specified in Schedule 1.13.
1.14 IPO: an underwritten initial public offering of Licensee's
common stock to be registered under the Securities Act of 1933, as amended.
1.15 LICENSED FIELD: The design, development, manufacture,
testing, sale, marketing, , service, and repair of Licensed Products, including
the sale of spare parts for or spare complete Licensed Products by Licensee,
for Commercial Wireless Communication Applications where the Licensed Products
operate on signals having a frequency of less than ten (10) gigahertz.
1.16 LICENSED PRODUCTS: Any GaAs HBT products where the emitter of
the GaAs HBT has a width of between One (1) and Three (3) microns inclusive.
1.17 MBE: An epitaxial process for manufacturing the starting
wafers for GaAs HBTs utilizing molecular beam technology.
2
<PAGE> 4
1.18 MBE TECHNICAL INFORMATION: All documentation, know-how,
software or other information of Licensor relating to Licensor's MBE
processes for use in connection with the production of GaAs HBTs, whether or
not it is considered proprietary or a trade secret by Licensor, including,
without limitation, data and information contained in reports, documents,
computer programs, drawings and graphs, schematics, manuals, files and notes in
any medium or representation, electronic or otherwise, including but not
limited to those items specified in Schedule 1.18.
1.19 MERGER: the participation of a party as a constituent
corporation in a merger in which it is not the surviving corporation if its
stockholders immediately prior to the effective time of the merger own less
than fifty percent (50%) of the outstanding voting securities of the surviving
corporation immediately after the effective time of the merger.
1.20 OPERATIONAL FOUNDRY: A Foundry shall be considered
operational for purposes of this Agreement when (a) all of the conditions set
forth in Sections 1.20.1 through 1.20.4 are met; or, (b) when the parties
mutually agree that the Foundry is operational.
1.20.1 EQUIPMENT AND PROCESS DOCUMENTATION - all equipment
is installed and in operation and manufacturing flow documents (Licensor
MF1-type documents) on all major process steps are in place
1.20.2 LINE YIELD (NUMBER OF WAFERS COMPLETED MEETING
PROCESS CONTROL MONITOR [PCM] YIELDS) - exceeds 50% at a throughput rate of
50 wafer starts per week
1.20.3 OVERALL YIELD (THROUGH PACKAGED CHIP TEST) ON
2 STANDARD EVALUATION CIRCUITS (SEC) [to be selected from existing Licensee
chip products now manufactured by Licensor in its GaAs foundry] - exceeds 60%
of the prior overall yield for that sec product currently in production by
Licensor; this yield must be achieved from at least 4 wafer lots, with a
minimum 2 week interval between the start of the 1st and 4th wafer lot.
1.20.4 PACKAGED CHIP RELIABILITY YIELDS - equivalent to
current reliability levels achieved through testing by Licensee using
Licensee's standard packaged chip reliability testing procedures.
1.21 PATENT RIGHTS: Existing TRW GaAs HBT Patent Rights, Future
TRW GaAs HBT Patent Rights, Existing TRW MBE Patent Rights, and Future TRW MBE
Patent Rights.
1.22 RESTRICTED STOCK: Those 2,683,930 shares of Licensee's
common stock, no par value, issued to Licensor pursuant to the Restricted Stock
Agreement of even date herewith.
1.23 STOCK SALE: the sale by a party or its stockholders in a
single transaction or series of substantially contemporaneous related
transactions of more than fifty percent (50%) of the party's outstanding voting
securities entitled to vote in the election of directors.
1.24 TECHNICAL INFORMATION: HBT Technical Information and MBE
Technical Information.
1.25 TRANSFER: any mortgage, pledge, transfer, sale, assignment or
other disposition, whether voluntary, by operation of law or otherwise, of a
party's rights hereunder, including any delegation or subcontracting of duties
and specifically including (i) a Stock Sale; and (ii) a Merger.
1.26 WIRELESS COMMUNICATION: The transmission of voice, data or
other information via the transmission or reception of electromagnetic energy
propagating through the air with a frequency of less than 10 gigahertz.
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ARTICLE 2
LICENSE
2.1 HBT LICENSE: Licensor hereby grants to Licensee, subject to
the terms and conditions of this Agreement, a fully paid up, royalty free
worldwide right and license under Existing TRW GaAs HBT Patent Rights, Future
TRW GaAs HBT Patent Rights and to HBT Technical Information to design, develop,
manufacture, have manufactured, use, test, sell, market, service, and repair
Licensed Products and Existing RFMD Products in the Licensed Field.
2.1.1 Subject to the provisions of Sections 2.8 and 5.2
herein, the license granted in this Section 2.1 shall be exclusive as to all
persons including Licensor for Licensed Products and Existing RFMD Products in
the Licensed Field.
2.1.2 The license granted in this Section 2.1 may , at
Licensor's sole option and sole discretion, be converted to a non-exclusive
license under the circumstances set forth in Section 5.2 of this Agreement.
2.1.3 The license granted in this Section 2.1 shall be
perpetual, subject to the provisions of Article 8 relating to termination or
expiration of this Agreement.
2.1.4 The license granted in this Section 2.1 is effective
as of the Effective Date.
2.1.5 Licensee shall have the right to assign in whole or
in part or to grant sublicenses under the licenses to utilize Existing TRW GaAs
HBT Patent Rights, Future TRW HBT Patent Rights and HBT Technical Information
granted in this Section 2.1 to responsible parties, but only in accordance with
the provisions of Article 13 herein.
2.1.6 The license granted in this Section 2.1 to utilize
HBT Technical Information in the Licensed Field is a continuing license that
extends automatically without any further action on the part of Licensor or
Licensee to (i) any modification, update, change or other improvement to the
HBT Technical Information that is made by Licensor after the Effective Date and
is delivered to Licensee in accordance with Section 3.5; and (ii) any
discovery, development or other invention made by Licensor after the Effective
Date that constitutes new HBT Technical Information and is required to be
delivered to Licensee in accordance with Section 3.5.
2.2 MBE LICENSE: Licensor hereby agrees to grant to Licensee,
subject to the terms and conditions of this Agreement, a fully paid up, royalty
free, worldwide right and license under Existing TRW MBE Patent Rights, Future
TRW MBE Patent Rights and to MBE Technical Information to design, develop,
manufacture, have manufactured but only in accordance with Section 2.2.6 and
Article 13, use, test, sell, market, service, and repair Licensed Products and
Existing RFMD Products in the Licensed Field.
2.2.1 Subject to the provisions of Sections 2.8 and 5.2
herein, the license granted in this Section 2.2 shall be exclusive as to all
persons including Licensor for Licensed Products and Existing RFMD Products in
the Licensed Field.
2.2.2 The license granted in this Section 2.2 may, at
Licensor's sole option and sole discretion, be converted to a non-exclusive
license under the circumstances set forth in Section 5.2 of this Agreement.
2.2.3 The license granted in this Section 2.2 shall be
perpetual, subject to the provisions of Article 8 relating to termination or
expiration of this Agreement.
2.2.4 The license granted in this Section 2.2 shall be
effective as of the date that Licensee has an Operational Foundry for the
manufacture of Licensed Products.
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2.2.5 Licensee shall have the right to assign, in whole or
in part, or grant sublicenses under the Existing TRW MBE Patent Rights, Future
TRW MBE Patent Rights and MBE Technical Information granted in this Section 2.2
only in accordance with Article 13. .
2.2.6 Licensee shall have the right to have Licensed
Products and Existing RFMD Products manufactured on its behalf by a third party
under the license granted in this Section 2.2 only upon the prior written
approval of an authorized representative of Licensor, which approval may be
given, withheld or conditioned at the sole discretion of Licensor.
2.2.7 The license granted in this Section 2.2 to utilize
MBE Technical Information in the Licensed Field is a continuing license that
extends automatically without any further action on the part of Licensor or
Licensee to (i) any modification, update, change or other improvement to the
MBE Technical Information that is made by Licensor after the Effective Date and
is delivered to Licensee in accordance with Section 3.5; and (ii) any
discovery, development or other invention made by Licensor after the Effective
Date that constitutes new MBE Technical Information and is required to be
delivered to Licensee in accordance with Section 3.5.
2.3 EXISTING RFMD PRODUCTS HBT LICENSE: Licensor hereby grants to
Licensee, subject to the terms and conditions of this Agreement, a fully paid
up, royalty free worldwide right and license under Existing TRW GaAs HBT Patent
Rights and to HBT Technical Information to design, develop, manufacture, have
manufactured, use, test, sell, market, service, and repair the following
Existing RFMD Products outside the Licensed Field:
RF 2310 HBT Gain Block, RFMD design
RF 2311 HBT Gain Block, RFMD design
RF 2312 HBT Gain Block, RFMD design - CATV broadband amp
RF 2313 HBT Gain Block
RF 2314 HBT Gain Block
RF 2315 HBT Gain Block
RF 2316 HBT TV Distr Amp (Balanced)
RF 2317 HBT TV Distr Amp (Unbalanced)(G=15dB).
2.3.1 The license granted in this Section 2.3 shall be
non-exclusive.
2.3.2 The license granted in this Section 2.3 shall be
perpetual, subject to the provisions of Article 8 relating to termination or
expiration of this Agreement.
2.3.3 The license granted in this Section 2.3 is effective
as of the Effective Date.
2.3.4 Licensee shall have the right to assign in whole or
in part or to grant sublicenses under the licenses to utilize Existing TRW GaAs
HBT Patent Rights and HBT Technical Information granted in this Section 2.3 but
only in accordance with the provisions of Article 13.
2.3.5 The license granted in this Section 2.3 to use HBT
Technical Information is a continuing license that extends automatically
without any further action on the part of Licensor or Licensee to (i) any
modification, update, change or other improvement to the HBT Technical
Information that is made by Licensor after the Effective Date and is delivered
to Licensee in accordance with Section 3.5; and (ii) any discovery, development
or other invention made by Licensor after the Effective Date that constitutes
new HBT Technical Information and is delivered to Licensee in accordance with
Section 3.5.
2.4 EXISTING RFMD PRODUCTS MBE LICENSE: Licensor hereby agrees to
grant to Licensee, subject to the terms and conditions of this Agreement, a
fully paid up, royalty free worldwide right and license under Existing TRW MBE
Patent Rights and to MBE Technical Information to design, develop, manufacture,
use, test, sell, market, service, and repair the following Existing RFMD
Products outside the Licensed Field:
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RF 2310 HBT Gain Block, RFMD design
RF 2311 HBT Gain Block, RFMD design
RF 2312 HBT Gain Block, RFMD design - CATV broadband amp
RF 2313 HBT Gain Block
RF 2314 HBT Gain Block
RF 2315 HBT Gain Block
RF 2316 HBT TV Distr Amp (Balanced)
RF 2317 HBT TV Distr Amp (Unbalanced)(G=15dB).
2.4.1 The license granted in this Section 2.4 shall be
non-exclusive.
2.4.2 The license granted in this Section 2.4 shall be
perpetual, subject to the provisions of Article 8 relating to termination or
expiration of this Agreement.
2.4.3 The license granted in this Section 2.4 shall be
effective as of the date that the parties hereto mutually agree that Licensee
has an Operational Foundry for the manufacture of Licensed Products.
2.4.4 Licensee shall have the right to assign, in whole or
in part, or to grant sublicenses under the Existing TRW MBE Patent Rights and
MBE Technical Information for Existing RFMD Products granted in this Section
2.4 only in accordance with Article 13.
2.4.5 The license granted in this Section 2.4 to utilize
MBE Technical Information is a continuing license that extends automatically
without any further action on the part of Licensor or Licensee to (i) any
modification, update, change or other improvement to the MBE Technical
Information that is made by Licensor after the Effective Date and is delivered
to Licensee in accordance with Section 3.5; and (ii) any discovery, development
or other invention made by Licensor after the Effective Date that constitutes
new MBE Technical Information and is delivered to Licensee in accordance with
Section 3.5.
2.5 FUTURE TECHNOLOGIES: Except for the Future TRW GaAs HBT
Patent Rights, Future TRW MBE Patent Rights, or as specified in Sections 2.1.6,
2.2.7, 2.3.6 and 2.4.6, rights and licenses to future TRW technologies
applicable to the Licensed Field and/or Licensed Products are not granted to
Licensee by this Agreement. Commencing on the Effective Date and continuing
until ten (10) years from the date that the parties hereto mutually agree that
Licensee has an Operational Foundry for the manufacture of Licensed Products,
rights and licenses to other TRW future technologies applicable to the Licensed
Field and/or Licensed Products not granted to Licensee by this Agreement shall
be offered to Licensee by Licensor on the following terms and conditions:
2.5.1 Licensor shall deliver a notice to Licensee stating
its bona fide intention to grant rights and/or licensees to a third party for
technologies applicable to the Licensed Field and/or Licensed Products, and
identify the specific technology it desires to license (the "Offered
Technology") and the terms and conditions by which it proposes to license the
Offered Technology.
2.5.2 Within forty-five (45) days after the date of such
notice, Licensee shall inform Licensor whether or not it is willing to license
the Offered Technology upon the same terms and conditions which Licensor
proposes to license the Offered Technology to the third party. If Licensor has
not received Licensee's decision by the end of the forty-five (45) day period,
it will be deemed that Licensee has decided not to license the Offered
Technology.
2.5.3 If Licensee does not elect to license the Offered
Technology in accordance with Section 2.5.2, Licensor may license the Offered
Technology to any third party upon terms which in their entirety are no more
favorable to the prospective third party than those specified to Licensee,
provided that the license is consummated within ninety (90) days of the date of
the notice to Licensee. Licensor may, at its discretion, alter the final terms
of the license to the third party from those notified to Licensee such that,
though individual terms may be more
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favorable to the third party, the overall license terms and conditions are in
their entirety no more favorable to the third party than those notified. If
the final terms and conditions are, in their entirety, considered to be more
favorable to the third party than those notified to Licensee, then Licensor
must offer those terms to Licensee in accordance with Section 2.5.2, and
Licensee shall have forty-five (45) days to elect to license the Offered
Technology.
2.5.4 All obligations to grant licenses to future TRW
technologies under this Section 2.5 shall terminate ten (10) years from the
date that the parties hereto mutually agree that Licensee has an Operational
Foundry for the manufacture of Licensed Products.
2.6 EXCLUSION: Except as otherwise provided in this Agreement,
the license and rights granted hereunder shall not be interpreted as granting
or implying the grant of rights in any other invention or technical information
of either party. Licensor specifically reserves to itself the right to utilize
Existing TRW GaAs HBT Patent Rights, Future TRW GaAs HBT Patent Rights, Future
TRW MBE Patent Rights, Existing TRW MBE Patent Rights, HBT Technical
Information, and MBE Technical Information for any and all purposes other than
as set forth in this Article 2.
2.7 MARKINGS: To the extent practical, Licensee shall provide on
any Licensed Product or component parts thereof, or on any Existing RFMD
Product manufactured, used or sold utilizing any of the rights or licenses
granted under this Agreement, or on the packaging or data sheets related
thereto so long as the marking is in accordance with applicable marking
provisions of United States or foreign patent laws, a legible notice that such
Licensed Product or component part or Existing RFMD Product is manufactured
under a license granted by Licensor. Licensee shall submit to Licensor prior
to marking any Licensed Product or component part thereof or Existing RFMD
Product the full copy of such proposed marking for written approval by
Licensor, which approval will not be unreasonably withheld and will be deemed
given unless Licensor responds to the contrary within ten (10) business days of
such submission. No rights are granted hereunder by either party to the other
regarding their respective trade names or trademarks.
2.8 LICENSOR RESERVATIONS: Licensor reserves unto itself the
rights to utilize Existing TRW GaAs HBT Patent Rights, Future TRW GaAs HBT
Patent Rights, Existing TRW MBE Patent Rights, Future TRW MBE Patent Rights,
HBT Technical Information, and MBE Technical Information to manufacture, have
manufactured, use, test, sell, service, and repair Licensed Products in the
Licensed Field, but only in accordance with the following:
2.8.1 Licensor may provide Foundry services for any
customers but limited solely to the provision of the following services:
Design Rule Manual
Element Library (GDSII tape)
Model & Design Rule Technical Consultation
Design Rule Check & Circuit Layout Verification
Maskset Procurement and Storage
Three (3) inch MBE profile wafers
HBT or HEMT wafer processing with full backside metallization
Status Reports
Delivery of a minimum of 3 wafers per lot that pass PCM
specifications; and
2.8.2 Licensor is permitted production of Licensed Products
for use in the Licensed Field in order to fulfill any and all contractual
obligations Licensor has as of the Effective Date. A listing of such
contractual obligations is set forth in Schedule 2.8.2.
2.9 MAINTENANCE OF PATENTS: Licensor shall retain the right to
manage and control the prosecution and
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maintenance of patent applications and patents included in the Patent Rights,
and shall have sole financial responsibility for patent acquisition or
maintenance of the Patent Rights to the extent it elects, in its sole
discretion, to pursue the same. From time to time at the reasonable request of
Licensee, Licensor shall furnish Licensee with a written report setting forth
in reasonable detail the identity and status of each patent and patent
application included in the Patent Rights. In the event Licensor determines
that it no longer deems it necessary or desirable to prosecute a patent
application or maintain a patent included in the Patent Rights in any country,
Licensor shall notify Licensee not less than thirty (30) days prior to the
abandonment of the patent application or the final due date for the payment of
the maintenance fee. In such event, Licensee may obtain an assignment of the
patent application or patent by notifying Licensor and providing it with
appropriate assignment documents in a form ready to be executed by it, and
thereafter Licensee shall own the same and shall have the right to (and the
sole financial responsibility for) management and control of the prosecution
and maintenance of such patent applications and patents. Any assignment of any
patent or patent application pursuant to this Section 2.9 shall include a
royalty-free, fully paid up non-exclusive license to Licensor under such patent
or application to design, develop, manufacture, have manufactured, use, test,
sell, market, service, and repair any products outside of Licensed Field.
2.10 ENFORCEMENT OF PATENT RIGHTS:
2.10.1 If either party hereto learns at any time of any
infringement or threatened infringement by any other person of any enforceable
Patent Rights owned by or licensed to the other party after the Effective Date,
that party shall give notice of that infringement or threatened infringement to
the other party. The parties shall then consult together as to the best course
of action to pursue in response to such potential infringement, but neither
party shall be obligated to institute legal action at its own expense. A good
faith failure by one party to provide such notice to the other party shall not
be deemed a breach of this Agreement and shall not give rise to a right of
action by other party.
2.10.2 In the event that the parties do not reach an
agreement as contemplated by Section 2.10.1 hereof as to the best course of
action to pursue with respect to a potential infringement (i) Licensor shall
have the right, but not the obligation, to institute legal action, through
counsel of its own choosing and at its sole expense, to restrain any
infringement or threatened infringement, or to recover damages therefor, of its
enforceable Patent Rights, and (ii) Licensee shall have the right, but not the
obligation, to institute legal action, through counsel of its own choosing and
at its sole expense, to restrain any infringement or threatened infringement,
or to recover damages therefor, of its enforceable Patent Rights in the
Licensed Field. The party that bears the expenses of pursuing legal action
against a third party infringer shall be entitled to any damages, lost profits
or other monies recovered by judgment, decree, settlement, arbitration or
otherwise, resulting from such legal action.
2.10.3 In the event that one party elects to institute legal
action against a third party infringer, the other party shall fully cooperate
in the prosecution of such action including joining as a party in suit when
necessary to acquire standing to institute legal action pursuant to this
Section 2.10; provided, however, that such other party shall be reimbursed for
all reasonable out-of-pocket expenses incurred in providing such cooperation
including its reasonable legal fees and expenses. The electing party shall
reimburse the other party for all such expenses within thirty (30) days after
its receipt of an invoice from the other party that describes such expenses in
reasonable detail, with supporting documentation as appropriate.
ARTICLE 3
TECHNICAL ASSISTANCE AND EQUIPMENT
3.1 TECHNICAL ASSISTANCE AND TRAINING: Licensor shall use
reasonable efforts to provide Licensee with such technical assistance, training
and instruction as may be necessary to enable Licensee or its permitted
sublicensee to design, construct, start-up, test and operate an Operational
Foundry, and to utilize the MBE process in such Operational Foundry, in
accordance with the implementation plan set forth in Schedule 3.1.
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3.1.1 Licensor shall assist Licensee in the design and
upfit of a Foundry (if Licensee elects to operate its own Foundry), including
the provision of such information within its possession as may reasonably be of
use to Licensee (as determined solely by Licensor) with respect to site
selection, building specifications, plant layout, equipment specifications and
sourcing, manufacturing process flows, chemical and physical parameters and
conditions, raw material and intermediate material requirements, waste
generation and treatment, consumable items and materialsand all other
engineering, scientific or technical assistance appropriate for the design and
construction of a Foundry.
3.1.2 Licensor shall assist Licensee in the start-up phase
of the Foundry, including technical assistance, instruction and training of
Licensee personnel to operate, adjust, modify, control and optimize the
manufacturing process to be undertaken at the foundry to the point where it can
become an Operational Foundry.
3.1.3 The instruction and technical assistance to be
rendered by Licensor shall be at Licensee's Foundry location unless otherwise
agreed by the parties. All travel and living expenses incurred by Licensor
personnel in traveling to and from Licensee's Foundry and while on site shall
be borne by Licensor.
3.1.4 Notwithstanding the provisions set forth above in
this Section 3.1, Licensor shall be under no obligation to provide technical
assistance to Licensee once the expense limit set forth in Schedule 3.1 has
been reached. In no event will Licensor be obligated to spend more money than
is set forth in Schedule 3.1.
3.1.5 If Licensee requests Licensor to perform, prior to
December 31, 1998, additional technical assistance beyond that specified in
Schedule 3.1, then Licensor shall provide such additional technical assistance
at Licensor's then existing labor rates, including burden and reasonable
margin. If such additional technical assistance is requested, then Licensee
shall also reimburse Licensor for all expenses incurred by Licensor and its
employees in connection with the performance of such services (including but
not limited to travel, lodging and meal expenses). Licensee shall be
responsible for all expenses incurred by Licensee's representatives in
connection with the performance of all technical assistance (including but not
limited to travel, lodging and meal expenses). Additional Technical Assistance
beyond that specified in Schedule 3.1 to be performed after December 31, 1998
will be subject to the mutual agreement of the parties.
3.2 TECHNICAL INFORMATION: Licensor shall not be obligated to
reduce to a tangible medium of expression any Technical Information; provided,
that nothing in this Section shall be construed to diminish the scope of
Licensee's licenses or the obligation of Licensor to deliver Technical
Information to Licensee.
3.3 DELIVERY OF TECHNICAL INFORMATION: Licensor shall deliver to
Licensee HBT Technical Information and MBE Technical Information related to
Licensed Products in the same form as is used in Licensor's own business. Both
source code and object code for software included in the HBT Technical
Information or the MBE Technical Information shall be delivered to Licensee.
Licensor shall deliver HBT Technical Information as soon as practical and in
any event within thirty (30) days of the Effective Date. Licensor shall
deliver MBE Technical Information as soon as practical and in any event within
thirty (30) days of the date of Licensee's written request for such MBE
Technical Information, which request may be made no earlier than the date upon
which the MBE License becomes effective as set forth in Section 2.2.4.
Licensor shall deliver to Licensee one legible copy of each issued patent and
all patent applications included in the Patent Rights as soon as practical
after the Effective Date. Licensor shall also promptly furnish Licensee a copy
of all patent applications filed and patents issued after the Effective Date
that are included in the Patent Rights.
3.4 USE AND NONDISCLOSURE: Licensee shall not use or permit the
use of Technical Information for any purpose not authorized by this Agreement.
Licensee shall hold in confidence, and shall not disclose or communicate or
permit to be disclosed or communicated to any third person, any Technical
Information which is furnished to Licensee hereunder except in accordance with
Sections 3.6 and 3.7. Licensee shall take or cause to be taken all necessary
precautions to the same extent that it would with its own technical
information, but in no event less than a reasonable standard of care, to
prevent the disclosure or communication of Technical Information to third
persons.
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3.5 UPDATES OF TECHNICAL INFORMATION: Except as specified in this
Section 3.5, Licensor shall be under no obligation to deliver to Licensee any
modifications or additions to Technical Information.
3.5.1 Licensor shall provide to Licensee updated HBT
Technical Information related to improvements to or new discoveries of HBT
Technical Information, but only as such updated HBT TechnicalInformation
relates to GaAs HBTs having an emitter width between Two (2) and Three (3)
microns inclusive and only until three (3) years from the date that Licensee
has an Operational Foundry or this Agreement is terminated in accordance with
Article 8, whichever occurs first.
3.5.2 Licensor shall provide to Licensee updated HBT
Technical Information related to improvements to or new discoveries of HBT
Technical Information, but only as such updated HBT Technical Information
relates to GaAs HBTs having an emitter width of One (1) micron and only for a
period of eight (8) years after the date Licensee has an Operational Foundry or
this Agreement is terminated in accordance with Article 8, whichever occurs
first.
3.5.3 Licensor shall provide to Licensee updated MBE
Technical Information related to improvements to or new discoveries of MBE
Technical Information as it relates to the processing of GaAs HBTs having an
emitter width between One (1) and Three (3) microns, only if the licenses
granted in Sections 2.2 and 2.4 have become effective, and only for a period of
eight (8) years after the date that the licenses granted in Sections 2.2 and
2.4 become effective or this Agreement is terminated in accordance with Article
8, whichever occurs first.
3.5.4 The updated Technical Information specified in this
Section 3.5 shall be delivered to Licensee in the same form as is used in
Licensor's own business (including both source code and object code in the case
of software), and will be delivered as soon as practical after the same becomes
available.
3.5.5 Licensor's obligations to provide updated Technical
Information according to this Section 3.5 is subject to the limitation of
expense set forth in Schedule 3.1. After such limitation of expense is met,
Licensor's provision of updated Technical Information shall be at Licensee's
expense.
3.6 HBT EXCEPTIONS: Licensee may disclose HBT Technical
Information to its employees, sublicensees, consultants, and subcontractors to
the extent that each such disclosure is reasonably necessary for purposes of
designing, developing, constructing, manufacturing, marketing, selling,
installing, repairing and/or servicing Licensed Products or procuring goods and
services required in connection therewith; provided that (i) Licensee clearly
marks any document or other material containing any HBT Technical Information
so disclosed to indicate that such documents or materials contain confidential
and proprietary information of Licensor; (ii) Licensee requires each person to
whom such documents or materials are disclosed to sign a written agreement
limiting use thereof to the purpose stated in such agreement, prohibiting the
reproduction thereof and the disclosure thereof to any such person and
requiring the prompt return thereof when no longer needed or such agreement is
terminated; and (iii) providing that any reproduction, note or summary of such
documents or materials immediately upon the making thereof shall become the
property of Licensor and shall be delivered to Licensor with the return of
Technical Information or otherwise destroyed.
3.7 MBE EXCEPTIONS: Licensee may disclose MBE Technical
Information only to its employees and any permitted sublicensee or assignee
under Article 13 to the extent that each such disclosure is reasonably
necessary for purposes of designing, developing, constructing, manufacturing,
marketing, selling, installing, repairing and/or servicing Licensed Products or
procuring goods and services required in connection therewith; provided that
(i) Licensee clearly marks any document or other material containing any MBE
Technical Information so disclosed to indicate that such documents or materials
contain confidential and proprietary information of Licensor; (ii) Licensee
requires each employee to whom such documents or materials are disclosed to
sign a written agreement limiting use thereof to the purpose stated in such
agreement, prohibiting the reproduction thereof and the disclosure thereof to
any other person; and (iii) providing that any reproduction, note or summary of
such documents or materials immediately upon the making thereof shall become
the property of Licensor and shall be delivered to Licensor with
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the return of Technical Information.
3.8 RESTRICTIONS: The rights granted Licensee herein cover only
Licensed Products for use as licensed hereunder, and Licensee agrees that it
shall not, during the terms of this Agreement, manufacture, sell, lease or
otherwise dispose of any Licensed Products or parts thereof embodying any of
the Patent Rights except insofar as the application thereof is expressly
provided for under this Agreement.
ARTICLE 4
CONSIDERATION
In consideration of all rights, licenses, technical assistance and
Technical Information and benefits conferred to Licensee hereunder, Licensee
has issued to Licensor Two Million Six Hundred Eighty-Three Thousand, Nine
Hundred and Thirty (2,683,930) shares of Restricted Stock.
ARTICLE 5
MANUFACTURE OF LICENSED PRODUCTS
5.1 SUPPLY OF LICENSED PRODUCTS: Once Licensee has provided an
Operational Foundry, Licensee agrees to use commercially reasonable efforts to
place itself in, and to maintain, a position to manufacture, test, sell,
service, repair, and maintain Licensed Products for application in the Licensed
Field in the manner necessary to supply effectively the demand therefor.
5.2 PERFORMANCE GOALS: If the following gross revenue goals are
not reached by Licensee by the date specified, Licensor may, at its sole option
and upon thirty (30) days prior written notice, convert any or all of the
licenses granted in Article 2 to non-exclusive licenses. For purposes of this
Article, the date upon which Licensee has an Operational Foundry shall be
called the "Target Date."
<TABLE>
<CAPTION>
DATE GROSS REVENUES WITHIN
---- ---------------------
PRECEDING 12 MONTH PERIOD
-------------------------
<S> <C>
Target Date Plus One Year $30,000,000
Target Date Plus Two Years $65,000,000
Target Date Plus Three Years $125,000,000
</TABLE>
Licensee's gross revenues shall be calculated in accordance with generally
accepted accounting principles.
ARTICLE 6
IMPROVEMENTS
Licensee agrees that any modifications or improvements in the Licensed
Products, Patent Rights or the Technical Information made by Licensee,
including any inventions, shall be promptly made known to Licensor in the form
of drawings, written descriptions, or other data, and Licensor shall have a
royalty free, non-exclusive right to use such modifications or improvements,
including any inventions outside the Licensed Field or in accordance with
Section 2.8. Licensee further agrees to inform Licensor from time to time in
writing of any of Licensee's patents and patent applications relating to such
modifications, improvements or inventions. If, in countries selected by
Licensor, Licensee decides it shall not file applications for, or maintain
11
<PAGE> 13
patents upon, Licensee's modifications, improvements or inventions, then
Licensor shall have the right to do so at its expense and such applications and
patents shall be and become its property, provided Licensee shall continue to
have the right to make use thereof on an exclusive basis in the Licensed Field.
Licensee shall use its best efforts to have executed such application papers
and assignments as Licensor may request in connection with such patents. The
provisions of this Article 6 shall survive termination or expiration of this
Agreement insofar as the rights of the parties to use such improvements,
modifications, inventions and patents are concerned.
ARTICLE 7
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
7.1 REPRESENTATIONS AND WARRANTIES OF LICENSOR: Except as
provided for or otherwise described in this Agreement, Licensor represents and
warrants to Licensee as follows:
7.1.1 As of the Effective Date, Licensor is the owner of
all Patent Rights and Technical Information licensed in this Agreement in
existence as of the Effective Date.
7.1.2 As of the Effective Date, Licensor has all requisite
power and authority to enter into and execute this Agreement, to grant the
licenses provided herein and to perform its obligations hereunder.
7.1.3 This Agreement constitutes a legal, valid and binding
obligation of Licensor, enforceable against Licensor in accordance with its
terms.
7.1.4 Licensor has not entered into any agreement with
third parties that would conflict with the terms and conditions herein.
Neither the execution and delivery of this Agreement nor the performance by
Licensor of any of its obligations hereunder will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, the Articles of Incorporation or By-Laws of Licensor, as amended.
7.1.5 No royalties or fees have been paid by Licensor to
other persons by reason of its ownership of the Patent Rights or Technical
Information.
7.1.6 As of the Effective Date there is no pending or, to
the actual knowledge of Licensor, threatened claim, litigation or rendered
decision, judgment or holding against Licensor concerning: (i) any claims of
ownership by Licensor to any of the Patent Rights or Technical Information;
(ii) the validity, registrability or enforceability of any intellectual
property rights of Licensor associated with any of the Patent Rights or
Technical Information; (iii) the license of any Patent Rights or Technical
Information to Licensee; or (iv) that the Commercial manufacture, use or sale
of any Licensed Product violates the intellectual property rights of any other
person.
7.1.7 The documentation relating to the Technical Information
to be transferred and disclosed by Licensor to Licensee pursuant to this
Agreement will constitute actual Technical Information used by Licensee prior
to the Effective Date.
7.2 LICENSOR'S RIGHTS: Licensor does not make any representation
or warranty as to the validity of the Patent Rights or that the manufacture,
use or sale of Licensed Products shall not infringe the intellectual property
rights of third parties.
7.3 REPRESENTATIONS AND WARRANTIES OF LICENSEE: Except as
provided for or otherwise described in this Agreement, Licensee represents and
warrants to Licensor as follows:
12
<PAGE> 14
7.3.1 Licensee has all requisite power and authority to
enter into and execute this Agreement and to perform its obligations hereunder.
7.3.2 This Agreement constitutes a legal, valid and binding
obligation of Licensee, enforceable against Licensee in accordance with its
terms.
7.3.3 Licensee has not entered into any agreements with
third parties that would conflict with the terms and conditions herein.
Neither the execution and delivery of this Agreement nor the performance by
Licensee of its obligations hereunder will conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default, under the
Articles of Incorporation or By-Laws of Licensee, as amended.
7.4 VISITS: With respect to all visits of personnel of one party to
the facilities of the other party, the visiting party shall defend and
indemnify the other party from all liability, claim or loss for injury to or
death of any visiting party's employees or agents which such persons are
present at the plant of the other party, and also for damage to the visiting
party's property or to the property of any employee or agent of the visiting
party which may occur during the presence of any such person at the plant of
the other party, regardless of how much damage occurs.
7.5 LIMITATION OF LIABILITY: Licensor does not assume any
responsibility, nor does Licensor give any warranties to Licensee, of any
nature whatsoever, with respect to the ability of Licensee to construct
successfully Licensed Products using the Technical Information or Patent
Rights. LICENSOR'S WARRANTY OBLIGATIONS AND LICENSEE'S REMEDIES THEREUNDER ARE
SOLELY AND EXCLUSIVELY AS STATED HEREIN.
7.6 EXCLUSION: THE WARRANTIES PROVIDED IN THIS ARTICLE 7 ARE IN
LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY, EXPRESS OR IMPLIED, AT LAW OR
IN EQUITY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY EXCLUDED.
LICENSOR'S WARRANTY OBLIGATIONS AND LICENSEE'S REMEDIES ARE SOLELY AND
EXCLUSIVELY AS STATED IN THIS ARTICLE 7. IN NO CASE SHALL LICENSOR OR LICENSEE
BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER ARISING IN CONTRACT, WARRANTY, TORT, INCLUDING NEGLIGENCE, STRICT
LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY. LICENSOR DOES NOT MAKE ANY
WARRANTY AS TO THE VALIDITY OR ENFORCEABILITY OF THE PATENT RIGHTS.
ARTICLE 8
TERM AND TERMINATION
8.1 TERM: This Agreement shall commence on the Effective Date,
and shall remain in effect until this Agreement is terminated in accordance
with Sections 8.2 or 11.2.
8.2 TERMINATION:
8.2.1 Licensee agrees to use its reasonable best efforts to
obtain written commitments from one or more banks, institutional investors or
financing sources for debt, lease or equity funds in an aggregate amount which,
when added to the cash on hand held by Licensee, will be sufficient to enable
Licensee to purchase and reconfigure and upfit, or design, construct, install
and start-up, a Foundry to be used to manufacture Licensed Products (the
"Financing"). In lieu of securing the Financing and subject to Article 13
hereof, Licensee may elect to sublicense a third party in order to enable such
third party to manufacture Licensed Products for Licensee. If Licensee is
unable to secure the Financing or enter into a definitive sublicense agreement
with a third party for the manufacture of Licensed Products, by March 1, 1997,
then this
13
<PAGE> 15
Agreement, and the licenses and rights granted herein, shall terminate and be
of no force or effect unless both parties agree to extend such date. If the
Agreement is terminated in accordance with this Section 8.2.1, then:
8.2.1.1 Licensee shall return to Licensor all
Technical Information which has been delivered to Licensee in accordance with
Article 3; and
8.2.1.2 The licenses granted to Licensee in
accordance with Article 2 shall be automatically terminated as of such date and
shall be of no force or effect.
8.2.2 In the event that Licensee has been unable to construct
or sublicense an Operational Foundry by December 31, 1998 despite all
reasonable efforts of the parties, then this Agreement, and the licenses and
rights granted herein, shall terminate unless both parties agree to extend such
date. If the Agreement is terminated in accordance with this Section 8.2.2,
then:
8.2.2.1 Licensee shall return to Licensor all
Technical Information which has been delivered to Licensee in accordance with
Article 3; and
8.2.2.2 The licenses granted to Licensee in
accordance with Article 2 shall be automatically terminated as of such date and
shall be of no force and effect.
ARTICLE 9
EXCUSABLE DELAY
9.1 NOTICE: If either Licensor or Licensee is unable to perform
any of their respective obligations as herein provided then the party whose
performance is prevented or delayed shall give the other party notice thereof
as soon as reasonably possible under the circumstances and information
regarding the cause or reason therefor.
9.2 EXCUSABLE DELAY: If either Licensor or Licensee is unable to
perform any of their respective obligations as herein provided due to any
circumstances beyond its reasonable control, but not due to its negligence
(including but not limited to strikes, war, an act of God, a public enemy,
interference by any civil or military authority, inability to secure
governmental approval, materials or services or similar cause) and gives notice
to the other as provided in Section 9.1, then the time of performance of any
such obligation shall be extended for a period equal to the number of days
during which performance thereof was delayed due to such circumstances, and
during such period such party shall not be deemed in default of this Agreement.
ARTICLE 10
NOTICES AND LEGAL ADDRESSES
Except as otherwise expressly provided, all notices under this
Agreement shall be made by fax, confirmed by letter, to the fax numbers and
addresses below:
Licensee: RF Micro Devices, Inc.
7341-D West Friendly Avenue
Greensboro, North Carolina 27410
Telecopy: 910-855-3101
Attention: President
14
<PAGE> 16
Licensor: TRW Inc.
Electronics Systems & Technology Division
One Space Park
Redondo Beach, California 90278
Telecopy: 310.
Attention: Vice President and General Manager
ARTICLE 11
DEFAULT
11.1 DEFAULT: The occurrence of one or more of the following shall
constitute a default hereunder:
11.1.1 In the event a party fails to pay any sum due and
payable hereunder within ten (10) days after same has become due and payable
and such failure continues for fifteen (15) days after written notice from the
payee;
11.1.2 In the event Licensor is unable to fulfill its
obligations under this Agreement as a result of: (a) liens, claims, charges or
encumbrances in existence as of the Effective Date or arising as a result of
Licensor's execution or performance of this Agreement; (b) Licensor's failure
to obtain all consents, approvals or authorizations of other persons necessary
as of the Effective Date in order to grant the licenses provided for herein;
(c) Licensor's failure to make all filings, notifications and registrations
with all governmental authorities, if any, necessary as of the Effective Date
in order to grant the licenses provided for herein; or (d) any federal, state
or local judgment, writ, decree, order, statute, rule or regulation applicable
as of the Effective Date to Licensor, the Patent Rights or Technical
Information, and such inability continues for a period of thirty (30) days
after written notice from Licensee specifying such failure, provided that if
the failure be such that it cannot with due diligence be cured within such
thirty (30) day period, then Licensor shall have such longer period, not to
exceed thirty (30) additional days, as shall be reasonably necessary to cure
such failure so long as Licensor is acting in good faith and with due
diligence;
11.1.3 In the event a party fails to perform any other
material covenant or obligation required to be performed by such party
hereunder and such failure continues for a period of thirty (30) days after
written notice from the nondefaulting party specifying such failure, provided
that if the failure be such that it cannot be cured solely by the payment of
money and cannot with due diligence be cured within such thirty (30) day
period, then the notified party shall have such longer period, not to exceed
thirty (30) additional days, as shall be reasonably necessary to cure such
failure so long as such party is acting in good faith and with due diligence;
11.1.4 In the event a party (i) shall commence a voluntary
case or other proceeding seeking dissolution, liquidation or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or (ii)
shall consent to any such relief or to the appointment of, or taking possession
by, such official in any voluntary case or other proceeding commenced against
it; or
11.1.5 In the event any involuntary case or other proceeding
shall be commenced against a party seeking dissolution, liquidation or other
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
receiver, trustee, liquidator, custodian or other similar official of it or any
substantial part of its property, if such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days.
11.2 REMEDY: If any party is in default as specified in Section
11.1, the party not in default may
15
<PAGE> 17
terminate this Agreement by giving the other party thirty (30) days prior
written notice of termination and pursue any other remedy hereunder or
otherwise available to it at law or in equity.
11.3 COMPENSATION: Each party hereby expressly agrees and
acknowledges that termination of this Agreement by either party for default
shall not entitle the other party to any termination compensation or to any
payment in respect of any goodwill established during the term of this
Agreement or render the party liable for damages on account of any loss of
prospective profits or on account of any expenditure, investment or obligation
incurred or made by the parties, or otherwise.
11.4 PERFORMANCE AFTER DEFAULT TERMINATION: If this Agreement is
terminated for default, whether due to the default of Licensor or otherwise,
Licensee shall discontinue the use of the Patent Rights, and Technical
Information and shall return to Licensor all Technical Information furnished to
or otherwise made available to Licensee hereunder.
ARTICLE 12
SURVIVAL OF OBLIGATIONS
Other provisions hereof notwithstanding, the obligations of Licensor
and Licensee under Articles 6 and 7 and Sections 3.4 and 3.8 shall survive the
termination and expiration of this Agreement.
ARTICLE 13
SUBLICENSES, ASSIGNMENTS AND TRANSFERS
13.1 Neither party may sublicense or Transfer any of its rights or
obligations under this Agreement in whole or in part or delegate any of its
obligations or duties hereunder to any person except upon compliance with this
Article 13.
13.2 Prior to the date Licensee constructs or sublicenses an
Operational Foundry, Licensor may Transfer its rights hereunder only with the
prior written consent of Licensee, which consent will not be unreasonably
withheld. From and after the date Licensee certifies that it has an
Operational Foundry, Licensor may Transfer its rights hereunder to any person
upon prior written notice to Licensee.
13.3 Licensee may sublicense its license rights under Section 2.2 to
any person with the prior written consent of Licensor, which consent may be
given, withheld or conditioned at the sole discretion of Licensor.
13.4 Licensee may Transfer its license rights under Section 2.2 only
as follows:
13.4.1 If the proposed Transfer would occur prior to an IPO,
Licensee may Transfer such rights only with the prior written consent of
Licensor, which consent may be given, withheld or conditioned at the sole
discretion of Licensor;
13.4.2 If the proposed Transfer is after the closing of an
IPO and not in conjunction with a Stock Sale, Merger or Asset Sale, Licensee
may Transfer such rights only with the prior written consent of Licensor, which
consent may be given, withheld or conditioned at the sole discretion of
Licensor;
13.4.3 If the proposed Transfer is after the closing of an
IPO and in conjunction with a Stock Sale, Merger or Asset Sale, Licensee may
Transfer such rights by delivering to Licensor a written undertaking executed
by the transferee under which such transferee acknowledges that the rights it
is acquiring from Licensee are limited to the Licensed Field in accordance with
this Agreement.
16
<PAGE> 18
13.5 Prior to the closing of an IPO, Licensee may sublicense or
Transfer its license rights under Section 2.1, and may Transfer all its other
rights under this Agreement except its license rights under Section 2.2, to any
person with the prior written consent of Licensor, which consent shall not be
unreasonably withheld.
13.6 After the closing of an IPO, Licensee may sublicense or Transfer
its license rights under Section 2.1, and may Transfer all its rights under
this Agreement except its license rights under Section 2.2, to any person by
delivering to Licensor a written undertaking executed by the transferee under
which such transferee acknowledges that the rights it is acquiring from
Licensee are limited to the Licensed Field in accordance with this Agreement.
13.7 Any purported sublicense or Transfer in contravention of this
Agreement shall be null and void and of no force or effect.
ARTICLE 14
MISCELLANEOUS
14.1 HEADINGS: The headings and titles to the Articles and
Sections of this Agreement are inserted for convenience only and shall not be
deemed a part hereof or affect the construction or interpretation of any
provision hereof.
14.2 REMEDIES: Unless otherwise expressly provided herein, the
rights and remedies hereunder are in addition to, and not in limitation of,
other rights and remedies under the Agreement, and exercise of one right or
remedy shall not be deemed a waiver of any other right or remedy.
14.3 MODIFICATION - WAIVER: No cancellation, modification,
amendment, deletion, addition or other change in this Agreement or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in a writing signed by
the party to be bound thereby and specifically referencing this Agreement. No
waiver of any right or remedy in respect of any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such
occurrence or event on any other occasion.
14.4 ENTIRE AGREEMENT: This Agreement supersedes all other
agreements, oral or written, heretofore made with respect to the subject hereof
and the transactions contemplated hereby and, with the Schedules hereto and, in
conjunction with the Securities Purchase Agreement, Restricted Stock Agreement,
Subordinated Convertible Promissory Note, Warrant, Deficit Warrant, and Supply
Agreements of even date herewith, contains the entire agreement of the parties.
14.5 CONTROLLING LAW: All questions concerning the validity and
operation of this Agreement and the performance of the obligations imposed upon
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of California, United States of America applicable to
contracts entered into and wholly to be performed in the State of California.
14.6 SUCCESSORS AND ASSIGNS: The provisions of this Agreement
shall be binding upon and inure to the benefit of Licensor and Licensee and
their respective successors and assigns, but this provision shall not be deemed
to expand or otherwise affect the limitations on assignment and sublicensing
set forth in Article 13 .
14.7 COUNTERPARTS: This Agreement has been executed in several
counterparts, each of which shall be deemed to be an original copy hereof.
14.8 SCHEDULES: The Schedules hereto shall form an integral part
of this Agreement and shall
17
<PAGE> 19
have the same effectiveness as the Agreement itself. In the event of any
conflict between the terms of the Agreement and any Schedule, the Agreement
shall be controlling.
14.9 GOVERNMENT REGULATIONS: This Agreement is subject to all the
laws and regulations, and other administrative acts, now or hereinafter in
effect, of the United States Government and its departments and agencies.
Technical Information, any Licensed Product, component, or spare part, are not
authorized to be directly or indirectly sold, leased, released, assigned,
transferred, conveyed, or in any manner disposed of in or to any country where
such sale, lease, assignment, transferal, conveyance or use, is regulated by
the United States Government without first obtaining any necessary approvals of
the United States Government.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first set forth above.
TRW Inc.
Electronics Systems & Technology Division
By: ___________________________________
RF Micro Devices, Inc.
By: ___________________________________
18
<PAGE> 20
SCHEDULE 1.6
EXISTING RFMD PRODUCTS
RFMD HBT PRODUCT LIST
Part No. Description
RF2132A JDC-1500 PA
RF2133 DAMPS-2 PA
RF2136 GSM PA in bat wing package
RF2140 PCS PA (5 cell)
RF2141 DCS1800/1900 PA in PSOP2-15
RF2142 DCS1800/1900 PA in PSOP2-8
RF9101 DECT PA (3.3V)
RF9102 AMPS PA (3.3V)
RF9103 DAMPS/JDC950 PA (3.3V)
RF9104 JDC1500 PA (3.3V)
RF9105 GSM PA (3.3V) ver 1
RF9107 GSM PA (3.3V) ver 2
RF9108 GSM PA (3.3V) ver 3
RF9109 Gain-controlled PDC950 PA (3.3V)
RF9110 Gain-controlled PDC1500 PA (3.3V)
RF9111 TDMA1900 PA (3.3V)
RF9112 DCS1900 PA (3.3V)
RF9905 Cellular DCMA LNA/Mixer
RF9907 Cellular DCMA Rx AGC
RF9908 Cellular CDMA Upconverter
RF9909 Cellular DCMA Tx AGC
RF9916 LNA/Mixer (Pakistan Project)
RF9917 Upconverter
RF9918 Downconverter
RF9919 Power Oscillater, Ver. 1
RF9920 Power Oscillater, Ver. 2 (Song's version)
RF9921 AMPS PA (PA4 and PA5)
RF9922 DAMPS PA
RF9923 GSM PA in twin bat lead package or PSOP2
RF9924 PCS PA (5 cell)
RF9936 PCS LNA/Mixer (Dual LNAs, RF Gain Control)
RF9938 PCS Upconverter
RF9946 Dual-band LNA/Mixer
RF9948 Dual-band Upconverter
RF9956 Cellular CDMA LNA/Mixer
RF9957 Cellular CDMA RX AGC/Domed (IF Amp)
RF9958 Cellular CDMA Mod/Upconverter (Transmitter)
RF9966 Cellular Dual Mode LNA/Mixer w/o GCA
RF9976 PCS LNA/Mixer (Dual LNAs, No Gain Control)
RF9986 PCS LNA/Mixer (Single LNA, No Gain Control)
RF2103 Medium Power Linear PA 800-1000 MHz
RF2105 High Power Linear PA 800-930 MHz
19
<PAGE> 21
RF2108 CDMA PA standard product
RF2113 Medium Power Broadband PA in PSOP2-8 50-1000 MHz
RF2114 Medium Power Broadband PA in fused leadframe 50-1000 MHZ
RF2115 High Power PA 800-930 MHZ
RF2123 GSM PA in standard BatWing package
RF2124 DCS1800 PA
RF2125 High Power PA 1800-2200 MHZ (PSOP2-8)
RF2126 High Power PA 2400-2500 MHZ (PSOP2-8)
RF2127 Medium Power PA 1800-2000 MHz (SOIC-8 fused lead-frame)
RF2128P Medium Power PA 2.4-2.5 GHz (PSOP2-8)
RF2129 3V, 2.4-2.5 GHz , 200 mW PA
RF2131 High Efficiency AMPS PA
RF2132 5V DAMPS or 4.5V CDMA PA
RF2143 DCS1800/1900 PA in PSOP2-8
RF2144 4.5V, GSM PA in Quad Bat-Wing (old 9107)
RF2145 4.5V, DCS 1800/1900 in QBW (old 9101)
RF2146 4.5V, PCS TDMA/CDMA PA
RF2155 3V, switched gain PA, 900 MHz, 27dBm
RF2306 HBT Gain Block, Darlington Amplifier
RF2307 HBT Gain Block, Darlington Amplifier
RF2308 HBT Gain Block, Darlington Amplifier
RF2310 HBT Gain Block, RFMD design
RF2311 HBT Gain Block, RFMD design
RF2312 HBT Gain Block, RFMD design - CATV broadband amp
RF2313 HBT Gain Block
RF2314 HBT Gain Block
RF2315 HBT Gain Block
RF2316 HBT TV Distr Amp (Balanced)
RF2317 HBT TV Distr Amp (unBalanced) (G=15dB)
RF2411 High Dynamic Range LNA/Mixer
RF2422 Direct Quadrature Modulator 900-2500 MHz
20
<PAGE> 22
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
SCHEDULE 1.7
EXISTING TRW GAAS HBT PATENT RIGHTS
<TABLE>
<CAPTION>
DOCKET NUMBER SERIAL NUMBER FILING DATE
COUNTRY PATENT NUMBER ISSUE DATE
TITLE
<S> <C> <C>
12-0527 07/783303 10/28/91
US 5352911 10/4/94
Dual Base HBT
12-0569 07/987329 8/27/92
US 5328856 7/12/94
Method for Producing Bipolar Transistors Having
Polysilicon Contacted Terminals
12-0644 08/611117 3/5/96
US
Selective Subcollector Heterojunction Bipolar
Transistors
12-0715 *****
*****
12-0716 *****
*****
12-0717 *****
*****
12-0718 *****
*****
12-0719 *****
*****
</TABLE>
21
<PAGE> 23
SCHEDULE 1.8
EXISTING TRW MBE PATENT RIGHTS
<TABLE>
<CAPTION>
DOCKET NUMBER SERIAL NUMBER FILING DATE
COUNTRY PATENT NUMBER ISSUE DATE
TITLE
<S> <C> <C>
774499 9/10/85
12-0351
US
Heterojunction Transistors with Wide Band-GAP Stop
Etch Layer
12-0543 752401 8/30/91
US 5162243 11/10/92
Method of Producing High Reliability Heterojunction
Bipolar Transistors
92305531.3 6/17/92
12-0543
EPO
Method of Producing High Reliability Heterojunction
Bipolar Transistors
4-190822 7/17/92
12-0543
JAPAN
Method of Producing High Reliability Heterojunction
Bipolar Transistors
07/876199 4/30/92
12-0553 5448087 9/5/95
US
Heterojunction Bipolar Transistor with Graded Base
Doping (as amended)
</TABLE>
22
<PAGE> 24
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
SCHEDULE 1.13
HBT TECHNICAL INFORMATION
<TABLE>
<CAPTION>
DOCUMENT NO. REVISION TITLE
<S> <C> <C>
C271736 D *****
C600008 A *****
C600009 B *****
C600012 A *****
C600015 A *****
C600017 C *****
C600060 A *****
C600061 A *****
C600062 A *****
C600068 A *****
C600504 B *****
C601655 C *****
C601657 B *****
C602190 B *****
C602191 C *****
C602192 A *****
C602195 B *****
C602445 B *****
C602447 B *****
C602454 A *****
C602455 A *****
</TABLE>
23
<PAGE> 25
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
C602456 New *****
C602457 B *****
C602458 C *****
C602461 B *****
C602476 B *****
C602477 E *****
C714462 A *****
C714463 New *****
C714464 New *****
C714465 B *****
C714468 New *****
C714467 B *****
C714468 New *****
C714469 B *****
C714471 New *****
C788576 A *****
C788578 A *****
C788577 B *****
C788578 A *****
C788582 A *****
C788584 A *****
C788585 B *****
C788592 B *****
C788593 A *****
C788594 New *****
C788595 B *****
</TABLE>
24
<PAGE> 26
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
C788596 A *****
C788597 B *****
C788598 A *****
C788599 A *****
C788609 A *****
C788614 A *****
C788617 New *****
C788620 A *****
C788624 A *****
C788626 A *****
C788629 A *****
C788630 B *****
C788646 A *****
C795936 A *****
C795938 A *****
C795942 B *****
C795948 New *****
C795950 New *****
C795953 New *****
C795954 New *****
C795957 New *****
C795960 New *****
C795961 New *****
C795962 B *****
C795969 D *****
C795970 A *****
</TABLE>
25
<PAGE> 27
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
C797406 New *****
C797408 C *****
C797409 B *****
C797410 B *****
C797416 New *****
C797417 New *****
C797418 New (A2) *****
C797429 A *****
C797430 A *****
C798640 New *****
C801500 New *****
C801501 A *****
C801502 New *****
C801503 New *****
C801504 New *****
C801506 New *****
C801507 New *****
C805451 B *****
C807500 B *****
C810052 A *****
C810264 New *****
C810267 New *****
C810268 New *****
C810270 B *****
C810271 New *****
C818613 A *****
C818614 A *****
</TABLE>
26
<PAGE> 28
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C>
C818615 New *****
C818616 New *****
C818617 New *****
C818618 A *****
C818619 New *****
C818620 New *****
C818621 A *****
C818988 A *****
C818995 A *****
C824002 New *****
C827215 New *****
C827216 New *****
C827217 New *****
C827219 New *****
C827220 New *****
C827224 New *****
C834430 New *****
C834433 New *****
C834435 New *****
C834436 New *****
C834439 New *****
C836380 New *****
C843684 New *****
C843685 New *****
C843686 New *****
D00042 New *****
</TABLE>
27
<PAGE> 29
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
D00044 A *****
D00046 New *****
D01786 New *****
D06822 E *****
D06827 C *****
D09427 A *****
D09503 A *****
D05904 B *****
D12146 E *****
D12147 New *****
D15088 B *****
D15092 A *****
D19714 New *****
D19715 A (B1) *****
D19716 A (B1) *****
D19718 A *****
D19985 B *****
D20898 New *****
D20903 New *****
D22365 *****
MF1-195 New *****
MF1-281 New *****
MF1-3714 A *****
MF1-3966 A *****
MF1-4042 New *****
MF1-4060 New *****
</TABLE>
28
<PAGE> 30
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
MF1-4061 New *****
MF1-4063 A *****
MF1-4235 D *****
MF1-4236 K (L4) *****
MF1-4238 B (C1) *****
MF1-4239 C (D5) *****
MF1-4240 C (D5) *****
MF1-4241 E/F1 *****
MF1-4242 C *****
MF1-4243 A/B1 *****
MF1-4246 D *****
MF1-4248 New *****
MF1-4249 E *****
MF1-4250 B *****
MF1-4254 C *****
MF1-4255 C *****
MF1-4256 D/E1 *****
MF1-4257 D *****
MF1-4260 A *****
MF1-4261 C *****
MF1-4262 A *****
MF1-4264 New *****
MF1-4265 C *****
MF1-4266 C *****
MF1-4267 E *****
MF1-4269 New *****
MF1-4270 B *****
</TABLE>
29
<PAGE> 31
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
MF1-4271 A *****
MF1-4272 A (B2) *****
MF1-4273 A *****
MF1-4274 B *****
MF1-4276 A (B2) *****
MF1-4277 A *****
MF1-4278 D *****
MF1-4280 *****
MF1-4281 A *****
MF1-4283 New *****
MF1-4284 New *****
MF1-4289 New *****
MF1-4290 New *****
MF1-4291 A *****
MF1-4292 C *****
MF1-4295 *****
MF1-4317 New *****
MF1-4318 *****
MF1-4319 New *****
MF1-4365 A *****
MF1-4366 *****
MF1-4811 New *****
</TABLE>
30
<PAGE> 32
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
SCHEDULE 1.18
MBE TECHNICAL INFORMATION
<TABLE>
<CAPTION>
DOCUMENT NO. REVISION TITLE
<S> <C> <C>
817336 D *****
817337 F *****
817338 C *****
C602193 New *****
C602194 A *****
C602201 B *****
C602202 New *****
C602448 New *****
C709148 A *****
C788595 B *****
C788597 B *****
C817336 A *****
C817337 New *****
C817346 C *****
C836381 *****
C836382 New *****
C836383 New *****
C836384 New *****
D12143 B *****
D12146 E *****
D20901 New *****
MF1-3714 A *****
MF1-3864 D (E4) *****
</TABLE>
31
<PAGE> 33
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
<TABLE>
<S> <C> <C>
MF1-3968 New *****
MF1-3979 A *****
MF1-3980 C *****
MF1-4040 New *****
MF1-4041 A *****
MF1-4045 B *****
MF1-4046 New *****
MF1-4047 A (B1) *****
MF1-4052 New *****
MF1-4053 New *****
MF1-4054 C (D2) *****
MF1-4056 New *****
MF1-4282 New *****
Training Document *****
</TABLE>
32
<PAGE> 34
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
SCHEDULE 2.8.2
LICENSOR CONTRACTUAL OBLIGATIONS
<TABLE>
<CAPTION>
COMPANY SALES NO. PRODUCT QTY OPTION QTY
<S> <C> <C> <C> <C> <C>
1. Matrix Corp. SN 66002 Darlington ***** *****
Amps
2. Matrix Corp. SN 65487 Darlington ***** *****
Amps
3. FEI Communications SN 65790 TRW Std *****
Products
</TABLE>
4. RFMD Supply Agreement dated May _____, 1996
33
<PAGE> 35
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
SCHEDULE 3.1
TECHNICAL ASSISTANCE
I. FUNDING AND ASSISTANCE:
Licensor shall provide Technical Assistance to Licensee in the form of employee
hours, travel expense, and other related expenses up to a total expense limit
of *****. Employee hours charged against this expense limit shall be charged
at the following rates:
<TABLE>
<CAPTION>
Employee Classification Charging Rate per Hour
<S> <C>
100B $*****
100C $*****
100D $*****
106 $*****
</TABLE>
Employees at other classifications TRW's then existing charging rate.
Travel and other related expenses will be charged at the actual expense
incurred.
II. ADDITIONAL TECHNICAL ASSISTANCE: If Licensor has provided
Technical Assistance to Licensee up to the limit specified in Item I of this
Schedule 3.1 and Licensee does not have an Operational Foundry, or if following
the date that the parties mutually agree that Licensee has an Operational
Foundry, solely as related to MBE, Licensor will provide additional Technical
Assistance for an additional expense of up to *****, at the charging rates
specified in Item 1 of this Schedule 3.1.
III. ADDITIONAL TECHNICAL ASSISTANCE: If Licensor has provided
Technical Assistance to Licensee up to the limit specified in Items I and II of
this Schedule 3.1 and Licensee does not have an Operational Foundry, or if
following the date that the parties mutually agree that Licensee has an
Operational Foundry, solely as related to MBE, Licensor will provide additional
Technical Assistance at the request of, and at the expense of, Licensee.
Licensee's obligations under this Item III shall be limited to the next *****
of expense, and will be charged at the charging rates specified in Item 1 of
this Schedule 3.1.
IV. ADDITIONAL TECHNICAL ASSISTANCE: If Licensor has provided
Technical Assistance to Licensee up to the limit specified in Items I, II and
III of this Schedule 3.1 and Licensee does not have an Operational Foundry, or
if following the date that the parties mutually agree that Licensee has an
Operational Foundry, solely as related to MBE, Licensor will provide additional
Technical Assistance for an additional expense of up to *****, at the charging
rates specified in Item 1 of this Schedule 3.1.
V. ADDITIONAL TECHNICAL ASSISTANCE: If Licensor has provided
Technical Assistance to Licensee up to the limit specified in Items I, II, III
and IV of this Schedule 3.1 and Licensee does not have an Operational Foundry,
or if following the date that the parties mutually agree that Licensee has an
Operational Foundry, solely as related to MBE, Licensor will provide additional
Technical Assistance at the request of, and at the expense of, Licensee.
Licensee's obligations under this Item III shall be limited to the next *****
of expense, and will be charged at the charging rates specified in Item 1 of
this Schedule 3.1.
VI. ADDITIONAL TECHNICAL ASSISTANCE: If Licensor has provided
Technical Assistance to Licensee up to the limit specified in Items I, II, III,
IV and V of this Schedule 3.1 and Licensee does not have an Operational
Foundry, or if following the date that the parties mutually agree that Licensee
has an Operational Foundry, solely as related to MBE, Licensor will provide
additional Technical Assistance at the request of, and at the expense of,
Licensee in accordance with Section 3.1.5 of this Agreement.
34
<PAGE> 1
EXHIBIT 10.10
THE REGISTRANT HAS REQUESTED THAT CERTAIN PORTIONS OF THIS EXHIBIT BE
GIVEN CONFIDENTIAL TREATMENT. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH
THE COMMISSION.
SUPPLY AGREEMENT
SUPPLY AGREEMENT dated as of June 6, 1996, between RF Micro Devices,
Inc. ("RFMD"), a corporation organized in the State of North Carolina, U.S.A,
with offices at 7341-D West Friendly Ave, Greensboro, NC 27410 (hereinafter
"Buyer") and TRW Inc., a corporation organized in the State of Ohio, U.S.A.,
acting through its Space and Electronics Group, with offices at One Space Park,
Redondo Beach, California 90278, U.S.A. (hereinafter "TRW").
WHEREAS, Buyer desires to purchase, and TRW desires to provide, the
Products (as defined below) specified in Exhibit 1A to this Agreement, and the
parties desire to define the terms and conditions under which the same will be
furnished;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND PRIORITY
1.1 DEFINITIONS: The following words and phrases shall have the meanings
set forth below:
AGREEMENT: This Supply Agreement between TRW and Buyer including the
following Exhibits, attached hereto and made a part hereof:
<TABLE>
<S> <C>
EXHIBIT 1A: List of Products
EXHIBIT 1B: Price, Minimum Annual Quantities and Site
EXHIBIT 4: Order Form
</TABLE>
CONTRACT PRICE: Defined in Section 4.1.
DELIVERY DATE(S): Defined in Section 6.1.
PRODUCTS: The products described in Exhibit 1A to be supplied by TRW.
SITE: Buyer's facility or other location identified in Exhibit 1B as
the destination to which transportation is to be arranged for deliverable
items.
TRW PLANT: Each of the factories or establishments of TRW and its
suppliers located in the United States.
1.2 PRIORITY: In case of any inconsistencies between this
Agreement and any of the Exhibits, the text of this Agreement shall prevail.
<PAGE> 2
ARTICLE 2
SUBJECT MATTER OF SUPPLY; REQUIREMENTS
2.1 SUPPLY: TRW hereby agrees to sell to Buyer and Buyer hereby
agrees to buy from TRW, on and subject to the terms and conditions contained in
this Agreement, the Products listed in Exhibit 1A.
2.2 REQUIREMENTS: Buyer shall buy from TRW no less than the
annual minimum quantities of Products set forth in Exhibit 1B, and TRW agrees
to sell Buyer the annual quantities of Products set forth in such Exhibit.
ARTICLE 3
EFFECTIVE DATE AND TERM
This Agreement shall be effective and binding on the parties as of the
first date noted above when signed by Buyer and TRW (the "Effective Date") and
shall remain in force and effect until December 31, 2000.
ARTICLE 4
CONTRACT PRICE, TAXES
TRANSPORTATION, EXPENSES AND CHARGES, ORDERS
4.1 PRICE: Buyer shall pay TRW, for the performance of TRW's
obligations hereunder, the prices for Products stated in Exhibit 1B in
accordance with the provisions of Article 5. The aforementioned price is
hereinafter referred to as the "Contract Price.''
4.2 TAXES: All taxes (excluding income, personal property,
inventory and similar taxes, but including stamp, withholding, value added and
turnover taxes), duties, fees, charges, or assessments of any nature levied by
any governmental authority in connection with this transaction, whether levied
against Buyer or TRW, or employees of TRW as a result of Products provided by
TRW under this Agreement, shall be for Buyer's account and shall be paid
directly by Buyer to the governmental authority concerned. If TRW is required
by law or otherwise to pay any such levy and/or fines, penalties, or
assessments in the first instance, or as a result of Buyer's failure to comply
with any applicable laws or regulations governing the payment of such levies by
Buyer, the amount of any payments so made by TRW shall be reimbursed by Buyer
to TRW upon submission of TRW's invoices and written documentation justifying
TRW's invoices.
4.3 TRANSPORTATION EXPENSES: TRW shall pay for all expenses of
handling, freight, in-transit insurance, and other transportation expenses
including, without limiting the foregoing, all packing and special handling
charges for air shipment incurred in connection with the delivery of Products
from the TRW Plant to the Site.
4.4 ORDERS: For its convenience, Buyer shall use preprinted forms
to order Products or to specify subsequent changes to Products in the form
attached hereto as Exhibit 4, which forms reference this Agreement and specify
the desired delivery date or dates for Products ("Orders").
4.5 ACCEPTANCE OF ORDERS: TRW shall use its best efforts to
accept and supply all Orders for Products which Buyer submits hereunder, and
unless otherwise agreed, TRW shall deliver Products so ordered on or before the
delivery dates or during the performance periods specified in each Order. All
preprinted terms and conditions contained in any Order are superseded by the
terms and conditions of this Agreement. Notwithstanding the foregoing, TRW
shall have no obligation to accept and shall not be deemed to have accepted,
unless signed by TRW,
2
<PAGE> 3
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
any Order (i) for any Products not listed in Exhibit 1A hereto or revisions
thereof; or (ii) which specifies a delivery date which is less than ***** from
the date of such Order; provided, however, subsequent to qualification of TRW's
MBE process, the parties will meet and mutually determine in good faith whether
shorter Order lead times are appropriate for Orders for MBE.
4.6 ORDER PROCEDURE: TRW shall give Buyer notice of its
acceptance or rejection of any Order which specifies a delivery date or dates
less than ten (10) weeks from the date of submission of the Order within five
(5) working days after receipt of such Order. If TRW rejects any such Order,
it shall specify in such notice the reasons for rejection.
4.7 ADDITIONAL PRODUCTS: The parties may, from time to time,
amend Exhibit 1A to add thereto any additional Products which TRW, during the
term of this Agreement, generally offers for sale and Buyer may purchase same
under this Agreement.
4.8 DELETION OF PRODUCTS: Subject to TRW's obligations under
Article 2 hereof, should TRW discontinue offering for sale any Products listed
in Exhibit 1A, TRW may delete such Products from Exhibit 1A, effective one
hundred eighty (180) calendar days after giving Buyer notice of such deletion.
Other provisions hereof notwithstanding, the deletion of any Products pursuant
to this Section 4.8 shall not relieve TRW from its obligation to deliver
Products for which an Order has been accepted by TRW pursuant to Section 4.5.
4.9 PRICE AND PRODUCT CATEGORY CHANGES: If, during the term
hereof, and at the request of Buyer, TRW develops a modified smaller chip
design for any Products listed in Exhibit 1A, which allows a larger number of
chips per wafer, then, effective upon TRW's notification to Buyer of the price
change, Exhibit 1A shall be deemed amended to incorporate the price change
based upon the following formula:
New price = *****
where N(0) is the initial number of chip sites per wafer using the unmodified
chip, and N1 is the number of chip sites per wafer achievable with the modified
chip design.
4.10 SALES FORECASTS: Buyer shall submit to TRW on the Effective
Date and thereafter at thirty (30) days before the start of each calendar
quarter during the term hereof a written forecast of its best estimate of its
requirements for Products during the next four (4) calendar quarters. Such
forecast shall list separately for each quarter during the period covered by
the forecast the amount of Products which Buyer expects to require during such
quarter.
ARTICLE 5
PAYMENT
Unless otherwise agreed by the parties, payment for Products shall be
net thirty (30) days after receipt of TRW's invoice; provided, however, Buyer
may pay TRW's invoices up to forty-five (45) days after receipt without being
in default under this Agreement if, and only if, such payment includes a late
payment charge equal to one percent (1%) of the amount of the invoice. Payment
of other charges, if any, provided for in this Agreement shall be due and
payable within thirty (30) days after receipt of TRW's invoice therefor. TRW's
electronic funds transfer account is as follows:
Bank of America
1850 Gateway Boulevard
Concord, California 92520
3
<PAGE> 4
Telex - MCI #67652
ABA ________
TRW Account ________
ARTICLE 6
SHIPMENT, TITLE, AND RISK OF LOSS
6.1 DELIVERY OF PRODUCTS: TRW shall place Products in the
possession of the carrier on or before the date or dates specified in each
Order therefor for delivery to Buyer, F.O.B. the Site specified in Exhibit 1B.
TRW shall arrange for shipment of Products by common carrier to the Site.
6.2 PROTECTION AND PACKING OF THE PRODUCTS: TRW shall arrange to
have all Products suitably packaged in accordance with good commercial
practices. Unless otherwise provided, all packing containers used by TRW shall
be non-returnable.
6.3 RISK OF LOSS AND TITLE: Title and risk of loss for Products
shall pass to Buyer on delivery to Buyer at the Site, notwithstanding the form
of shipping documents, or the breach or default by TRW at the time of loss.
Title and risk of loss of Products sent to TRW for adjustment shall remain with
Buyer until such are received by TRW.
6.4 SHIPPING DOCUMENTS: After Products have been shipped, TRW
shall deliver to Buyer one (1) copy of the signed Bill of Lading.
6.5 ACCESS BY BUYER: Subject to United States law and security
regulations, Buyer's representatives shall have the right, during reasonable
business hours, to enter the TRW Plant in order to inspect visually the
manufacturing progress.
ARTICLE 7
FACTORY TESTING
Prior to delivery, TRW or its suppliers shall perform standard quality
control inspections and tests applicable to their respective deliverable items.
Records of such tests shall be retained by TRW and remain available for review
by Buyer for at least one (1) year after the date(s) of delivery; a copy of
such inspection and test records shall be delivered by TRW to Buyer with
deliveries of the Products to which such records correspond. TRW shall make
available to Buyer from time to time upon Buyer's request, process control
monitor ("PCM") and specification limit testing protocols implemented by TRW
with respect to Products.
ARTICLE 8
WARRANTY
8.1 WARRANTY: TRW warrants that immediately upon delivery but not
thereafter, each Product shall comply in all material respects with the PCM
test protocol, as it relates thereto. Promptly after receipt of written notice
from Buyer that any Products are non-conforming, TRW shall replace such
non-conforming Products. Any non-conforming Products must be returned for
inspection to the TRW Plant. Buyer shall prepay all freight charges to return
any such Products to TRW. TRW shall deliver replaced Products freight prepaid
to the Site.
8.2 EXCLUSION: THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER STATUTORY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
ALL OF WHICH
4
<PAGE> 5
ARE EXPRESSLY EXCLUDED. TRW'S WARRANTY OBLIGATIONS AND BUYER'S REMEDIES ARE
SOLELY AND EXCLUSIVELY AS STATED IN THIS ARTICLE 8.
ARTICLE 9
DELAYS
9.1 FORCE MAJEURE: No failure or omission on the part of either
party to carry out or observe any of the terms or provisions of this Agreement
or any Order hereunder (except the payment of money) shall be deemed a breach
of this Agreement or such Order if same shall arise or result from force
majeure or from any cause reasonably beyond the control of Buyer or TRW, as the
case may be, including but without limitation, acts of God, acts (including
delay or failure to act) of any governmental authority (de jure or de facto),
war (declared or undeclared) riot, revolution, fires, labor disputes, sabotage
or epidemics. Should such delay occur, the date or dates of performance by the
affected party shall be extended for a period equal to the number of days
during which performance is so delayed. The affected party shall give the
other party written notice of such delay within five (5) working days after
identification of the delay. If a delay in the performance of any Order in the
aggregate shall continue for more than one hundred eighty (180) days and the
parties have not agreed upon a revised basis for performing the Order at the
end of such delays, then either party, upon thirty (30) days written notice,
may terminate such Order without liability.
9.2 TRW DELAYS: If at any time TRW discovers that it is unable
(whether for reasons set out in Section 9.1 or otherwise) to deliver any
Products to Buyer on the scheduled delivery date, TRW shall give Buyer written
notice within two (2) days of such discovery, which notice shall specify the
delivery date on which TRW shall be able to deliver such Products to Buyer. If
the delivery date proposed by TRW is more than forty-five (45) days after the
scheduled delivery date, Buyer shall have the right, without liability, to
cancel (in whole or in part) its Order for such Products, by giving TRW notice
of cancellation within ten (10) days of receipt of TRW's notification of delay.
9.3 TERMINATION: If the delays resulting from any of the causes
stated in Section 9.2 extend in the aggregate for more than one hundred eighty
(180) days on any Order and the parties have not agreed upon a revised basis
for continuing work on such Order at the end of such delays, including
adjustment of the price, then either party, upon thirty (30) days written
notice, may terminate this Agreement with respect to the unexecuted portion of
the work, whereupon Buyer shall pay TRW its termination charges as provided in
Section 9.4 below.
9.4 TERMINATION CHARGES: In the event of termination of an Order
under this Agreement for any reason, TRW shall promptly submit to Buyer a
detailed written statement and supporting documentation (such as TRW incurred
cost report and vendor invoices) of TRW's total costs incurred in the
performance of work under such Order and total cost resulting from such
termination as determined in accordance with TRW's standard accounting
practices and, if requested by Buyer, verified to Buyer by TRW's independent
auditors at Buyer's expense (hereinafter referred to as the "Total Verified
Termination Cost").
The Total Verified Termination Cost shall include the following:
(1) One hundred percent (100%) of the total termination
costs incurred by TRW, including but not limited to
any committed and/or termination costs incurred by
TRW's suppliers and vendors, less the amounts
previously paid by Buyer pursuant to such Order;
(2) The price of any completed Products pursuant to
Exhibit 1B; and
(3) TRW's costs incurred in performing uncompleted work,
plus profit in the amount of fifteen percent (15%) of
such costs.
5
<PAGE> 6
The Total Verified Termination Cost shall be paid by Buyer within thirty (30)
days after receipt of TRW's invoice therefor.
ARTICLE 10
TRANSFERS AND ASSIGNMENTS
Buyer may assign all or part of its rights and delegate all or part of
its duties described in this Agreement by giving written notice thereof to TRW.
Since this Agreement requires the performance of personal services by TRW, TRW
may not assign any right or delegate any duty described in this Agreement
without Buyer's prior written approval, which approval shall not be
unreasonably withheld, provided that this shall not affect TRW's right to
assign without Buyer's consent, either absolutely or by way of charge, any
moneys due or to become due to it or which may become payable to it under this
Agreement.
ARTICLE 11
DEFAULT
11.1 EVENT OF DEFAULT: An Event of Default on the part of either
party shall exist under this Agreement if:
(a) Such party fails to pay the other party any amount
required to be paid hereunder when due and payable hereunder; or
(b) Such party fails to perform its minimum purchase or
supply obligations (as the case may be hereunder) specified in Section
2.2 hereof during any calendar year during the term hereof, or
otherwise fails to perform any other material obligation required to
be performed by it under any provision of this Agreement (except the
payment of money) within thirty (30) days after the time specified or
within thirty (30) days after notice from the other party that such
performance has become due; provided, however, a party shall have no
right to terminate this Agreement for the other party's default so
long as corrective action is being diligently pursued by the
defaulting party in a manner that demonstrates that such party's
obligations hereunder shall be completed in sufficient time to allow
the non-defaulting party not to be prejudiced thereby.
11.2 REMEDIES AVAILABLE FOR DEFAULT: Subject to other provisions
hereof which expressly limit the remedies available hereunder, if an Event of
Default as defined in Section 11.1 exists on the part of either party, then the
other party may terminate this Agreement upon giving written notice of
termination and pursue any other remedies available at law or in equity.
ARTICLE 12
LIMITATION OF LIABILITY
12.1 INFRINGEMENT: Nothing contained in this Agreement shall be
construed as a warranty or representation by TRW that the manufacture, sale,
lease, use or other disposition of Products shall be free from infringement of
patents, utility models, design patents, maskwork rights, copyrights, trade
secrets and/or other legal rights of third parties.
12.2 LIMITATION OF LIABILITY: With the exception of Buyer's
obligation to pay invoices for deliveries of Products hereunder, the total
aggregate liability of a party under this Agreement and all Orders placed
hereunder on any claim, whether in contract, tort (including sole or concurrent
negligence), or otherwise, arising out of, connected with, or resulting from
the manufacture, supply, delivery, resale, repair, replacement, or use of
Products
6
<PAGE> 7
shall not exceed one hundred thousand dollars ($100,000).
12.3 DAMAGES: In no event shall either party be liable for any
special, indirect, incidental or consequential damages, however caused, whether
by such party's sole or concurrent negligence or otherwise, including but not
limited to costs and expenses incurred in connection with labor, overhead,
transportation, installation, or removal of Products or substitute facilities
or supply sources.
ARTICLE 13
NOTICES
All notices, requests, consents, and other communications required or
permitted to be given under this Agreement must be in writing and mailed by
registered or certified mail to the other party at its respective business
address as follows:
<TABLE>
<S> <C>
If to TRW: TRW Inc., Space and Electronics Group
Electronic Systems & Technology Division
One Space Park
Redondo Beach, California 90278
Attention: Mr. Chris Johnson
Mail Station D1/1302
Phone: (310) 814-2001
FAX: (310) 812-7011
If to Buyer: RF Micro Devices, Inc.
7341-D West Friendly Ave.
Greensboro, NC 27410
Attention: Mr. Powell Seymour
Phone: (910) 855-8085
Fax: (910) 299-9808
</TABLE>
ARTICLE 14
CONTRACT CHANGE PROCEDURE
14.1 CHANGES: Any changes to this Agreement after the Effective
Date which relate to: (i) the deletion of Products; (ii) adding additional
Products; (iii) changing or modifying Products; or (iv) making other changes
which do not materially alter the scope of this Agreement shall be made in
accordance with the procedures set forth in this Article 14.
14.2 CONTRACT CHANGES REQUESTS: Either party hereto may, from time
to time, and at any time during the term hereof, request a change, as defined
in Section 14.1, in this Agreement. (The party requesting the change is
hereinafter referred to as the "Requesting Party.") Requests for changes shall
be in writing and shall be addressed and delivered to the other party (the
"Notified Party"). Such writing shall be identified as a "Contract Change
Request" (or "CCR"), shall carry a sequential number for ease of tracking,
shall set forth in detail the nature of the change requested, and shall
identify the Products to be changed.
14.3 PROCEDURE: As soon as practical after receipt by the Notified
Party of copies of the CCR, the parties shall as necessary meet to discuss the
change and to ascertain its cost and schedule impacts, if any.
14.4 CONTRACT CHANGE NOTICE: If the parties decide to implement a
change request, a standard form Contract Change Notice ("CCN") shall be
prepared, which CCN shall describe the change, delineate the cost,
7
<PAGE> 8
schedule, and other impacts of the change and the payment terms for any price
increase or decrease. Execution of a CCN by both parties shall constitute a
modification hereof and shall be binding on both parties hereto.
14.5 EXCEPTION: Substitutions relative to Products which are
purchased items not manufactured by TRW may be made by TRW with the consent of
Buyer, which consent may not be unreasonably withheld.
ARTICLE 15
INTELLECTUAL PROPERTY
15.1 PROPRIETARY INFORMATION. For the purpose of this Agreement:
(a) "Proprietary Information" shall mean all drawings,
documents, ideas, know-how and other information supplied by one party
to another (whether disclosed orally, or in documentary form, by
demonstration or otherwise) for the purpose of achieving the
objectives of this Agreement.
(b) "Proper Use" shall mean use of the Proprietary
Information solely by the recipient for the objectives of this
Agreement.
15.2 NONDISCLOSURE. All Proprietary Information furnished shall
remain the property of the disclosing party and shall be treated by the
recipient in strict confidence, shall not be used except for Proper Use, shall
be disclosed by the recipient only to persons within the recipient's company
(including companies directly or indirectly more than fifty percent (50%) owned
or controlled by the recipient) who are directly concerned in the Proper Use,
and shall not be disclosed to consultants or by the recipient to any other
party without the disclosing party's prior written consent, except for
Proprietary Information which the recipient can show was:
(a) In the public domain at the time it was disclosed; or
(b) Known to the recipient without restriction at the
time of receipt; or
(c) Published or becomes available to others without
restriction through no act or failure to act on the part of the
recipient; or
(d) Disclosed inadvertently despite the exercise of the
same degree of care as the recipient takes to preserve and safeguard
its own proprietary information; or
(e) Known to the recipient from a source other than the
disclosing party without breach of this Agreement by the recipient; or
(f) Subsequently designated by the disclosing party in
writing as no longer proprietary; or
(g) Independently developed by the recipient; or
(h) Disclosed after five (5) years from the date of
delivery by the disclosing party to the recipient, which five (5) year
period shall survive the termination of this Agreement.
If any portion of Proprietary Information falls within any one of these
exceptions, the remainder shall continue to be subject to the foregoing
prohibitions and restrictions. The recipient of Proprietary Information shall
inform its employees of the confidential nature of the Proprietary Information
and shall prohibit them from making copies of any of it except where such
copies are necessary for the purposes of Proper Use, unless agreed upon by the
disclosing party.
8
<PAGE> 9
15.3 MARKING. Proprietary Information made available in written
form by one party to the other party shall be marked with the legend:
"RFMD PROPRIETARY INFORMATION"
or - "TRW PROPRIETARY INFORMATION"
as the case may be, or an equivalent conspicuous legend. No sheet or page of
any written material shall be so labeled which is not, in good faith, believed
by the disclosing party to contain Proprietary Information. A recipient of
Proprietary Information hereunder shall have no obligation with respect to any
portion of any written material which is not so labeled or any information
received orally unless it is identified as proprietary and a written summary of
such oral communication, specifically identifying the items of Proprietary
Information, is furnished to the recipient within thirty (30) days of such
disclosure.
The individuals identified below are the only persons
authorized to receive Proprietary Information on behalf of the parties:
For Buyer: Mr. Powell Seymour
For TRW: Mr. Bob Van Buskirk
By written notice to the other parties, these representatives may be replaced
by another person from the same party.
15.4 COMPENSATION. The parties shall not be obligated to
compensate each other for the transfer of any Proprietary Information under
this Agreement and agree that no warranties of any kind are given with respect
to such Proprietary Information or any use thereof. No license is hereby
granted under any patent, trademark or copyrights with respect to any
Proprietary Information.
15.5 SURVIVAL. The obligations of the parties concerning
confidentiality set forth in this Article 15 shall survive termination or
completion of this Agreement.
15.6 INVENTIONS AND PATENTS. Inventions conceived solely by
employees of a party under this Agreement shall belong exclusively to such
party. Inventions conceived jointly by the parties in the course of work
called for in this Agreement shall be subject to the further agreement of the
parties. Except as expressly set forth in this Agreement, nothing contained in
this Agreement shall be deemed, by implication, estoppel or otherwise, to grant
any party any right or license in respect of any patents, inventions,
Proprietary Information or other technical data at any time owned by the party
hereto. Irrespective of in whose name(s) patent applications are filed, any
party which is a co-inventor of an invention shall be entitled to a
non-exclusive, royalty-free, transferable license in any patent(s) issued with
respect thereto. The understandings set forth in this Section 15.6 are subject
to modification as may be required by applicable government regulations.
Notwithstanding the above, each party shall have a non-exclusive, royalty-free,
non- transferable, worldwide right and license under any inventions, patents,
Proprietary Information and technical data owned by the other party and used in
Products made under this Agreement, but only to the extent such licenses are
required for the limited purpose of enabling a party to perform its obligations
under this Agreement or to enable Buyer to sell products incorporating Products
made by TRW under this Agreement.
15.7 OWNERSHIP OF MASKSETS. Buyer shall retain sole ownership of
all glass plates ("Masksets") utilized for photolithographic semiconductor
processing of MMIC (as defined in Section 15.8 below) designs, and TRW shall
retain sole possession of any and all Masksets developed or procured by TRW
under this Agreement. TRW shall store Buyer's Masksets at TRW for a maximum
period of two (2) years after delivery of all Products manufactured from such
Masksets to Buyer and after expiration of such two (2) year storage period may
destroy or dispose of such Masksets upon giving Buyer ten (10) days prior
written notice thereof.
15.8 OWNERSHIP OF MMIC DESIGNS. Buyer shall retain sole ownership
rights to its designs for
9
<PAGE> 10
monolithic microwave integrated circuit ("MIMIC") designs. TRW shall retain
sole ownership rights to TRW MMIC designs , all individual circuit elements,
design libraries, design rule manuals, circuit elements and MMIC fabrication
processes for all MMIC designs.
ARTICLE 16
MISCELLANEOUS
16.1 HEADINGS: The headings and titles to the articles, sections,
and paragraphs of this Agreement are inserted for convenience only and shall
not be deemed a part hereof or affect the construction or interpretation of any
provision hereof.
16.2 REMEDIES: Unless otherwise expressly provided herein, the
rights and remedies hereunder are in addition to, and not in limitation of,
other rights and remedies under the Agreement, at law or in equity, and
exercise of one right or remedy shall not be deemed a waiver of any other right
or remedy.
16.3 MODIFICATION AND WAIVER: No cancellation, modification,
amendment, deletion, addition, or other change in the Agreement or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in a writing signed by
the party to be bound thereby. No waiver of any right or remedy in respect of
any occurrence or event on one occasion shall be deemed a waiver of such right
or remedy in respect of such occurrence or event on any other occasion.
16.4 ENTIRE AGREEMENT: This Agreement contains the entire
agreement of the parties and supersedes all other agreements, oral or written,
heretofore made with respect to the subject hereof, specifically including the
following agreements between the parties:
SN 63004, dated 3 January 1994; modified 24 March 1995
SN 64439, dated 3 January 1995
SN 64713, dated 13 January 1995
SN 63778, dated 14 September 1994; modified 17 October 1995 and 10
January 1996
SN 64770, dated 3 January 1995.
and the transactions contemplated thereby.
16.5 SEVERABILITY: Any provision hereof prohibited by or unlawful
or unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of the
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived, to the end that the Agreement be
deemed to be a valid and binding agreement enforceable in accordance with its
terms.
16.6 CONTROLLING LAW: All questions concerning the validity and
operation of this Agreement and the performance of the obligations imposed upon
the parties hereunder shall be governed by the laws of the State of California
applicable to contracts entered into and wholly to be performed in such
jurisdiction.
16.7 SUCCESSORS AND ASSIGNS: The provisions of this Agreement
shall be binding upon and for the benefit of TRW and Buyer and their respective
successors and assigns. This provision shall not be deemed to expand or
otherwise affect the limitation on assignment and transfers set forth in
Article 10 and no party is intended to or shall have any right or interest
under this Agreement, except, as provided in Article 10.
16.8 COUNTERPARTS: This Agreement has been executed in several
counterparts, each of which shall be deemed to be an original, and all such
counterparts together shall constitute but one and the same instrument.
10
<PAGE> 11
16.9 LANGUAGE: If a translation of this Agreement is required or
otherwise made, the English version shall be the official version and shall
control in the event of differences. All communications relating to this
Agreement shall be in English.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement in
English as of the date and year first set forth above.
RF Micro Devices, Inc.
By:
--------------------------------------
President and Chief Executive Officer
TRW INC.
Space and Electronics Group
Electronic Systems & Technology Division
By:
--------------------------------------
12
<PAGE> 13
EXHIBIT 1A
LIST OF PRODUCTS
1. 3" GaAs HBT processed wafers (RFMD designs using
Masksets which have been developed prior to the receipt of Order)
2. 3" GaAs HBT processed wafers (TRW designs using
Masksets which have been developed prior to the receipt of Order)
3. 4" GaAs epitaxial wafers (MBE)
13
<PAGE> 14
REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY *****
EXHIBIT 1B
PRICE, MINIMUM ANNUAL QUANTITIES AND SITE
A. PRICE
All prices are for annual cumulative wafers ordered and are subject to
adjustment as provided in Section 4.9.
<TABLE>
<CAPTION>
STANDARD PROCESS REDUCED PROCESS MBE EPITAXIAL
PRODUCT PROCESS
<S> <C> <C> <C> <C>
1. 3" GaAs HBT processed $***** $***** N/A
wafers (RFMD designs)
2. 3" GaAs HBT processed
wafers (TRW designs)
0-19 wafers $***** N/A N/A
20-39 wafers *****
40-79 wafers *****
80+ wafers *****
3. 4" GaAs epitaxial wafers N/A N/A *****
(MBE)
</TABLE>
B. MINIMUM ANNUAL QUANTITIES
<TABLE>
<CAPTION>
Number of Wafers per Year
PRODUCT 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
1. 3" GaAs HBT processed ***** ***** ***** ***** ***** Forecast
wafers (RFMD and TRW ***** ***** ***** ***** ***** Minimum
designs)
2. 4" GaAs epitaxial ***** ***** ***** ***** ***** Forecast
wafers (MBE)* ***** ***** ***** ***** ***** Minimum
</TABLE>
C. SITE: RF Micro Devices, Inc., 7341-D West Friendly Ave., Greensboro,
NC 27410
- ------------
*Buyer's obligation to purchase, and TRW's obligation to supply, 4" GaAs
epitaxial wafers (MBE) is conditional upon Buyer's having obtained by March 1,
1997 (or such other date as the parties agree pursuant to the License and
Technical Assistance Agreement ("License Agreement") between the parties of
even date herewith) the Financing, or entered into a definitive sublicense
agreement with a third party for the manufacture of Licensed Products, as such
terms are defined in Article 8.2 of the License Agreement.
14
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PRO FORMA NET INCOME PER SHARE
RF MICRO DEVICES, INC.
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended
March 31,
-----------
1997
-----------
<S> <C>
Weighted average number of
common shares issued and
outstanding 2,778,369
Dilutive common stock
equivalents:
Stock options and warrants 710,357
Preferred stock 7,802,616
Less shares assumed
repurchased with proceeds (75,161)
------------
11,216,181
Restricted common stock,
preferred stock, stock options
and warrants assumed to be
outstanding for the period in
accordance with SAB 83 2,050,096
Less shares assumed
repurchased with proceeds (1,217,070)
------------
Weighted average number of
shares used to compute
pro forma income per
share. 12,049,207
============
Net income used in per
share calculations $ 1,652
Proforma income per
share $ 0.14
Net income per share $ 0.14
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 18, 1997, in Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-22625) and the related Prospectus of RF Micro
Devices, Inc. for the registration of 2,537,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
May 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,330
<SECURITIES> 0
<RECEIVABLES> 2,911
<ALLOWANCES> 510
<INVENTORY> 9,216
<CURRENT-ASSETS> 13,964
<PP&E> 7,267
<DEPRECIATION> 1,041
<TOTAL-ASSETS> 36,265
<CURRENT-LIABILITIES> 6,651
<BONDS> 10,596
28,257
0
<COMMON> 2,960
<OTHER-SE> (12,432)
<TOTAL-LIABILITY-AND-EQUITY> 36,265
<SALES> 28,802
<TOTAL-REVENUES> 28,802
<CGS> 15,826
<TOTAL-COSTS> 27,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399
<INCOME-PRETAX> 1,761
<INCOME-TAX> 109
<INCOME-CONTINUING> 1,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,652
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
