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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-22511
RF MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
NORTH CAROLINA 56-1733461
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7625 THORNDIKE ROAD 27409-9421
GREENSBORO, NORTH CAROLINA (Zip code)
(Address of principal executive offices)
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(336) 664-1233
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant was approximately $1,760,890,247 as of June 17,
1999. For purposes of such calculation, shares of common stock held by persons
who hold more than 10% of the outstanding shares of common stock and shares held
by directors and officers of the registrant and their immediate family members
have been excluded because such persons may be deemed to be affiliates. This
determination is not necessarily conclusive. There were 39,501,598 shares of the
registrant's common stock outstanding as of June 17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's proxy statement with respect to the
1999 annual meeting of shareholders of the registrant have been incorporated by
reference herein.
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This Annual Report on Form 10-K contains forward-looking statements that
relate to our plans, objectives, estimates and goals. Words such as "expects,"
"anticipates," "intends," "plans," "believes" and "estimates," and variations of
such words and similar expressions, identify such forward-looking statements.
Our business is subject to numerous risks and uncertainties, including probable
variability in our quarterly operating results, manufacturing capacity
constraints, risks associated with our operation of a wafer fabrication
facility, our dependence on a limited number of customers, variability in our
production yields, our ability to manage rapid growth and our dependence on
third parties. These and other risks and uncertainties, many of which are
addressed in more detail below in the sections entitled "Business -- Additional
Factors That May Affect Future Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," could cause our
actual results and developments to be materially different from those expressed
or implied by any of these forward-looking statements.
We use a 52 or 53 week fiscal year ending on the Saturday closest to March
31 of each year. Each of the 1997, 1998 and 1999 fiscal years was a 52-week
year. Our other fiscal quarters end on the Saturday closest to June 30,
September 30 and December 31 of each year. For purposes of this Annual Report on
Form 10-K (including the Financial Statements and Notes thereto), we describe
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.
Where appropriate, we have adjusted references in this Annual Report on
Form 10-K to prices and share numbers of our common stock to reflect a 2-for-1
stock split that we effected in the form of a 100% share dividend payable on
March 31, 1999 to record holders of common stock on March 17, 1999.
PART I
ITEM 1. BUSINESS
INTRODUCTION
We design, develop, manufacture and market proprietary radio frequency
integrated circuits, or RFICs, for wireless communications applications such as
cellular and personal communication services, cordless telephony, wireless local
area networks, wireless local loop, industrial radios, wireless security and
remote meter reading. We offer a broad array of products -- including
amplifiers, mixers, modulators/demodulators and single chip transmitters,
receivers and transceivers -- that represent a substantial majority of the RFICs
required in wireless subscriber equipment. We design products using three
distinct process technologies: gallium arsenide heterojunction bipolar
transistor, or GaAs HBT; silicon bipolar transistor; and, to a lesser extent,
gallium arsenide metal semiconductor field effect transistor, or GaAs MESFET.
We began manufacturing our own GaAs HBT products at our new wafer
fabrication facility in September 1998, and we are now concentrating our efforts
on increasing our manufacturing capacity to satisfy customer demand for GaAs HBT
products, which is currently greater than we can meet. Before September 1998,
TRW Inc., which is our largest shareholder, manufactured all of our GaAs HBT
products. TRW has granted us a perpetual non-royalty bearing license to use its
GaAs HBT process to design and manufacture products for commercial wireless
applications. Our GaAs HBT power amplifiers and small signal devices have been
designed into advanced subscriber equipment made by leading original equipment
manufacturers, or OEMs, such as Nokia Mobile Phones Ltd., LG Information and
Communications, Ltd., Hyundai Electronics Industries Co. Ltd., Samsung
Electronics Co., Ltd., and Motorola, Inc. Through a delivery strategy called
Optimum Technology Matching(R), we also offer silicon and GaAs MESFET components
to complement our GaAs HBT products. Optimum Technology Matching(R) allows us 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 grew rapidly over the past decade as
cellular, paging, PCS and other emerging wireless communications services became
more widely available and affordable. Technological
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advances, changes in telecommunications regulations and the allocation and
licensing of additional radio spectrum have helped cause this growth worldwide.
Technological advances have also led to the development of competing wireless
communications services, and 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 function of the
services they offer and seek to offer greater bandwidth for more capacity.
To expand capacity from first generation cellular communications networks,
certain national governments made available less congested frequency bands for
new wireless communications services. In the United States, the Federal
Communications Commission 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 better signal quality, help 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
mean higher quality signals.
The wireless communications markets have many different air interface
signal transmission standards in different parts of the world, including digital
standards, such as Global System for Mobile Communications, Time Division
Multiple Access and Code Division Multiple Access, analog standards, such as
Advanced Mobile Phone Service and Total Access Communications Systems, 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 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, because new entrants to the wireless subscriber equipment market, such
as large consumer electronics companies, tend to be less vertically integrated
than established OEMs, they 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
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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.
In early 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.
Particularly for the critical power amplifier function, the use of silicon
integrated circuits at cellular and PCS frequencies has been limited because of
decreased operating performance. In particular, at high frequencies silicon
integrated circuits consume more power, have relatively higher 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 linear signal (i.e., one that is not altered or distorted when amplified).
GaAs MESFET devices have difficulty meeting 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. Additionally, 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, emerged recently in commercial RF
applications.
Our GaAs HBT products include power amplifiers and small signal devices
that have been designed into advanced subscriber handsets manufactured by
leading OEMs such as Nokia, Hyundai, Phillips, Motorola and LGIC. We believe
that GaAs HBT components offer benefits over GaAs MESFET devices in comparable
applications in a number of ways, including speed, efficiency, the ability to
operate at high frequencies, lack of signal distortion, complexity and size.
STRATEGY
Our goal is to be the leading worldwide supplier of RFICs for a broad range
of commercial wireless applications. To meet this goal, we have developed a
focused strategy. The key elements are:
Expand Manufacturing Capacity. We have completed construction of an
approximately 64,000 square foot fabrication facility and are now
fabricating our own GaAs HBT wafers. This facility became operational in
June 1998, and has been qualified by our major customer and by other
current and potential customers. We have recently undertaken a 6,000 square
foot expansion to the clean room and the purchase or lease of additional
production equipment to increase the facility's capacity to 30,000
four-inch wafers per year, which we expect to complete by the winter of
2000. In addition, we plan to implement a number of additional steps that
we anticipate would increase the facility's capacity to 50,000 four-inch
wafers per year by the spring of 2001. We are also in the process of
evaluating other options to expand manufacturing capacity. We believe that
operating our own GaAs HBT wafer fabrication facility has improved our
ability to respond to customer demand for GaAs HBT products and is
providing us with greater opportunities to enhance product and process
quality and reliability, and that our future success depends heavily upon
our ability to expand our manufacturing capacity.
Offer a Wide Range of RF Products. We offer a full line of products
that include power amplifiers, low noise amplifiers/mixers, quadrature
modulators/demodulators and single chip transceivers. For cellular
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and PCS applications, we offer products addressing virtually all of the
analog and digital air interface standards. Our design engineering staff
has developed proprietary design and fabrication modeling techniques and
tools to enable us to deliver state-of-the-art integrated circuit designs
that meet our customers' stringent technical specifications. In response to
customer requests, we are also preparing to offer certain RFICs in a
"modular" package that, in addition to one or more RFMD-designed integrated
circuits, includes passive components, such as filters and resistors, that
are commonly incorporated into end-user devices. We currently plan to
assemble and package these modules both in-house and through one of our
packaging vendors. Assembling and packaging these products in-house will
present us with a variety of technical and other challenges, but we believe
this is a necessary step for us to remain competitive in our industry.
Maintain Diversification in Process Technologies. We believe that we
are the only provider of RFICs in commercial volumes that is able to design
products in three distinct process technologies -- GaAs HBT, GaAs MESFET
and silicon. We believe that our GaAs HBT expertise allows us to deliver
high efficiency, high performance components such as linear power
amplifiers and low noise amplifiers to the wireless communications markets.
While attempting to leverage our GaAs HBT capabilities, we also intend to
expand our line of silicon-based RFICs and to greatly increase the portion
of overall revenue attributable to sales of silicon products. As a part of
this strategy, in March 1998, we entered a multi-year agreement with
International Business Machines Corporation that provides for expanded
development, manufacture and sale of custom RFICs by us using IBM's
advanced Blue Logic silicon process technology. We have developed more than
40 RFICs using this technology, and revenues represented by sales of
silicon products have increased from $5.2 million in fiscal 1998 to $15.0
million in fiscal 1999. Moreover, we are continually evaluating RF test
circuits under emerging semiconductor process technologies, such as silicon
germanium. On January 11, 1999, we announced that we have expanded our
relationship with IBM to add access to IBM's silicon germanium foundry
services, and we are in the early stages of designing products using this
technology. Final negotiations with IBM regarding the terms for use of
silicon germanium are expected to be complete by the end of the second
quarter of fiscal year 2000.
Focus on Wireless Markets. Since RFMD's formation in 1991, we have
focused our efforts almost exclusively on the design, development,
manufacture and sale of RFICs to participants in the commercial wireless
markets. We have 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. Our customers include some of the leading
OEMs, including Nokia, LGIC, Hyundai, Samsung and Motorola.
Maintain Balanced Product Mix. We strive 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 an agreed period of time. Once exclusive production is over,
we attempt to move custom products quickly into the standard product
category in order to broaden our customer base and leverage our design and
product development expenditures.
MARKETS
We design, develop, manufacture and market our products to both domestic
and international OEMs for commercial applications in the wireless markets,
including cellular and PCS handsets, cordless telephony, industrial radios,
wireless LAN 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 handheld
subscriber devices by making a connection with a base station via RF channels.
While the initial PCS services are similar to cellular telephony, as PCS becomes
more widely used, 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.
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Cordless Telephony
Cordless telephones have moved from first generation analog phones to
digital cordless phones operating at higher frequencies. These digital cordless
phones typically use spread spectrum modulation to provide improved range and
voice quality, less interference and greater security.
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
We also supply custom components for other applications in wireless
markets, such as wireless security systems and wireless utility meter reading
systems. We are pursuing other emerging wireless markets, including enhanced
two-way paging, wireless monitoring devices, interactive toys, home networking,
keyless entry and wireless handheld devices used for point-of-sale, bar coding
and other applications. We also pursue opportunities to leverage the
technological advantages of our RF components by identifying applications in
other markets. For example, we have has applied our RF power amplifier design
expertise to develop high performance power line amplifiers for the cable
television market and markets various GaAs HBT and MESFET components for
satellite and microwave communications applications. In addition, certain of our
components, such as gain blocks and attenuators, are used for instruments and in
other non-wireless applications.
MANUFACTURING, PACKAGING AND TESTING
Our manufacturing cycle consists of semiconductor wafer fabrication,
assembly and packaging, and final product testing. We began manufacturing GaAs
HBT products at our new wafer fabrication facility in September 1998 and also
use independent foundries located in the United States to manufacture our
products. We currently use one independent foundry to supply our silicon-based
product requirements and one independent foundry to supply our GaAs MESFET
devices. We purchase a significant portion of our GaAs HBT wafers from TRW and
currently expect that we will continue to do so. Although our new wafer
fabrication facility is operational, we will continue to rely on independent
foundries for the manufacturing of a substantial portion of our products for the
foreseeable future. This reliance 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.
In June 1998, we completed the first phase of an approximately 64,000
square foot fabrication facility adjacent to our primary facility in Greensboro,
North Carolina to fabricate four-inch diameter GaAs HBT wafers using
technologies licensed from TRW. This first phase, at a cost of approximately $40
million, involved
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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. We have completed the
transfer of TRW's manufacturing process and molecular beam epitaxy, or MBE,
process for producing wafer start material. We began shipping commercial
quantities of integrated circuits from this facility in September 1998. The
facility has been qualified by both current and potential customers. Production
at the facility is expected to increase during fiscal 2000 as additional
customers qualify our fabrication facility and additional components are
manufactured.
The second phase, currently underway, involves expansion of wafer
fabrication and MBE production capacity. This phase is budgeted at approximately
$40 million, $38 million of which we have already spent, and includes an
approximately 6,000 square foot expansion to the clean room and the purchase or
lease and installation of additional production equipment. The completion of the
second phase of the fabrication facility, which we believe will increase maximum
production capacity to approximately 30,000 four-inch wafers per year, is
dependent on a number of factors both within and outside our control and is
currently scheduled to occur during the winter of 2000.
In addition, we intend to expand further our wafer manufacturing capacity
by moving our MBE wafer starting material equipment out of the facility to a new
leased location, reconfiguring the space currently occupied by this equipment
with additional wafer production equipment and hiring additional production
personnel. This phase of expansion, which has a budgeted total cost of $15
million and which we believe will increase maximum production capacity to
approximately 50,000 four-inch wafers per year, is currently scheduled to be
completed in the spring of 2001. We are also studying other means of increasing
our manufacturing capacity, including the construction of additional fabrication
facilities and modifications to our production process; however, no definite
plans have been implemented or approved.
We maintain an inventory of certain standard products based on our internal
forecasts of expected demand for these products. For custom-designed products,
designs of our products are verified both by us and by the customer before
orders for production wafers are placed. Upon receipt of orders from an OEM, we
schedule production based on order size, customer delivery requirements,
production schedules and other production considerations.
We currently use seven vendors located in Asia and one vendor located in
the United States to package and assemble our products. All of these 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. We qualify and
monitor assembly contractors based on cost and quality. These contractors
typically provide us with per-unit pricing.
We have encountered packaging quality problems with certain of our vendors,
particularly with regard to GaAs products. In particular, we took non-recurring
charges in the fourth quarter of fiscal 1998 of approximately $4.6 million to
cover product returns and the establishment of inventory reserves for products
with packaging-related problems. This packaging problem ultimately was resolved
to our satisfaction and the satisfaction of our customer. We have taken steps to
improve the reliability of packaging quality, including the hiring of a Vice
President of Quality, the expansion of our in-house package testing and
qualification line and the employment of additional packaging engineers to
engage in both package testing and the development of new packaging designs;
however, we cannot be sure that we will not experience additional packaging
quality problems in the future. We believe that we will have to continue to
monitor closely our vendors as our production volumes increase.
In addition to using independent packaging vendors, we plan to begin
assembling and packaging in-house certain RFICs in a "modular" package that, in
addition to one or more RFMD-designed integrated circuits, includes passive
components, such as filters and resistors, that are commonly incorporated into
end-user devices. We have not previously packaged any type of RFIC on a
commercial basis, and this vertical expansion of our business will require
significant investment in equipment and additional personnel and will require us
to develop expertise in new production techniques that are significantly
different from RFIC fabrication processes. We currently have budgeted $12
million for developing our in-house modular packaging capability, and we
currently expect to begin shipping commercial quantities of modular units that
we have packaged ourselves during the first calendar quarter of 2000.
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PRODUCTS AND APPLICATIONS
We offer 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, we attempt to convert custom
products into standard products to broaden our customer base and leverage our
design and product expenditures. At March 31, 1999, we offered 158 products, and
50 additional products were in various stages of development. Below is a list of
our current products by category, the number of products in each category, the
semiconductor process technology used to fabricate these products and the types
of OEM devices into which these products are incorporated.
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NO. OF FABRICATION
PRODUCT CATEGORY PRODUCTS TECHNOLOGY END USER DEVICES
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Power Amplifiers................................ 5 HBT; MESFET Set-Top Boxes; Cable Modem
Power Amplifiers................................ 43 HBT; Silicon Cellular Handsets; Wireless
Local Loop; Basestations;
Wireless Local Area
Networks
Quadrature Modulators/Demodulators.............. 18 HBT; Silicon Cellular Handsets;
Basestations;
Point-to-Point Links;
Military Radios
Low Noise Amplifiers/Mixers..................... 24 HBT; Silicon Cellular Handsets; Wireless
Microphones
IF Components................................... 11 Silicon Cellular Handsets; Wireless
Meter Reading Systems
Gain Blocks..................................... 33 HBT; Silicon Point-to-Point Links;
Wireless Local Loop
Transceivers.................................... 18 Silicon; MESFET Wireless Security; Cordless
Telephones; Wireless
Meter Reading; Misc.
Consumer Products
Attenuators/VCA................................. 6 Silicon; MESFET Cellular Basestations;
Point-to-Point Links
</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. Our GaAs HBT power amplifiers offer low distortion, small size, high
efficiency, improved linearity and operation from a single polarity power
source.
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.
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Low Noise Amplifiers/Mixers
A 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
the 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. Our 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.
Transmitters, Receivers and Transceivers
Single chip transmitters and receivers send and receive wireless signals.
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. Our 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.
CUSTOMERS
The following list identifies, by market, our customers that have placed
cumulative orders of greater than $100,000 in the 12 months ended March 31,
1999.
CELLULAR/PCS HANDSETS
Nokia Mobile Phones Ltd.
Siemens A.G.
Philips N.V.
Motorola Inc.
Bosch Telecom, Inc.
LG Information & Communications, Ltd.
NEC Corp.
Hyundai Electronics Industries Co., Ltd.
Sony Electronics, Inc.
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Samsung America Inc.
Internix, Incorporated
Hanwha Telecommunications Co., LDT
Appeal Telecommunications Co. Ltd.
Kyocera America, Inc.
Telson Electronics Co., Ltd.
Denso Wireless Communications Co., Ltd.
Pan Tech Engineering Corporation
Mitel Corporation
Marshall Industries
CELLULAR/PCS BASE STATIONS
Ericsson Mobile Communications
Motorola Inc.
Lucent Technologies
Powerware Technologies, Inc.
SCI Systems, Inc.
Spectrian Corporation
Sanmina Corporation
WIRELESS DATA
Lucent Technologies, Inc.
Research In Motion Limited
OTHER WIRELESS APPLICATIONS
Tellabs Operations, Inc. (Wireless Local Loop)
Lucent Technologies, Inc., SpectraLink Corporation, Hexagram, Inc. (Cordless
Telephones)
Motorola Inc., Celestica, Inc. (Paging; Industrial Radios)
Alcatel Network Systems (Point to Point Radio)
Hoshing Telecom Limited (Child Locators)
Digital Security Controls Ltd. (Wireless Security)
We have agreed in principle with TRW and Nokia to cooperate to develop and
supply Nokia with RFICs that are manufactured using TRW's GaAs HBT processes.
The arrangement contemplates that Nokia and we will negotiate separate
agreements to address the development and supply of each component. Pursuant to
the arrangement, we have agreed to provide Nokia with access to certain RFIC
technologies and to our GaAs HBT wafer fabrication facility, and Nokia has
agreed to provide us with rights to bid for and supply Nokia's requirements for
certain RFICs.
Pursuant to separate agreements resulting from our arrangement with Nokia,
we have developed a number of RFICs and supplied them to Nokia in commercial
quantities. For the 12 months ended March 31, 1999, sales to Nokia were
approximately $112.2 million, representing approximately 73% of our revenue.
Our agreement in principle with TRW and Nokia can be terminated without
penalty by any of the parties for any reason. This arrangement does not obligate
Nokia to purchase any additional products from us, and there can be no assurance
that Nokia will remain a significant customer of ours or that this relationship
will continue.
SALES AND MARKETING
We sell our products worldwide directly to customers as well as through a
network of 13 domestic sales representative firms and 18 foreign sales
representative firms. One sales representative firm, Jittek, accounted for
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about 15% of our revenue during fiscal 1999. We select our 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. We provide
ongoing training to our representatives to keep them knowledgeable of our
products. We maintain an internal marketing organization that is responsible for
key account management, application engineering support to customers, 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. In June 1999, we opened a
small sales office in the United Kingdom to enhance our ability to serve our
European customers. We expect that beginning in fiscal 2000, we will be
increasing our internal sales force enabling us to provide a greater level of
direct customer support and the ability to deepen our strategic relationships.
We believe that maintaining a close relationship with customers and
providing customers with ongoing technical support is essential to customer
satisfaction in the wireless communications industry. Our marketing 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. We assign to our 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. We believe that maintaining close
contact with customers improves their level of satisfaction and enables us to
anticipate their future product needs.
STRATEGIC RELATIONSHIP WITH TRW
In June 1996, we entered into a broad strategic relationship with TRW based
on several agreements that evidence an investment by TRW in RFMD, a technology
license from TRW to us and a supply arrangement between the parties. As a part
of this alliance, TRW provided us with $25 million of equity and debt financing
and became a significant shareholder of RFMD. Our key goal in entering into this
alliance was to enable us to construct a four-inch wafer fabrication facility to
manufacture products using GaAs HBT technologies developed by TRW and licensed
to us.
Under our license agreement, TRW has granted us 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, with accompanying
know-how and technical information, to design, develop, manufacture, market,
service and repair certain existing products of ours and any GaAs HBT product in
which the emitter of the GaAs HBT has a width of one to three microns. These
products must be 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 became effective in June 1996, and the MBE license became
effective on June 15, 1998, the date agreed upon by the parties as the point at
which our wafer fabrication facility became operational. Subject to TRW's right
to use the licensed technology 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 we
fail to meet certain revenue goals.
TRW also granted us non-exclusive licenses to use certain of its existing
GaAs HBT rights and MBE rights for the development and sale of certain of our
existing products for applications other than commercial wireless communications
or that operate on signals having a frequency of 10 GHz or more. The license
agreement provides that TRW will offer to us, 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 June 15, 1998, which is the date on which our
wafer fabrication facility became operational. We have agreed to share with TRW
any modifications or improvements that we make in the technology or the products
developed therefrom, and to grant TRW a non-exclusive, royalty-free license to
use any of these modifications or improvements in applications outside our field
of use. The licenses granted under the license agreement are granted without
representation or warranty as to validity or noninfringement. Upon any
termination of the license agreement for default, whether due to our default or
otherwise, our rights to TRW's technologies would cease.
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Under the terms of the supply agreement, we have agreed to purchase from
TRW, and TRW has agreed to sell to us, certain minimum quantities of three-inch
GaAs HBT processed wafers and four-inch GaAs epitaxial wafer starting material
until December 31, 2000. We are currently purchasing from TRW quantities of
wafers in excess of the minimum number required to be delivered by TRW to us
under the supply agreement.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused primarily on the
development of new integrated circuit products, and also at improving
manufacturing processes and yields. At March 31, 1999, there were 105 persons in
our research and development organization. Because of the relative scarcity of
RFIC design engineers, we have decided to locate some of our design personnel
outside of our Greensboro, North Carolina headquarters. We opened a design
center in Scotts Valley, California in April 1999 that is currently staffed by
12 engineers and a design center in Cedar Rapids, Iowa in June 1999 that is
currently staffed by five engineers, and we anticipate that we may open
additional RFIC design centers in other locations during fiscal 2000.
Our circuit design staff is continually developing RFIC design solutions
for new and emerging wireless applications. Our 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, we are continually evaluating test RF circuits under
emerging semiconductor process technologies, such as silicon germanium, to
augment our Optimum Technology Matching(R) program and to meet our customers'
future wireless equipment needs.
In fiscal 1997, 1998 and 1999, we incurred approximately $6.2 million, $8.8
million and $14.2 million, respectively, of research and development expenses.
We do not separately account for RFMD-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, we believe that our future success
depends in part on our ability to design RFICs under emerging wafer fabrication
technologies that meet the cost and performance parameters of its customers.
Moreover, we believe we must be able to attract and retain qualified research
and development personnel.
COMPETITION
Competition in the markets for our products is intense. We face competition
from several companies engaged in the business of designing, manufacturing and
selling RFICs, as well as suppliers of discrete products such as transistors,
capacitors and resistors. We have begun to experience competition for GaAs HBT
products and we may face future competition from companies that have or develop
GaAs HBT or other fabrication processes. In addition, our current and potential
competitors include OEMs that have or may develop the ability to produce RFICs
or discrete products internally for their own requirements. Our primary
competitors include Anadigics, Inc., Conexant Systems, Inc., Fujitsu Limited,
Hitachi Ltd., Motorola, NEC Corp., Phillips N.V., Siemens A.G. and Triquint
Semiconductor, Inc.
We believe that competition within the markets for our products is driven
primarily by the ability to design and deliver high performance and price
competitive products in sufficient quantities and in a timely manner.
Competition is also affected by the quality of customer service and technical
support and the ability to design customized products that address each
customer's particular requirements and cost limitations.
Many of our current and potential competitors have entrenched market
positions, established patents, copyrights, trade names, trademarks and
intellectual property rights and substantial technological capabilities.
Further, many of our competitors have significantly greater financial,
technical, manufacturing and marketing resources than we do. Increased
competition could adversely affect our revenue and profitability by causing us
to reduce prices or by reducing demand for our products.
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INTELLECTUAL PROPERTY
It is our practice to seek U.S. patent and copyright protection on our
products and developments, where appropriate, and to protect our proprietary
technology under U.S. and foreign laws affording protection for trade secrets
and for integrated circuit designs. We own two U.S. patents for GaAs HBT power
amplifiers, both of which were issued in 1997 and will expire in 2015.
We rely primarily upon trade secrets, technical know-how and other
unpatented proprietary information relating to our product development and
manufacturing activities. To protect our trade secrets, technical know-how and
other proprietary information, our employees are required to enter into
agreements providing for maintenance of confidentiality and the assignment of
rights to inventions made by them while in our employ. We also have entered into
non-disclosure agreements to protect our 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 our confidential
information, that these agreements will not be breached, that we would have
adequate remedies for any breach or that our trade secrets and proprietary
know-how will not otherwise become known or independently discovered by others.
While we have 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 us, our customers or TRW with respect to existing and
future products. Any litigation to determine the validity of any third party's
claims could result in significant expense to us, and divert the efforts of our
technical and management personnel, whether or not the litigation is determined
in our favor. 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 intellectual property rights litigation, we 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 we would be successful in such development or that any such
license would be available on commercially reasonable terms.
BACKLOG
At March 31, 1999, our backlog was approximately $64.6 million, compared to
approximately $42.8 million at the end of fiscal 1998. We include in backlog all
accepted product purchase orders for which delivery has been specified within
one year. Product orders in our backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without significant
penalty. Our backlog may vary significantly from time to time depending upon the
level of capacity available to satisfy unfilled orders. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be a
reliable indicator of sales for any future period.
EMPLOYEES
At March 31, 1999, we had 423 employees. We believe that our future
prospects will depend, in part, on our 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, RFIC design and technical marketing, is limited.
None of our employees is represented by a labor union, and we have never
experienced any work stoppage. We believe that our employee relations are good.
ENVIRONMENTAL MATTERS
By virtue of operating our wafer fabrication facility, we are 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 currently in
effect or subsequently adopted could result in the imposition of fines on us,
the suspension of production or a cessation of operations. In addition, such
requirements could restrict our ability to expand our facilities or require us
to acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up discharges. We believe that costs arising
from
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existing environmental laws will not have a material adverse effect on our
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
we will not incur significant costs in the future in order to comply with these
laws.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Annual Report on Form 10-K,
readers should carefully consider the following important factors. These
factors, among others, in some cases have affected, and in the future could
affect, our financial condition and results of operations and could cause our
future results to differ materially from those expressed or implied in any
forward-looking statements that appear in this Annual Report on Form 10-K or
that we have made elsewhere.
Our Operating Results Fluctuate Significantly and We May Not Be Able to
Maintain Our Existing Growth Rate.
Our revenue, earnings and other operating results have fluctuated
significantly in the past and may fluctuate significantly in the future.
Although we have had significant revenue and earnings growth in recent quarters,
we may not be able to sustain these growth rates. Our future operating results
will depend on many factors, including the following:
- our ability to design, manufacture and deliver our products in a timely
and cost-effective manner;
- our ability to design, manufacture and deliver our products in large
enough volumes to satisfy our customers' requirements;
- the ability of our third party foundries and assemblers to manufacture
and assemble our products in a timely and cost-effective manner that
meets our customers' requirements;
- unexpected poor line, assembly or test yields for our products;
- our ability to expand our production of GaAs HBT wafers at our wafer
fabrication facility;
- demand for our products;
- demand for our customers' products;
- competition; and
- general industry and global economic conditions.
It is likely that our future operating results will be adversely affected
by these or other factors. If our future operating results are below the
expectations of stock market analysts or our investors, our stock price may
decline.
We are Experiencing GaAs HBT Capacity Constraints, and Increasing Production
from Our Wafer Fabrication Facility Is Critical to Our Business.
In June 1998, we completed the first phase of our 64,000 square foot GaAs
HBT wafer fabrication facility located in Greensboro, North Carolina. This
facility and our current efforts to increase its production are crucial to our
strategy of expanding our GaAs HBT manufacturing capacity in order to satisfy
customer demand for our GaAs HBT products, which is currently greater than we
are able to meet.
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We began commercial shipments of products from our facility in September
1998. Production from the facility gradually increased throughout the remainder
of fiscal 1999 and we expect it to continue to increase into fiscal 2000. In
order to increase production at this facility, we must qualify each new RFIC
design with our customers. As parts are brought into production, we must
maintain and improve our line yields, assembly yields and test yields in order
to reach our manufacturing goals. A number of factors will affect the future
success of this facility, including the following:
- our ability to qualify new products in a timely manner;
- demand for our products;
- our production yields;
- our ability to generate revenues in amounts that cover the significant
fixed costs of operating a wafer fabrication facility;
- our relatively limited experience in high volume manufacturing of GaAs
HBT products;
- our ability to hire, train and manage qualified production personnel;
- our compliance with applicable environmental and other laws and
regulations; and
- our inability to use all or any significant portion of our facility for
prolonged periods of time for any reason. For example, a small fire at
our facility last year caused by a chemical reaction damaged a piece of
processing equipment. Fortunately, this did not affect our production.
We are currently in the process of the second phase of construction of our
wafer fabrication facility. The second phase involves expansion of wafer
fabrication and starting material production capacity. This phase is budgeted at
about $40 million and includes about 6,000 square foot expansion to our clean
room and the installation of additional production equipment. This second phase
expansion project is currently expected to be completed during the winter of
2000. In addition, we intend to expand further our wafer manufacturing capacity
by moving our MBE equipment out of the facility to a new leased location,
reconfiguring the space currently occupied by this equipment with additional
wafer production equipment and hiring additional production personnel. This
phase of expansion, which has a budgeted total cost of $15 million, is currently
scheduled to be completed by the spring of 2001. Construction activities like
these are subject to a number of risks, including the following:
- unforeseen environmental or engineering problems;
- unavailability or late delivery of process equipment;
- work stoppages and delays; and
- delays in bringing production equipment on-line.
These and other risks may adversely affect the ultimate cost of these
projects when they are completed and when we are able to exploit these planned
increases in our production capacity.
We are also studying other means of increasing our manufacturing capacity,
including the construction of additional fabrication facilities and
modifications to our production process. No definite plans have been implemented
or approved in this regard, however, and we cannot be sure whether we will be
able to identify additional means of increasing capacity or that any efforts we
make to increase capacity through other means will be successful or
cost-effective. Moreover, we may devote significant resources to analyzing the
feasibility of alternative means of increasing capacity only to determine that
they are not practicable.
We Depend on a Few Large Customers.
Historically, a substantial portion of our revenue has come from large
purchases by a small number of customers. We expect that trend to continue. For
example, for fiscal 1999 our top five customers accounted for 87% of our total
revenue and for fiscal 1998 our top five customers accounted for 70% of our
total revenue and.
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Accordingly, our future operating results depend on the success of our largest
customers and on our success in selling large quantities of our products to
them.
The identity of our largest customers has varied significantly from year to
year. In fiscal 1999, sales to Nokia accounted for 73% of our revenue. In fiscal
1998, sales to Nokia accounted for 42% and sales to LGIC accounted for 13% of
our revenue. In fiscal 1997, sales to Qualcomm Incorporated accounted for 32%
and sales to Samsung accounted for 23% of our revenue.
We typically manufacture custom products on an exclusive basis for one
customer for a negotiated period of time. This factor, along with capacity
constraints, makes it difficult for us to diversify our customer base. The
concentration of our revenues with a few large customers makes us particularly
dependent on factors affecting those customers. For example, if demand for their
products decreases, they may stop purchasing our products and our operating
results will suffer. Most of our customers can cease incorporating our products
into their products with little notice to us and with little or no penalty. If
we lose a large customer and fail to add new customers to replace lost revenue,
our operating results will not recover.
If We Experience Poor Production Yields, Our Operating Results May Suffer.
Our integrated circuit products, especially our GaAs HBT products, are very
complex. Each product has a unique design and each product is fabricated using
semiconductor process technologies that are highly complex. In many cases, the
products are assembled in customized packages. Our customers incorporate our
RFICs into high volume products such as cellular and PCS handsets and they
insist that our products meet their exact specifications for quality,
performance and reliability.
Our products are manufactured on round GaAs or silicon substrates, or
starting material, called wafers. Before our customers can use our products, the
wafers must be processed and cut or sawed into individual die. The die must then
be assembled, or packaged, and then the final product must be tested.
Our manufacturing yield is a combination of:
- line yield, which is the number of usable wafers that result from our
fabrication process;
- assembly yield, which is the number of assembled parts we actually
receive from the packaging house divided by the number of die available
on the wafer; and
- test yield, which is the number of assembled parts that pass all
component level testing divided by the total number of parts tested.
- Our customers also test our RFICs once they have been assembled into
their products. The number of usable RFICs that result from our
production process can fluctuate as a result of many factors, including
the following:
- design errors;
- defects in photomasks used to print circuits on a wafer;
- minute impurities in materials used;
- contamination of the manufacturing environment;
- equipment failure or variations in the fabrication process;
- losses from broken wafers or other human error; and
- defects in packaging.
Because average selling prices for our products tend to decline over time
and because many of our manufacturing costs are fixed, we are constantly trying
to improve our manufacturing yields. For a given level of sales, when our yields
improve, our gross margins improve and when our yields decrease, our unit costs
are higher, our margins are lower, and our operating results are adversely
affected.
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In the past, we have experienced difficulties in achieving acceptable
yields on certain new products, and this has adversely affected our gross
margins and our operating results. For example, during the fourth quarter of
fiscal 1998, we took an unexpected charge of about $4.6 million to cover
defective products that had packaging-related problems. We may experience
similar problems in the future and we cannot predict when they may occur or
their severity. These problems could significantly affect our future operating
results.
We Face Challenges Managing Rapid Growth.
We are experiencing a period of significant growth that will continue to
place a great strain on our management and other resources. We have grown from
131 employees on March 31, 1997 to 423 employees on March 31, 1999. To manage
our growth effectively, we must:
- implement and improve operational and financial systems;
- coordinate the construction, upfit and expansion of our physical
facilities in multiple locations;
- train and manage our employee base; and
- attract qualified people with experience in RF engineering, integrated
circuit design, wafer fabrication, wireless systems and technical
marketing and support.
Competition for these people is intense. We must also manage multiple
relationships with various customers, business partners and other third parties,
such as our foundry and assembly partners. Moreover, we will spend substantial
amounts in connection with our rapid growth and may have additional unexpected
costs. Our systems, networks, software tools, procedures or controls may not be
adequate to support our operations and we may not be able to expand quickly
enough to exploit potential market opportunities. Our future operating results
will also depend on expanding sales and marketing, research and development and
administrative support. If we cannot attract qualified people or manage growth
effectively, our operating results will be adversely affected.
Our Operating Results Are Substantially Dependent on Demand for Our GaAs HBT
Products.
Although we design products using three distinct process technologies, a
substantial portion of our revenue comes from the sale of GaAs HBT products. For
example, during fiscal 1999, 87% of our revenue came from the sale of GaAs HBT
products. We currently expect that this process concentration will continue.
Our dependence on GaAs HBT products could ultimately hurt our operating
results in the future. Competitors have begun to enter the market and offer
their own GaAs HBT products, and direct competition with competitors with GaAs
HBT process technology could adversely affect our selling prices. Also, new
process technologies could be developed that have characteristics that are
superior to GaAs HBT. These and other factors could reduce the demand for GaAs
HBT components or otherwise adversely affect our operating results.
Our Operating Results Are Substantially Dependent on Development of New
Products.
Our future success will depend on our ability to develop new RFIC solutions
for existing and new markets. We must introduce new products in a timely and
cost-effective manner and we must secure production orders from our customers.
The development of new RFICs is a highly complex process, and we have
experienced delays in completing the development and introduction of new
products at times in the past. Our successful product development depends on a
number of factors, including the following:
- the accuracy of our prediction of market requirements and evolving
standards;
- acceptance of our new product designs;
- the availability of qualified RFIC designers;
- our timely completion of product designs; and
- acceptance of our customers' products by the market.
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We may not be able to design and introduce new products in a timely or
cost-efficient manner and our new products may fail to meet the requirements of
the market or our customers. In that case, we likely will not reach the expected
level of production orders, which could adversely affect our operating results.
Even when a design win is achieved, our success is not assured. Design wins
require significant expenditures by us and typically precede volume revenues by
six to nine months or more. The actual value of a design win to us will
ultimately depend on the commercial success of our customers' products.
Our Industry's Technology Changes Rapidly and We Depend on Development and
Growth of Wireless Markets.
We depend on the development and growth of markets for wireless
communications products and services, including cellular and PCS telephony,
wireless LANs, wireless security systems and other wireless applications. We
cannot be sure about the rate at which markets for these products will develop
or our ability to produce competitive products for these markets as they
develop.
We supply RFICs almost exclusively for wireless applications. The wireless
markets 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. As
a result, we have experienced and will continue to experience some product
design obsolescence. We expect our customers' demands for improvements in
product performance will increase, which means that we must continue to improve
our product designs and develop new products using new wafer fabrication
technologies.
For example, we are currently developing products that combine one or more
integrated circuits with one or more passive components, such as filters and
resistors, into a stand-alone modular package. In addition to using an
independent packaging vendor for these products, we plan to assemble and package
some of these products in-house. We have not previously packaged any type of
RFIC on a commercial basis, and this vertical expansion of our business will
require significant investment in equipment and additional personnel and will
require us to develop expertise in new production techniques that are
significantly different from RFIC fabrication processes. We currently have
budgeted $12 million for developing our in-house modular packaging capability,
and we currently expect to begin shipping commercial quantities of modular units
that we have packaged ourselves during the first calendar quarter of 2000. We
cannot be sure, however, that we will successfully develop this in-house
packaging capability or that we will otherwise be able to meet the needs of our
customers for modular products. This development effort presents many technical
challenges and if we are unsuccessful, our operating results could be adversely
affected.
It is likely that a competing process technology will emerge that permits
the fabrication of integrated circuits that are superior to the RFICs we make
under existing processes. If that happens and we cannot design products using
that technology or develop competitive products, our operating results will be
adversely affected.
We Depend Heavily on Our Relationship with Nokia.
We have agreed in principle with TRW and Nokia to cooperate to develop and
supply Nokia with RFICs manufactured using TRW's GaAs HBT processes. The
arrangement contemplates that we will negotiate separate agreements with Nokia
for each component. Also, we have agreed to give Nokia access to some of our
RFIC technologies and to our GaAs HBT wafer fabrication facility, and Nokia has
agreed to give us rights to bid for and supply Nokia's needs for certain RFICs.
Under the separate agreements resulting from our arrangement with Nokia, we
have developed a number of RFICs and supplied them to Nokia in commercial
quantities. In fiscal 1999, sales to Nokia were about $112 million, or 73% of
our revenue. In fiscal 1998, Nokia sales were about $19 million, or 42% of our
revenue.
Our arrangement with Nokia and TRW can be ended without penalty by any of
the parties for any reason. The arrangement does not obligate Nokia to purchase
any additional products from us, and we cannot be sure that Nokia will remain a
significant customer or that our relationship will continue. The loss of Nokia
as a customer for any reason will have a material adverse effect on our
operating results.
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We Depend on TRW for GaAs HBT Wafers and Technology.
Although we have commenced commercial production of GaAs HBT products at
our own facility, we continue to rely heavily on TRW as a supplier for GaAs HBT
wafers. Before September 1998, all of our GaAs HBT products were fabricated at
TRW's facility. For the six months ended March 31, 1999, $98 million of our
revenue came from the sale of GaAs HBT products, but only $48 million of our
revenue was attributable to products produced at our facility.
TRW has agreed to supply to us, and we have agreed to buy from TRW, certain
minimum quantities of GaAs HBT wafers. These obligations continue until December
31, 2000. We are currently purchasing quantities of wafers from TRW in excess of
the amounts they are required to supply us and we currently expect that we will
continue to rely on TRW as a key supplier of GaAs HBT wafers over the remaining
two years of the supply agreement and thereafter. If TRW is unable to
manufacture and deliver to us wafers in the quantities we need on a timely
basis, our operating results will be adversely affected.
We depend on our exclusive license from TRW for its GaAs HBT technology. If
the license is terminated or if it were determined that this technology
infringed on a third party's intellectual property rights, our operating results
would be adversely affected. TRW made no representation to us about whether the
licensed technology infringed on the intellectual property rights of anyone
else. Also, TRW has the right to convert our exclusive license to a
non-exclusive license if we fail to meet certain revenue goals. If we fail to
meet these goals, our operating results could be adversely affected.
We Have a Limited Operating History and Have Had Operating Losses.
We were incorporated in 1991 and were in the development stage through the
year ended March 31, 1995. We had net losses totaling about $14.4 million from
the period of inception through fiscal 1996, profits of $1.7 million in fiscal
1997, a net loss of $0.5 million in fiscal 1998 and profits of $19.6 million in
fiscal 1999. We expect to spend substantial additional amounts to continue
developing our fabrication facility and expanding our operations and to design
and develop new products. Given our history of annual and quarterly operating
losses, our expansion efforts, our dependence on other parties and the
difficulty of predicting demand for our products, among other factors, we cannot
be sure that we will sustain profitability.
We Depend Heavily on Third Parties.
Until September 1998, other companies manufactured all of our products, and
we expect to continue to rely heavily on third parties in the future. We buy a
significant portion of our GaAs HBT products from TRW, which we believe is one
of only two suppliers of commercial quantities of GaAs HBT wafers. We also use
one independent foundry to manufacture our silicon-based products and one
independent foundry to manufacture our GaAs MESFET products. The foundry that
supplies our GaAs MESFET products is owned and operated by one of our
competitors. Access to other foundries for GaAs products could be particularly
difficult to obtain.
We will remain dependent on a small number of independent foundries to
manufacture our products on a timely basis, to achieve acceptable manufacturing
yields and to offer us competitive pricing. If these independent foundries
cannot deliver our products on a timely basis, allocate us sufficient
manufacturing capacity, achieve acceptable yields or offer us competitive
pricing, it would have a material adverse effect on our operating results. We
cannot be sure that we would be able to locate other foundries to make our
products if we lost any of these sources of supply.
We use independent vendors to package all of our integrated circuits. We
have had packaging quality problems with some of these vendors, especially with
GaAs HBT products. We took a non-recurring charge in the last quarter of fiscal
1998 of about $4.6 million to cover product returns and the establishment of
inventory reserves for products with packaging-related problems. During fiscal
1998, we also discovered quality problems with parts packaged by a second vendor
and stopped using that vendor. It is likely that we will have more packaging
problems in the future. A delay or reduction in product shipments or unexpected
product returns because of these problems could have an adverse effect on our
operating results.
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<PAGE> 20
We Operate in a Very Competitive Industry.
Competition in the markets for our products is intense. We compete with
several companies primarily engaged in the business of designing, manufacturing
and selling RFICs, as well as suppliers of discrete products such as
transistors, capacitors and resistors. At least one of our competitors has GaAs
HBT technology and other companies are developing GaAs HBT and new fabrication
processes. In addition, many of our existing and potential customers manufacture
or assemble wireless communications devices and have substantial in-house
technological capabilities. Any of them could develop products that compete with
or replace ours. If one of our large customers decided to design and manufacture
integrated circuits internally, it could have an adverse effect on our operating
results.
We expect competition to increase. This could mean lower prices for our
products, reduced demand for our products and a corresponding reduction in our
ability to recover development, engineering and manufacturing costs. Any of
these developments would have an adverse effect on our operating results.
Many of our existing and potential competitors have entrenched market
positions, considerable internal manufacturing capacity, established
intellectual property rights and substantial technological capabilities. Many of
our existing and potential competitors, including Anadigics, Conexant, Fujitsu,
Hitachi, Motorola, NEC, Philips, Siemensand TriQuint, have greater financial,
technical, manufacturing and marketing resources than we do. We cannot be sure
that we will be able to compete successfully with our competitors.
We Depend Heavily on Key Personnel.
Our success depends in part on keeping key technical, marketing, sales and
management personnel. We do not have employment agreements with any of our
employees. We must also continue to attract qualified personnel. The competition
for qualified personnel is intense, and the number of people with experience,
particularly in RF engineering, integrated circuit design, wafer fabrication,
wireless systems and technical marketing and support, is limited. We cannot be
sure that we will be able to attract and retain other skilled personnel in the
future.
We Are Subject to Risks from International Sales and Operations.
Sales to customers in South Korea accounted for about 13.3% of our revenue
in fiscal 1999 and about 21.3% of our revenue in fiscal 1998. As a result of the
economic instability in Asia, sales to our customers in South Korea in fiscal
1999 initially declined. Recently, we have experienced an increase in orders
from customers in South Korea. We believe this market remains unstable and we
cannot predict whether that trend will continue or reverse. We also cannot
predict whether the turmoil that has affected Asian and other economies will
spread to other parts of the world.
Sales to customers located outside the United States accounted for about
24% of our revenue in fiscal 1996, about 42% of our revenue in fiscal 1997,
about 50% of our revenue in fiscal 1998 and about 59% of our revenue in fiscal
1999. We expect that revenue from international sales will continue to be a
significant part of our total revenue. International sales are subject to a
variety of risks, including risks arising from currency fluctuations and
restrictions, tariffs, trade barriers, taxes and export license requirements.
Because all of our foreign sales are denominated in U.S. dollars, our products
become less price competitive in countries with currencies that are low or are
declining in value against the U.S. dollar. Also, we cannot be sure that our
international customers will continue to accept orders denominated in U.S.
dollars. If they do not, our reported revenue and earnings will become more
directly subject to foreign exchange fluctuations. See Note 2 of Notes to
Financial Statements.
All but one of our circuit assembly vendors are located in Asia. This
subjects us to regulatory, geopolitical and other risks of conducting business
outside the United States. We do business with our foreign assemblers in U.S.
dollars. Our assembly costs increase in countries with currencies that are
increasing in value against the U.S. dollar. Also, we cannot be sure that our
international assemblers will continue to accept orders denominated in U.S.
dollars. If they do not, our costs will become more directly subject to foreign
exchange fluctuations.
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<PAGE> 21
We Rely on Intellectual Property and Could Face Claims of Infringement.
Our success depends in part on our ability to obtain patents, trademarks
and copyrights, maintain trade secret protection and operate our business
without infringing on the proprietary rights of other parties.
Although there are no pending lawsuits against us or notices that we are
infringing anyone's intellectual property rights, we could be notified in the
future that TRW or we are infringing someone's intellectual property rights. We
cannot be sure that we could obtain licenses on commercially reasonable terms or
that litigation would not occur if there were any infringement. If we were
unable to obtain necessary licenses or if litigation arose out of infringement
claims, our operating results could be adversely affected.
In addition to patent and copyright protection, we also rely on trade
secrets, technical know-how and other unpatented proprietary information
relating to our product development and manufacturing activities. We try to
protect this information with confidentiality agreements with our employees and
other parties. We cannot be sure that these agreements will not be breached,
that we would have adequate remedies for any breach or that our trade secrets
and proprietary know-how will not otherwise become known or independently
discovered by others.
We Are Subject to Stringent Environmental Regulation.
We are subject to a variety of federal, state and local requirements
governing the protection of the environment. These environmental regulations
include those related to the use, storage, handling, discharge and disposal of
toxic or otherwise hazardous materials used in our manufacturing processes.
Because the public is focusing more attention on the environmental impact of the
operations of the semiconductor industry, these requirements may become more
stringent in the future. Failure to comply with environmental laws could subject
us to substantial liability or force us to significantly change our
manufacturing operations. In addition, under some of these laws and regulations,
we could be held financially responsible for remedial measures if our properties
are contaminated, even if we did not cause the contamination.
We Face Risks Concerning Year 2000 Issues.
We have evaluated all of our internal software and current products against
Year 2000 concerns, and we believe that our products and business will not be
substantially affected by the advent of the year 2000 and that we have no
significant exposure to liabilities related to the Year 2000 issue for the
products we have sold.
Although we believe our planning efforts are adequate to address our Year
2000 concerns, we cannot be sure that we will not experience negative
consequences and material costs caused by undetected errors or defects in the
technology used in our internal systems, or that the systems of other parties on
which we rely will be made compliant on a timely basis and will not have any
material adverse effect on us. At this time, we are unable to estimate the most
reasonably likely worst-case effects of the arrival of the year 2000 and we do
not have a contingency plan for any unanticipated negative effects.
TRW and Our Management Are Controlling Shareholders.
Our directors and executive officers and their affiliates (including TRW)
beneficially own about 26.9% of RFMD's common stock. TRW, our largest
shareholder, beneficially owns about 23.1% of the common stock. These
shareholders thus can exercise significant influence over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions.
TRW has agreed to refrain until June 6, 2002 from taking certain actions
affecting control over us. If a third party offers to acquire all of our stock,
however, TRW will have 30 days to make a counterproposal on the same or better
terms and could have the proposal submitted to our shareholders. This right
could discourage a third party from offering to acquire all of our outstanding
shares.
Our Stock Price Is Subject to Volatility.
The trading price of our common stock could be subject to wide fluctuations
in response to quarterly variations in operating results, adverse business
developments, changes in financial estimates by securities
20
<PAGE> 22
analysts, announcements of technological innovations, new products by us or our
competitors, transaction by corporate insiders and other events and factors.
Since completion of our public offering in June 1997, our stock price has
fluctuated widely. Also, the stock market has experienced extreme price and
volume fluctuations based on factors outside our control 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 our
common stock.
Future Sales of Shares Could Have an Adverse Effect on Market Price.
Sales of substantial amounts of common stock in the public market or the
prospect of such sales could adversely affect the market price for our common
stock and our ability to raise equity capital in the future. As of June 17,
1999, we had outstanding a total of 39,501,598 shares of common stock. Of these
shares, approximately 29,165,884 shares are freely tradable without restriction
or further registration under the Securities Act of 1933, except for any shares
acquired by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. We believe that the holders of the remaining 10,335,714 shares
are affiliates and, accordingly, that their shares may be sold without
registration only in compliance with the Securities Act (including Rule 144). As
of March 31, 1999, options to purchase 3,305,552 shares of common stock were
outstanding under our stock option plans, with a weighted average exercise price
of $7.14 per share and a weighted average remaining contractual life of 8.4
years. Of these, options to purchase 583,762 shares were exercisable at March
31, 1999, at a weighted average exercise price of $1.95 per share.
ITEM 2. PROPERTIES
Our principal administrative facility is located in a building comprising
approximately 25,000 square feet in Greensboro, North Carolina. Pursuant to the
lease agreement under which we lease this building, we exercised an option for
an expansion of the facility through the construction of an adjacent additional
building consisting of approximately 34,000 square feet that was completed in
March 1999. The term of the lease for these facilities is fifteen years from the
date of completion of this expansion. We also lease real estate adjacent to our
principal facility on which our wafer fabrication facility, consisting currently
of approximately 64,000 square feet, has been constructed. The lease for the
fabrication facility has a term expiring in May 2013, with two 10-year renewal
options. We have deposited $3.9 million under an escrow arrangement to secure
our obligations under this lease. The deposited amounts are to be released to us
based upon an agreed-upon amortization schedule; subject to acceleration in the
event we meet specified financial coverage ratios. We currently expect the
deposited amount will be released to us in full by the end of the second quarter
of fiscal 2000 as the result of our meeting the specified financial coverage
ratios. We also lease approximately 17,500 square feet of commercial space in
Greensboro, North Carolina that we use for office space and storage. This
facility is leased under three leases that each expire on December 31, 1999. We
anticipate renewing these three leases pending satisfactory re-negotiation
results.
As part of the execution of the wafer fabrication and MBE capacity
expansion efforts, we have entered into an operating lease for a new 136,000
square foot facility. The lease agreement is for a 15-year lease with options to
renew for two periods of ten years. We have also entered into a lease for
another 75,000 square foot facility that is to be used for packaging and wafer
dicing associated with our modular products. The term of the lease is also for
15 years with two ten-year renewal options. The aggregate annual rentals for
these leases are approximately $0.7 million. We have also entered into lease
agreements for our Scotts Valley and Cedar Rapids design centers. The lease
agreement for the Scotts Valley facility is for a 4-year term with an option to
renew for a 3-year period. The lease agreement for the Cedar Rapids facility is
for a 5-year period with no option to renew. The aggregate annual rentals for
these leases are approximately $143,000.
We own 30 acres of land adjacent to our fabrication facility, on which we
recently began construction of a new 100,000 square foot facility that will
serve as our new headquarters building as well as provide expansion for the
design engineering and marketing groups. This facility is expected to be
completed in December 1999, and we are currently reviewing various financing and
leasing alternatives to finance this project.
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<PAGE> 23
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on The Nasdaq National Market under the symbol
"RFMD." The table below shows the high and low per-share sales prices of our
common stock for the periods indicated, as reported by The Nasdaq National
Market. We completed our initial public offering of 6,911,100 shares of common
stock in June 1997 at a price of $6.00 per share, and completed a secondary
offering of 4,600,000 shares of common stock in January 1999 at a price of
$30.72 per share. Our common stock split two-for-one on March 31, 1999 by means
of a 100% share dividend payable to holders of record on March 17, 1999, and the
prices below have been adjusted to reflect this split. As of June 17, 1999,
there were 282 holders of record of our common stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year Ended March 31, 1998
First Quarter (from June 3)................................. $ 9.56 $ 7.25
Second Quarter.............................................. 11.56 8.06
Third Quarter............................................... 9.25 5.25
Fourth Quarter.............................................. 8.44 5.13
For Fiscal Year 1998........................................ 11.56 5.13
Year Ended March 31, 1999
First Quarter............................................... $ 8.19 $ 5.44
Second Quarter.............................................. 11.09 5.25
Third Quarter............................................... 25.31 7.31
Fourth Quarter.............................................. 51.88 22.31
For Fiscal Year 1999........................................ 51.88 5.25
</TABLE>
We have never paid dividends on our capital stock. We intend to retain
earnings for use in our business and do not anticipate paying any cash dividends
in the foreseeable future.
On February 4, 1999, we issued 72,318 shares of common stock to an entity
believed to qualify as an accredited investor upon the cashless exercise of
warrants held by such entity to purchase a total of 82,644 shares of common
stock at $4.50 per share. We issued these shares of common stock in reliance on
the exemptions from registration provided by Sections 3(a)(9) and 4(2) of the
Securities Act.
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<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our Financial Statements and Notes thereto included in this
Form 10-K. The statement of operations data for the years ended March 31, 1999,
1998 and 1997, and the selected balance sheet data as of March 31, 1999 and
March 31, 1998, are derived from, and are qualified by reference to, the
Financial Statements and Notes thereto included in this Form 10-K. The statement
of operations data for the years ended March 31, 1996 and 1995, and the selected
balance sheet data as of March 31, 1997, March 31, 1996 and March 31, 1995 are
derived from our historical financial statements, which are not included in this
Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................ $152,114 $44,095 $27,852 $ 8,212 $ 1,254
Engineering revenues......................... 738 1,255 950 1,303 434
-------- ------- ------- -------- -------
Total revenues................................. 152,852 45,350 28,802 9,515 1,688
Operating costs and expenses:
Cost of goods sold........................... 99,325 29,246 15,826 7,471 1,215
Research and development..................... 14,239 8,761 6,178 4,245 2,836
Marketing and selling........................ 10,716 6,220 3,760 1,817 1,180
General and administrative................... 4,787 2,528 1,391 1,226 620
-------- ------- ------- -------- -------
Total operating costs and expenses............. 129,067 46,755 27,155 14,759 5,851
-------- ------- ------- -------- -------
Income (loss) from operations.................. 23,785 (1,405) 1,647 (5,244) (4,163)
Interest expense............................... (1,244) (184) (399) (81) (27)
Other income, net.............................. 1,911 1,066 513 137 68
-------- ------- ------- -------- -------
Income (loss) before income taxes.............. 24,452 (523) 1,761 (5,188) (4,122)
Income tax expense............................. (4,891) -- (109) -- --
-------- ------- ------- -------- -------
Net income (loss).............................. $ 19,561 $ (523) $ 1,652 $ (5,188) $(4,122)
======== ======= ======= ======== =======
Net income (loss) per share:
Basic........................................ $ 0.57 $ (0.02) $ 0.30 $ (4.43) $ (3.52)
======== ======= ======= ======== =======
Diluted...................................... $ 0.53 $ (0.02) $ 0.07 $ (4.43) $ (3.52)
======== ======= ======= ======== =======
Shares used in per share calculation:
Basic........................................ 34,236 27,018 5,556 1,170 1,170
Diluted...................................... 36,868 27,018 22,430 1,170 1,170
======== ======= ======= ======== =======
1999 1998 1997 1996 1995
-------- ------- ------- -------- -------
BALANCE SHEET DATA:
Cash and cash equivalents...................... $147,545 $16,360 $ 2,330 $ 6,638 $ 2,223
Working capital................................ 167,918 34,226 7,313 7,912 2,686
Cash restricted for capital additions.......... 3,860 -- 12,358 -- --
Total assets................................... 275,758 93,364 36,265 13,192 4,343
Long-term debt and capital lease obligations... 12,587 12,524 10,829 153 59
Redeemable convertible preferred stock......... -- -- 28,257 23,325 12,325
Shareholders' equity (deficiency).............. 230,906 66,763 (9,472) (14,357) (9,169)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in revenue,
gross margins and anticipated expense levels, as well as other
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<PAGE> 25
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect" and "intend" and other similar expressions constitute forward-looking
statements. Our Company's business is subject to business and economic risks and
uncertainties, and our actual results of operations may differ materially from
those expressed or implied in the forward-looking statements. The following
discussion and the section entitled "Business -- Additional Factors That May
Affect Future Results" describe some, but not all, of the factors that could
cause these differences.
OVERVIEW
We design, develop, manufacture and market proprietary RFICs for wireless
communications applications such as cellular and PCS, cordless telephony,
wireless local area networks, wireless local loop, industrial radios, wireless
security and remote meter reading. We derive revenue from the sale of standard
and custom-designed products and services. To date, a significant portion of our
revenue has been attributable to the sale of RFICs used in cellular and PCS
handsets. We offer a broad array of products -- including amplifiers, mixers and
modulators/ demodulators and single chip transmitters, receivers and
transceivers -- that represent a substantial majority of the RFICs required in
wireless subscriber equipment. We design products using four distinct process
technologies: GaAs HBT, GaAs MESFET, silicon bipolar transistor and silicon
germanium. Sales of GaAs HBT products represented 89% of our revenue in fiscal
1999, 81% during fiscal 1998, and 85% during fiscal 1997. We expect to continue
to rely heavily on sales of GaAs HBT products.
Until September 1998 we did not have internal manufacturing capabilities
for GaAs HBT products and thus relied exclusively on purchased wafers to meet
customer demand. In September 1998, we began commercial shipments from our GaAs
HBT wafer fabrication facility, which has enabled us to manufacture products
with lower per unit costs than products manufactured from wafers that we
purchase. Internally manufactured products accounted for 31.4% of our total
revenues for fiscal 1999, and we are in the process of increasing production at
our fabrication facility. We are also expanding this facility's total production
capacity in response to demand for our GaAs HBT products by adding additional
production equipment and by relocating certain manufacturing processes to a new
leased facility.
RESULTS OF OPERATIONS
The following table shows our statement of operations data expressed as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31, YEAR-TO-YEAR CHANGES
-------------------------- ---------------------
1999 1998 1997 1998-1999 1997-1998
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues.......................... 100.0 100.0 100.0 237.1 57.5
Operating costs and expenses:
Cost of goods sold.................... 65.0 64.5 54.9 239.6 84.8
Research and development.............. 9.3 19.3 21.4 62.5 41.8
Marketing and selling................. 7.0 13.7 13.1 72.3 65.4
General and administrative............ 3.1 5.6 4.8 89.4 81.7
----- ----- ----- ------- ------
Total operating costs and expenses...... 84.4 103.1 94.3 176.0 72.2
Income (loss) from operations........... 15.6 (3.1) 5.7 1,792.9 (185.3)
Interest expense........................ (0.8) (0.4) (1.4) 576.1 (53.9)
Other income, net....................... 1.3 2.4 1.8 79.3 107.8
----- ----- ----- ------- ------
Income (loss) before income taxes....... 16.0 (1.2) 6.1 4,775.3 (129.7)
Income tax expense...................... (3.2) 0.0 (0.4) -- --
----- ----- ----- ------- ------
Net income (loss)............. 12.8 (1.2) 5.7 3,840.2 (131.7)
===== ===== ===== ======= ======
</TABLE>
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<PAGE> 26
REVENUES
Our revenues increased 237.1% during fiscal 1999 versus fiscal 1998
primarily due to strong growth in both the GaAs HBT product line (a 269.2%
increase over fiscal 1998) and the silicon product line (a 187.8% increase over
fiscal 1998). Commercial shipments from our wafer fabrication facility commenced
in September 1998 and contributed $48.0 million (or 31.4%) of total revenues in
fiscal 1999. We are close to reaching production levels from our fabrication
facility of approximately 15,000 four-inch wafers per year. We are increasing
the facility's total capacity to approximately 30,000 four-inch wafers per year
through an expansion of the facility's clean room and the installation of
additional equipment. We plan additional steps that we believe will increase
capacity to approximately 50,000 four-inch wafers per year by the spring of
2001.
Sales to Nokia Mobile Phones Ltd. represented 73% and 44% of revenue for
fiscal 1999 and fiscal 1998, respectively. No other customer accounted for more
than 7% of our fiscal 1999 revenues. Engineering revenues were 0.5% of total
revenues for the year ended March 31, 1999, compared to 2.8% for the previous
year.
Revenues for fiscal 1998 increased 57.5% over fiscal 1997 primarily due to
strong sales growth in GaAs HBT power amplifiers for cellular and PCS handsets,
including shipments of 3.0 volt, high-efficiency GaAs HBT power amplifiers to
Nokia for their series of 3.0 volt handsets.
International shipments accounted for $90.4 million or 59.1% of revenues in
fiscal 1999, compared to $22.7 million, or 50.0% of revenues in fiscal 1998 and
$11.9 million, or 42.0% of revenues, for fiscal 1997. Sales to customers located
in South Korea totaled $20.3 million in fiscal 1999, or 13.3% of revenues,
compared to $9.6 million, or 21.3% of revenues in fiscal 1998. The growth in
sales to our South Korean OEM customers resulted from increased demand for CDMA
handsets that they supply to the South American and Asian markets. Although we
experienced an increase in sales to customers located in South Korea in fiscal
1999, this market remains unstable and we cannot be sure that this trend will
continue or that economic instability in Asia or other parts of the world will
not have a material adverse effect on our operating results.
GROSS PROFIT
In fiscal 1999, our gross profit margins decreased slightly to 35.0% from
35.5% in fiscal 1998 due to a combination of lower average selling prices driven
by volume pricing agreements granted to our largest customer and adverse
assembly and test yields associated with new products, partially offset by lower
costs on purchased wafers under a supply agreement providing for annual price
reductions. In fiscal 1998, gross profit margins decreased to 35.5% from 45.1%
in fiscal 1997 primarily due to a one-time revenue reduction and inventory
write-down due to packaging-related product returns totaling $4.6 million.
We have historically experienced significant fluctuations in gross profit
margins which caused fluctuations in our quarterly operating results and we
cannot be sure that future operating results will not be similarly affected. We
currently expect that our gross profit margins should improve as an increasing
percentage of our GaAs HBT products are fabricated at our wafer fabrication
facility, where production costs per wafer have to date been lower than costs
for products manufactured with purchased wafers. In this regard, our gross
profit margins improved from 32.0% in the first half of fiscal 1999 to 36.7% in
the second half of fiscal 1999. However, we sell products in intensely
competitive markets, and we believe that downward pressure on average selling
prices will continue to occur.
RESEARCH AND DEVELOPMENT
Research and development expenses in fiscal 1999 increased $5.5 million
over fiscal 1998 primarily due to increased salaries and benefits and recruiting
expenses related to increased headcount and additional spending on mask sets and
outside services for both standard and custom-designed products. Research and
development expenses as a percentage of total revenues decreased to 9.3% in
fiscal 1999 from 19.3% in fiscal 1998. Research and development expenses in
fiscal year 1998 compared to fiscal 1997 increased $2.6 million, primarily due
to increased salaries and benefits related to headcount growth and additional
spending on small tools and supplies and other components necessary for
prototype assembly. In addition, amortization and depreciation expenses for
equipment leases and purchases increased. We plan to continue to make
substantial investments in research and
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<PAGE> 27
development and we expect that such expenses will continue to increase in
absolute dollar amounts in future periods. We opened an RFIC design center in
Scotts Valley, California in April 1999 that is currently staffed by 12
employees and a design center in Cedar Rapids, Iowa in June 1999 that is
currently staffed by five employees, and we anticipate that we may open
additional design centers in other locations during fiscal 2000.
MARKETING AND SELLING
Marketing and selling expenses in fiscal 1999 increased $4.5 million over
fiscal 1998, primarily due to increased salaries and benefits related to
increased headcount and to increased expenses associated with advertising,
travel and entertainment expenses, and commissions related to increased sales to
South Korean customers. Marketing and selling expenses as a percentage of
revenues in fiscal 1999 decreased to 7.0% from 13.7% in fiscal 1998. Marketing
and selling expenses in fiscal year 1998 compared to fiscal 1997 increased $2.5
million primarily due to increased salaries and benefits and recruiting expenses
related to increased headcount, increased travel and entertainment expenses, and
increased sales literature expenses. We plan to continue to make substantial
investments in marketing and selling and we expect that such expenses will
continue to increase in absolute dollar amounts in future periods. In June 1999,
we opened a small sales office in the United Kingdom to enhance our ability to
serve our European customers, and we may open additional sales offices in the
United States or elsewhere. We expect that beginning in fiscal 2000, a greater
proportion of our sales and marketing efforts will increasingly be conducted
directly by our employees, and that our reliance on independent sales
representative firms will decline over time. This will result in an absolute
increase in marketing and selling expenses as we build our internal direct sales
force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses in fiscal 1999 increased $2.3 million
over fiscal 1998 primarily due to increased salaries and benefits related to
headcount increases, provision for doubtful accounts and the amortization of our
technology license with TRW. The changes in headcount are the result of staffing
to support an SAP implementation during fiscal year 2000 and increases in human
resources and finance headcount due to larger employee population and increased
business volume. General and administrative expenses as a percentage of revenues
decreased to 3.1% in fiscal 1999 from 5.6% in fiscal 1998. General and
administrative expenses in fiscal year 1998 compared to fiscal 1997 increased
$1.1 million, primarily due to increased salaries and benefits and recruiting
expenses associated with headcount increases and to costs associated with being
a public company.
OTHER INCOME (EXPENSE)
Other income (expense), net in fiscal 1999 reflected net income of $667,000
compared to net income of $882,000 in fiscal 1998. This decrease was
attributable to increased interest expense incurred on borrowings related to our
wafer fabrication facility, which offset the benefit of an increase in interest
income due to higher cash balances from our secondary public stock offering,
which was completed in January 1999. Other income (expense), net in fiscal 1998
increased $768,000 compared to fiscal 1997 primarily due to the investment of
the proceeds of our June 1997 initial public offering.
INCOME TAX EXPENSE
Income tax expense in fiscal 1999 was $4.9 million compared to no provision
in fiscal 1998 and $109,000 in fiscal 1997. Our effective combined income tax
rate was 20.0% in fiscal 1999 and 6.2% in fiscal 1997, which is less than the
combined federal and state statutory rate of approximately 40% due to the use of
net operating loss carryforwards. In fiscal 1998 we did not provide for income
taxes as a result of the loss incurred during the year.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenues from product
sales. We completed our initial public offering in June 1997, and raised
approximately $37.6 million, net of offering expenses. In January 1999, we
completed our secondary
26
<PAGE> 28
public offering and raised approximately $133.4 million, net of offering
expenses. As of March 31, 1999, we had working capital of approximately $167.9
million, including $147.5 million in cash and cash equivalents.
Operating activities generated $20.5 million in cash in fiscal 1999. This
was attributable primarily to net income of $19.6 million and an increase in
accounts payable of $8.8 million, partially offset by an increase in accounts
receivable of $16.6 million and in inventories of $2.5 million. Cash used by
operating activities in fiscal 1998 was $14.6 million. This amount was
attributable primarily to a $15.7 million increase in inventories and a $4.6
million increase in accounts receivable. These were partially offset by an
increase in accounts payable of $5.2 million.
The $25.8 million of cash used by investing activities in fiscal 1999 was
related to the purchase of $24.8 million of capital equipment, primarily for use
in our wafer fabrication facility, as well as $1.3 million for the
capitalization of wafer fabrication construction costs. The $19.9 million of
cash used by investing activities in fiscal 1998 was related to expenditures
associated with the construction of our GaAs HBT wafer fabrication facility, and
to wafer fabrication and general corporate capital equipment requirements. The
investment in the wafer fabrication facility is associated with a $40 million
second phase of construction that involves a 6,000 square foot expansion of the
cleanroom and the purchase or lease of additional production equipment. We
currently expect this phase to increase total wafer capacity to approximately
30,000 wafers per year.
At March 31, 1999, we had total long-term capital commitments of $11.1
million with $6.6 million relating to wafer fabrication expansion and $4.5
million for general corporate requirements, including installation of an
enterprise-wide software system. The $6.6 million in long-term capital
commitments relating to the wafer fabrication facility represents continued
investment in the second phase expansion described above, as well as a portion
of an expected additional $15 million investment to increase further wafer
fabrication capacity that will consist of moving our MBE wafer starting
equipment out of the facility to a new leased location, reconfiguring the space
currently occupied by this equipment with additional wafer production equipment
and hiring additional production personnel. We believe this additional
investment in wafer fabrication capacity, which is expected to be completed by
the spring of 2001, will bring our total wafer production capacity to
approximately 50,000 wafers per year. We expect to fund this investment through
a combination of existing cash on hand and capital leases. As part of the
execution of the capacity expansion efforts, we have entered into an operating
lease for a new 136,000 square foot facility. The lease agreement is for a
15-year lease with options to renew for two periods of ten years. We have also
entered into a lease for another 75,000 square foot facility that is to be used
for packaging and wafer dicing associated with our modular products. The term of
the lease is also for 15 years with two ten-year renewal options. The aggregate
annual rentals for these leases are approximately $0.7 million.
The $136.5 million of cash provided by financing activities in fiscal 1999
related primarily to the receipt of $133.4 million in proceeds from our
secondary offering completed in January 1999 and $10.0 million in proceeds from
the exercise of a warrant held by TRW covering 2,000,000 shares of common stock.
The proceeds were partially offset by $4.2 million in repayments of capital
lease obligations and cash restricted for capital additions of $3.9 million. In
connection with the construction of our wafer fabrication facility, in October
1998 we deposited approximately $3.9 million into an escrow account in favor of
the lessor of the facility in order to secure our payment obligations under the
lease related to the facility. The deposited amounts are to be released to us
based upon an agreed-upon amortization schedule, subject to acceleration in the
event we meet specified financial coverage ratios. We currently expect the
deposited amount will be released to us in full by the end of the second quarter
of fiscal 2000 as the result of our meeting the specified financial coverage
ratios.
The $48.6 million of cash provided by financing activities in fiscal 1998
related primarily to the issuance of common stock in our initial public
offering, totaling $37.6 million, as well as a reduction in restricted cash of
$12.4 million set aside for the purchase of wafer fabrication-related
expenditures.
We maintain a secured credit facility with Silicon Valley Bank that
includes a $5.0 million working capital line of credit and a $10.0 million term
loan line of credit. Borrowings under the working capital revolving credit line
may be made and repaid at any time until July 13, 1999 and bear interest at the
prime rate (as announced by the lender), payable monthly. Borrowings under the
term loan can be made until July 13, 1999 in $2.5 million increments, and are
repayable in 60 monthly installments at the prime rate, with repayments to be
completed by December 31, 2003. At March 31, 1999, there were no outstanding
amounts under either of these facilities. We
27
<PAGE> 29
are required to maintain specified amounts of net worth and meet certain ratios
with regard to liquidity and debt to equity under this facility. We are
currently evaluating various financing alternatives to replace this credit
facility.
We currently have eight capital lease facilities with four equipment
financing companies under which we have financed the cost of capital equipment
and leasehold improvements associated with our wafer fabrication facility. We
have financed an aggregate of $23.4 million of leased property under these
facilities. Lease terms range from 36 months to 60 months with effective
interest factors ranging from 8.6% to 11.1%. At March 31, 1999, the minimum
future lease payments under these leases (excluding interest) were $16.8
million.
Additionally, we are constructing a new corporate headquarters that is
expected to be complete in early calendar year 2000. The new facility will house
our general corporate, sales and marketing and research and development
organizations. The building will be 100,000 square feet including 10,000 square
feet of lab space and has a projected cost of $10 million. We are currently
reviewing various financing and leasing alternatives to finance the cost of this
project.
YEAR 2000 ISSUES
We have evaluated all of our internal software and current products against
Year 2000 concerns, and believe that our products and business will not be
substantially affected by the advent of the year 2000 and that we have no
significant exposure to liabilities related to the Year 2000 issue for the
products we have sold. We have also completed a project to upgrade all internal
software and to conduct testing on both our information technology systems and
our other equipment and machinery to further ensure that all aspects of our
business will be Year 2000 compliant. These procedures have not had any material
effect on our customers and have not required any material expenditures or other
material diversion of resources.
We have contacted substantially all parties with which we have material
relationships, including TRW and Nokia and our other material customers and
suppliers, to try to determine their Year 2000 preparedness and to analyze the
risk to us if they have significant business interruptions because of Year 2000
noncompliance. Based on this survey, we believe that these parties either are
substantially Year 2000 compliant or that any noncompliance will not have a
material effect on our operations. We intend to continue analyzing third-party
preparedness and the need for any related contingency planning as we enter into
new third-party relationships.
Although we believe our planning efforts are adequate to address our Year
2000 concerns, we cannot be sure that we will not experience negative
consequences and material costs caused by undetected errors or defects in the
technology used in our internal systems, or that the systems of other parties on
which we rely will be made compliant on a timely basis and will not have any
material adverse effect on us. At this time, we are unable to estimate the most
reasonably likely worst-case effects of the arrival of the year 2000 and we do
not have a contingency plan for any unanticipated negative effects. We plan to
analyze reasonably likely worst-case scenarios and the need for contingency
planning once the upgrade and testing of internal systems and the review of
third-party preparedness described above have been completed, and expect to
complete this analysis by June 30, 1999.
The total cost related to the Year 2000 issue is expected to be $150,000,
which has been included in our information technology expense budget. As of
March 31, 1999, this project is essentially complete. To date, there have been
no material deferments of other information technology projects resulting from
the work taking place on our Year 2000 program.
28
<PAGE> 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We did not have any derivative financial instruments as of March 31, 1999.
Our interest income and expense are sensitive to changes in the general level of
interest rates. In this regard, changes in interest rates can affect the
interest earned on the our cash equivalents. Our capital lease obligations have
fixed interest rates and the fair value of these instruments is affected by
changes in market interest rates. To mitigate the impact of fluctuations in
interest rates, we generally enter into fixed rate investing and borrowing
arrangements. As a result, we believe that the market risk arising from holdings
of our financial instruments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The report of independent auditors and financial statements are set forth
below (see Item 14(a) for list of financial statements and financial statement
schedules):
29
<PAGE> 31
RF MICRO DEVICES, INC.
AUDITED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 31
Audited Financial Statements
Balance Sheets.............................................. 32
Statements of Operations.................................... 33
Statements of Redeemable Convertible Preferred Stock and
Shareholders' Equity...................................... 34
Statements of Cash Flows.................................... 35
Notes to Financial Statements............................... 36
</TABLE>
30
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
RF Micro Devices, Inc.
We have audited the balance sheets of RF Micro Devices, Inc. as of March
31, 1999 and 1998, and the related statements of operations, redeemable
convertible preferred stock and shareholders' equity and cash flows for each of
the three years in the period ended March 31, 1999. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Raleigh, North Carolina
April 23, 1999
31
<PAGE> 33
RF MICRO DEVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------
1999 1998
-------- -------
(IN THOUSANDS,
EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $147,545 $16,360
Accounts receivable, less allowance of $391 and $489 (Note
2)...................................................... 23,697 6,993
Inventories (Note 3)...................................... 27,335 24,869
Current deferred tax asset (Note 7)....................... 898 --
Other current assets...................................... 243 81
-------- -------
Total current assets............................... 199,718 48,303
Property and equipment (Note 4):
Land...................................................... 1,934 1,934
Machinery and equipment................................... 43,463 19,196
Leasehold improvements.................................... 17,130 751
Furniture and fixtures.................................... 1,332 481
Computer equipment and software........................... 3,018 1,454
-------- -------
66,877 23,816
Less accumulated depreciation............................. (5,952) (1,966)
-------- -------
60,925 21,850
Construction in progress.................................. 619 14,917
Deposits on equipment..................................... 5,887 4,541
-------- -------
Total property and equipment....................... 67,431 41,308
Cash restricted for capital additions....................... 3,860 --
Non-current deferred tax asset (Note 7)..................... 1,088 --
Other non-current assets.................................... 583 551
Technology license, net of accumulated amortization of $124
as of March 31, 1999 (Note 14)............................ 3,078 3,202
-------- -------
Total assets....................................... $275,758 $93,364
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 19,110 $10,273
Accrued liabilities....................................... 5,590 754
Income taxes payable...................................... 2,854 --
Current obligations under capital leases (Note 4)......... 4,246 3,050
-------- -------
Total current liabilities.......................... 31,800 14,077
Non-current deferred tax liability (Note 7)................. 465 --
Obligations under capital leases, less current maturities
(Note 4).................................................. 12,587 12,524
-------- -------
44,852 26,601
Redeemable convertible preferred stock (Note 10)............ -- --
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common stock, no par value, 50,000,000 shares authorized,
39,376,976 and 32,247,922 shares issued and outstanding,
respectively............................................ 224,746 80,224
Additional paid in capital................................ -- --
Deferred compensation..................................... (165) (225)
Accumulated earnings (deficit)............................ 6,325 (13,236)
-------- -------
Total shareholders' equity......................... 230,906 66,763
-------- -------
Total liabilities and shareholders' equity......... $275,758 $93,364
======== =======
</TABLE>
See accompanying notes.
32
<PAGE> 34
RF MICRO DEVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Product sales............................................. $152,114 $44,095 $27,852
Engineering revenue....................................... 738 1,255 950
-------- ------- -------
Total revenue..................................... 152,852 45,350 28,802
Costs and expenses:
Cost of goods sold........................................ 99,325 29,246 15,826
Research and development.................................. 14,239 8,761 6,178
Marketing and selling..................................... 10,716 6,220 3,760
General and administrative................................ 4,787 2,528 1,391
-------- ------- -------
Total costs and expenses.......................... 129,067 46,755 27,155
-------- ------- -------
Income (loss) from operations............................... 23,785 (1,405) 1,647
Interest expense............................................ (1,244) (184) (399)
Other income, net........................................... 1,911 1,066 513
-------- ------- -------
Income (loss) before income taxes........................... 24,452 (523) 1,761
Income tax expense.......................................... 4,891 -- 109
-------- ------- -------
Net income (loss)........................................... $ 19,561 $ (523) $ 1,652
======== ======= =======
Net income (loss) per share:
Basic..................................................... $ 0.57 $ (0.02) $ 0.30
======== ======= =======
Diluted................................................... $ 0.53 $ (0.02) $ 0.07
======== ======= =======
Shares used in per share calculation:
Basic..................................................... 34,236 27,018 5,556
======== ======= =======
Diluted................................................... 36,868 27,018 22,430
======== ======= =======
</TABLE>
See accompanying notes.
33
<PAGE> 35
RF MICRO DEVICES, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------- SHAREHOLDERS' EQUITY
CLASS A- CLASS A- ---------------------
1 2 CLASS B CLASS C ADDITIONAL
PREFERRED PREFERRED PREFERRED PREFERRED COMMON PAID-IN
STOCK STOCK STOCK STOCK TOTAL STOCK CAPITAL
--------- --------- --------- --------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996.................. $ 1,500 $ 1,750 $ 9,075 $ 11,000 $ 23,325 $ 8 $ --
Issuance of common stock............... -- -- -- -- -- 2,952 --
Issuance of warrant.................... -- -- -- -- -- -- 250
Issuance of Class C preferred stock.... -- -- -- 4,932 4,932 -- --
Deferred compensation related to grant
of stock options..................... -- -- -- -- -- -- 300
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -----
Balance, March 31, 1997.................. 1,500 1,750 9,075 15,932 28,257 2,960 550
Conversion of preferred stock.......... (1,500) (1,750) (9,075) (15,932) (28,257) 28,257 --
Conversion of note payable............. -- -- -- -- -- 10,401 --
Initial public offering of common
stock................................ -- -- -- -- -- 38,172 (550)
Exercise of stock options and
warrants............................. -- -- -- -- -- 286 --
Issuance of common stock............... -- -- -- -- -- 148 --
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -----
Balance, March 31, 1998.................. -- -- -- -- -- 80,224 --
Secondary offering of common stock..... -- -- -- -- -- 133,381 --
Exercise of warrant.................... -- -- -- -- -- 10,000 --
Issuance of common stock............... -- -- -- -- -- 456 --
Exercise of stock options.............. -- -- -- -- -- 685 --
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -----
Balance, March 31, 1999.................. $ -- $ -- $ -- $ -- $ -- $224,746 $ --
======= ======= ======= ======== ======== ======== =====
<CAPTION>
SHAREHOLDERS' EQUITY
-------------------------------------
ACCUMULATED
DEFERRED EARNINGS
COMPENSATION (DEFICIT) TOTAL
------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, March 31, 1996.................. $ -- $(14,365) $(14,357)
Issuance of common stock............... -- -- 2,952
Issuance of warrant.................... -- -- 250
Issuance of Class C preferred stock.... -- -- --
Deferred compensation related to grant
of stock options..................... (300) -- --
Amortization of deferred
compensation......................... 31 -- 31
Net income............................. -- 1,652 1,652
----- -------- --------
Balance, March 31, 1997.................. (269) (12,713) (9,472)
Conversion of preferred stock.......... -- -- 28,257
Conversion of note payable............. -- -- 10,401
Initial public offering of common
stock................................ -- -- 37,622
Exercise of stock options and
warrants............................. -- -- 286
Issuance of common stock............... -- -- 148
Amortization of deferred
compensation......................... 44 -- 44
Net loss............................... -- (523) (523)
----- -------- --------
Balance, March 31, 1998.................. (225) (13,236) 66,763
Secondary offering of common stock..... -- -- 133,381
Exercise of warrant.................... -- -- 10,000
Issuance of common stock............... -- -- 456
Exercise of stock options.............. -- -- 685
Amortization of deferred
compensation......................... 60 -- 60
Net income............................. -- 19,561 19,561
----- -------- --------
Balance, March 31, 1999.................. $(165) $ 6,325 $230,906
===== ======== ========
</TABLE>
See accompanying notes.
34
<PAGE> 36
RF MICRO DEVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 19,561 $ (523) $ 1,652
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 4,999 935 502
Loss (gain) on disposal of equipment...................... 109 (11) --
Amortization of deferred compensation..................... 60 44 31
Changes in operating assets and liabilities:
Accounts receivable.................................... (16,566) (4,592) (102)
Inventories............................................ (2,466) (15,653) (6,202)
Current deferred tax asset............................. (898) -- --
Non-current deferred tax asset......................... (1,088) -- --
Other assets........................................... (194) (100) (400)
Accounts payable....................................... 8,837 5,165 1,832
Accrued liabilities.................................... 4,836 155 698
Income taxes payable................................... 2,854 (49) 49
Non-current deferred tax liability..................... 465 -- --
-------- -------- --------
Net cash provided by (used in) operating activities......... 20,509 (14,629) (1,940)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (26,137) (20,020) (4,793)
Proceeds from sale of equipment............................. 341 126 --
-------- -------- --------
Net cash used in investing activities....................... (25,796) (19,894) (4,793)
FINANCING ACTIVITIES
Net proceeds from initial public offering (1998) and
secondary offering (1999)................................. 133,381 37,622 --
Proceeds from exercise of options and warrants.............. 11,141 434 --
Repayment on capital lease obligations...................... (4,190) (1,215) (286)
Proceeds from issuance of redeemable preferred stock........ -- -- 4,932
Decrease in line of credit.................................. -- (350) --
Proceeds from note payable to shareholder................... -- -- 10,000
Proceeds from long-term debt................................ -- -- 273
Decrease (increase) in cash restricted for capital
additions................................................. (3,860) 12,357 (12,358)
Repayments of long-term debt................................ -- (295) (136)
-------- -------- --------
Net cash provided by financing activities................... 136,472 48,553 2,425
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 131,185 14,030 (4,308)
Cash and cash equivalents at beginning of year.............. 16,360 2,330 6,638
-------- -------- --------
Cash and cash equivalents at end of year.................... $147,545 $ 16,360 $ 2,330
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 2,157 $ 441 $ 134
======== ======== ========
Cash paid during the year for income taxes.................. $ 3,502 $ 61 $ 60
======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for new equipment........ $ 5,449 $ 14,064 $ 826
</TABLE>
See accompanying notes.
35
<PAGE> 37
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. COMPANY INFORMATION
RF Micro Devices, Inc. (the "Company") designs, develops and markets
proprietary radio frequency and intermediate frequency integrated circuits
("RFICs") for wireless applications such as cellular and PCS, cordless
telephony, wireless local area networks, wireless local loop, industrial radios,
wireless security and remote meter reading. We derive revenue from the sale of
standard and custom-designed products and services. To date, a significant
portion of our revenue has been attributable to the sale of RFICs used in
cellular and PCS handsets. We offer a broad array of products -- including
amplifiers, mixers and modulators/demodulators and single chip transmitters,
receivers and transceivers -- that represent a substantial majority of the RFICs
required in wireless subscriber equipment.
The Company addresses the various wireless markets by a product delivery
strategy called Optimum Technology Matching(R). This product delivery strategy
utilizes three distinct semiconductor process technologies: gallium arsenide
heterojunction bipolar transistor ("GaAs HBT"), silicon bipolar transistor, and
gallium arsenide metal semiconductor field effect transistor. In June 1996, the
Company and TRW Inc. ("TRW") entered into a license arrangement whereby the
Company was granted a worldwide, perpetual, royalty-free license for commercial
wireless applications operating at frequencies less than 10 GHz.
The Company and a third party developer have completed construction of a
high volume GaAs HBT manufacturing facility to address the various markets for
this technology. Commercial production from this facility began in September
1998.
In June 1997, the Company completed an initial public offering of its no
par value common stock (the "Initial Offering"). The Initial Offering consisted
of 6,911,100 shares offered by the Company and 74,000 shares offered by selling
shareholders. The Initial Offering price was $6 per share, resulting in net
offering proceeds of approximately $37,600,000. Simultaneously with the Initial
Offering, the redeemable convertible preferred stock and a $10 million
subordinated convertible note payable to shareholder of the Company were
automatically converted into 15,908,640 and 2,222,222 shares of common stock,
respectively.
In January 1999, the Company completed a secondary offering of common stock
(the "Secondary Offering"). The Secondary Offering consisted of 4,600,000 shares
offered by the Company and 575,000 shares offered by TRW. The Secondary Offering
price was $30.719 per share resulting in net offering proceeds to the Company of
approximately $133,381,000.
On March 31, 1999, the Company effected a 2-for-1 stock split upon which
the Company's shareholders of record on March 17, 1999 were issued a certificate
representing one additional share of the Company's common stock for each share
of the Company's common stock held on such record date. All references in the
financial statements with regard to number of shares of common stock, common
share prices and per common share data have been restated to reflect the stock
split for all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposit accounts, money market
funds and temporary, highly liquid investments with original maturities of three
months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets, ranging from 3 to 15 years.
36
<PAGE> 38
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company capitalized the costs of bringing its wafer fabrication
facility to an operational state. The capitalized expenses are included in
"machinery and equipment" and "leasehold improvements" in the accompanying
balance sheet as of March 31, 1999. The capitalized expenses are being amortized
over a fifteen-year period. Equipment used in the wafer fabrication facility is
being depreciated over six- and ten-year lives.
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. The years ended March 27, 1999, March 28, 1998 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.
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.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company recognized
advertising expense of $426,615, $287,259 and $210,084 for the years ended March
31, 1999, 1998 and 1997, respectively.
RISKS AND UNCERTAINTIES
Pursuant to the strategic alliance with TRW (Note 14), TRW has granted to
the Company certain licenses to produce certain GaAs HBT products. The Company
constructed a wafer fabrication facility and is manufacturing its own GaAs HBT
products covered by such licenses. These licenses may be made non-exclusive by
TRW if the Company does not meet certain revenue goals. A decision by TRW to
make them non-exclusive would have a material adverse effect on the Company's
operations. Currently, the Company expects to fulfill the requirements of the
license agreement.
The Company currently purchases GaAs HBT products from TRW to supplement
its own capacity. Sales of GaAs HBT products represented 89%, 81%, and 85% of
the Company's total revenue in the years ended March 31, 1999, 1998 and 1997,
respectively. Failure by TRW to continue to supply adequate quantities of
product to the Company would have a material adverse effect on the Company.
The demand for certain of the Company's products has exceeded supply
capacity and consequently, in certain instances, the Company has been unable to
meet requested delivery times and quantity requirements. Continuation of
capacity limitations may cause existing or potential customers to develop other
sources of supply.
37
<PAGE> 39
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and other accrued liabilities approximate fair value as of
March 31, 1999 and 1998.
INTANGIBLES
TRW granted to the Company a worldwide right and license to make, have
made, use and sell the products manufactured in the Company's new wafer
fabrication facility. This right and license will become exclusive and perpetual
upon completion of the condition discussed below. An intangible asset has been
recorded on the Company's balance sheet with an aggregate value of $3,202,323,
which represents the cost of the Company's right to use the technology.
Amortization of this intangible asset is being provided on a straight-line basis
over a fifteen year estimated useful life, commencing September 1998 with
resulting amortization expense of $124,000 for the year ended March 31, 1999. 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 June 15, 1998; during the first year,
$30 million; during the second year, $65 million; and during the third year,
$125 million. Should the technology license be made non-exclusive under the
circumstances described above, a resulting charge to income would be recorded to
recognize impairment, if any, of its value.
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. The Company makes estimates for the allowance for doubtful
accounts, inventory reserves, warranty reserves, and others. Actual results
could differ materially from those estimates.
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>
YEAR ENDED
MARCH 31,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer 1.................................................. 73% 42% --
Customer 2.................................................. -- 13% --
Customer 3.................................................. -- -- 32%
Customer 4.................................................. -- -- 23%
</TABLE>
Additionally, 91% and 67% of the Company's accounts receivable were due
from these significant customers at March 31, 1999 and 1998, respectively.
Sales to customers by geographic region are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
USA......................................................... 41% 50% 58%
Asia........................................................ 31% 24% 33%
Canada...................................................... 1% 3% 2%
Europe...................................................... 27% 23% 7%
</TABLE>
38
<PAGE> 40
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable, which are unsecured. 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.
NET INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities, and only reflects actual common shares outstanding. Diluted earnings
per share is similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to SFAS 128 requirements.
In addition, in February 1998, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 98 ("SAB 98"), which revised the guidance
for earnings per share calculations in an initial public offering. As a result
of SAB 98, the Company restated its 1997 earnings per share of $0.07 as
presented in its Form S-1 registration statement, by excluding the effect of
cheap stock, which was included in the calculation of weighted shares
outstanding for the period prior to the public offering.
INCOME TAXES
The Company accounts for income taxes under the provisions of 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 employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 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 related options.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), provides an alternative to APB 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 25 are required by SFAS 123 to
disclose the pro forma effect on net income (loss) and income (loss) per share
as if the fair value based method prescribed by SFAS 123 had been applied. The
Company has continued to account for stock-based compensation using the
provisions of APB 25 and presents the pro forma disclosure requirements of SFAS
123 (see Note 12).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of
39
<PAGE> 41
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income and its components in financial statements. The application
of the new rules has not had an impact on the Company's financial statements
since it has no items of other comprehensive income in any period presented.
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 changes the way public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
statements to shareholders. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The application of the new rules has not had an impact on the Company's
financial statements as the Company operates in only one segment.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is effective for years beginning after June 15, 2000. SFAS 133
establishes a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The Company will adopt SFAS
133 for fiscal 2001, which may result in additional disclosures. The application
of the new rules is not expected to have a significant impact on the Company's
financial position or results from operations.
3. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Raw materials............................................... $ 6,628 $ 6,356
Work in process............................................. 18,118 7,190
Finished goods.............................................. 6,975 14,036
------- -------
31,721 27,582
Inventory allowances........................................ (4,386) (2,713)
------- -------
Total inventories........................................... $27,335 $24,869
======= =======
</TABLE>
4. LEASES
The Company leases certain equipment under capital and non-cancelable
operating leases. The table below depicts capitalized leased equipment balances
included in property and equipment (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1999 1998
------- ------
<S> <C> <C>
Machinery and equipment..................................... $23,219 $1,170
Accumulated amortization.................................... (2,307) (249)
------- ------
$20,912 $ 921
======= ======
</TABLE>
The lease information shown above for March 31, 1998 does not include
amounts for assets associated with the new wafer fabrication facility as these
amounts were included in construction in progress at that date. Amortization of
equipment leases for the wafer fabrication facility commenced once the facility
began commercial production in September 1998.
Capital lease amortization totaling approximately $2.1 million, $163,000
and $159,000 is included in depreciation expense for the years ended March 31,
1999, 1998 and 1997, respectively.
40
<PAGE> 42
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is leasing from a third party real estate developer a wafer
fabrication facility adjacent to its existing facility. The Company's lease
arrangement with the developer is based on the total cost to construct the
facility. The term of this operating lease is 15 years with an option to renew
for two separate 10-year periods. Lease payments for the facility and the
related equipment began in September 1997 and January 1998, respectively. Total
future minimum lease payments of approximately $18.4 million related to the
facility operating lease and approximately $19.8 million related to the
equipment capital leases are included in the above table. Additionally,
approximately $912,200 and $314,600 of interest expense related to facility
equipment under capital leases was capitalized in 1999 and 1998, respectively.
The developer is providing partial construction financing for the facility. For
the remainder of the construction costs, the Company deposited cash with an
escrow agent to secure its lease payments to the developer. The deposited
amounts are to be released to the Company based upon an agreed-upon amortization
schedule, subject to acceleration in the event the Company meets specified
financial coverage ratios. The Company expects the deposited amounts to be
released to us by the end of the second quarter of fiscal 2000 as the result of
our meeting specified financial coverage ratios. Construction of this facility
is scheduled for two phases. The first of the two phases was complete at March
31, 1998. The second phase is budgeted at approximately $40 million.
Additionally, the Company is investing in another phase of wafer fabrication
capacity that will consist of moving our MBE wafer starting equipment out of the
facility to a new leased location, reconfiguring the space currently occupied by
this equipment with additional wafer production equipment and hiring additional
production personnel. The Company believes this additional investment in wafer
fabrication capacity, which is expected to be completed by the spring of 2001,
will bring its total wafer production capacity to approximately 50,000 wafers
per year. As part of the execution of these phases, the Company has entered into
operating leases for two new facilities. These leases are for 15 years with two
options to renew for ten-year periods.
In 1997, in connection with a financing commitment related to the
construction of the wafer fabrication facility, the Company issued a warrant to
purchase 82,644 shares of its common stock at an exercise price of $4.50 per
share to an equipment financing company. On February 4, 1999, Finova Technology
Finance, Inc., the warrant holder, exercised the warrant through a "cashless"
exercise, as permitted by the terms of the warrant agreement, by relinquishing
the right to purchase 10,326 shares in return for 72,318 shares.
The Company currently has eight capital lease facilities with four
equipment financing companies under which it has financed the cost of capital
equipment and leasehold improvements associated with its wafer fabrication
facility. The Company has financed an aggregate of $23.2 million of leased
property under these facilities. Lease terms range from 36 months to 60 months
with effective interest factors ranging from 8.6% to 11.1%. At March 31, 1999,
the minimum future lease payments under these capital leases (excluding
interest) were $16.8 million.
The Company leases its current corporate headquarters under an operating
lease with a term of 7 years with an option to renew for a three-year period at
annual payments of $740,000. The Company also utilizes operating leases for the
acquisition of test equipment for both production and research and development
purposes. The terms of these leases are 3 years in length.
The Company has available unused capital lease financing commitments with
several finance companies totaling approximately $10.4 million at March 31,
1999.
41
<PAGE> 43
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under noncancelable capital and operating
leases as of March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
2000........................................................ $ 5,520 $ 5,422
2001........................................................ 5,489 4,610
2002........................................................ 5,489 3,377
2003........................................................ 3,265 2,871
2004........................................................ 134 2,375
Thereafter.................................................. -- 8,507
------- -------
Total minimum payments............................ 19,897 $27,162
=======
Less amounts representing interest.......................... (3,064)
-------
Present value of net minimum payments....................... 16,833
Less current portion........................................ (4,246)
-------
Long-term portion................................. $12,587
=======
</TABLE>
Rent expense under operating leases, including building and equipment, was
approximately $4,689,000, $2,233,000 and $660,000 for the years ended March 31,
1999, 1998 and 1997, respectively.
5. LINE OF CREDIT AND LONG-TERM DEBT
The Company maintains a $5.0 million revolving working capital line of
credit. The outstanding balance is limited to an amount equal to 80% of eligible
accounts receivable. On July 14, 1998 the Company amended this line of credit to
allow for borrowings and repayment of this line of credit to be made any time
until July 13, 1999. At March 31, 1999 and 1998, there was no outstanding
balance on the line of credit. This line bears interest at the prime rate and is
collateralized by substantially all of the Company's assets. The agreement
contains provisions to allow the Company to utilize the line for letters of
credit and foreign exchange contracts, none of which were outstanding for any of
the periods presented.
The Company also maintains a $10.0 million revolving term loan. Borrowings
on this line can be drawn until July 13, 1999 in $2.5 million increments, and
are repayable in 60 monthly installments with repayments to be completed by
December 31, 2003. These borrowings bear interest at the prime rate and are
collateralized by substantially all of the Company's assets. At March 31, 1999
and 1998, there was no outstanding balance on the equipment line notes. 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 $10,000,000 subordinated convertible note payable to shareholder
bearing interest at 6% converted into 2,222,222 shares of common stock at a
conversion rate of $4.50 per share upon completion of the Initial Offering in
June 1997. Accrued interest on this note of $400,822 was forgiven by the holder
and was included in the conversion upon the completion of the Initial Offering.
7. INCOME TAXES
The Company accounts for income taxes under SFAS 109. Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
42
<PAGE> 44
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1999 1998 1997
------ ------ ----
<S> <C> <C> <C>
Current:
Federal................................................... $5,825 $ 0 $109
State..................................................... 587 0 0
Deferred.................................................... (1,521) 0 0
------ ------ ----
Total............................................. $4,891 $ 0 $109
====== ====== ====
</TABLE>
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 net deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation.................................. $ 465 $ 387
Deferred tax assets:
Net operating loss carryforwards.......................... -- 1,672
Research and experimental credit carryforwards............ -- 1,044
Research and development costs............................ 904 1,762
Allowance for bad debts................................... 151 93
Software costs............................................ 184 99
Warranty reserve.......................................... 202 86
Inventory................................................. 1,882 1,109
Alternative minimum tax credit carryforwards.............. -- 109
Other..................................................... 416 224
------- -------
Total deferred tax assets......................... 3,739 6,198
Deferred tax asset valuation allowance.................... (1,753) (5,811)
------- -------
Net deferred tax assets..................................... 1,986 387
------- -------
Net deferred taxes................................ $ 1,521 $ --
======= =======
</TABLE>
A reconciliation of the provision for income taxes to income tax expense
computed by applying the statutory federal income tax rate to pre-tax income
(loss) at March 31, 1999, 1998, and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory
federal rate.................. $8,559 35% $(177) (34)% $ 614 34%
Increase (decrease) resulting
from:
State tax, net of federal
benefit....................... 872 3.5 -- -- -- --
Research and development
credits....................... (482) (1.5) -- -- -- --
Change in reserve for deferred
tax assets.................... (4,058) (17) 177 34 -- --
Utilization of net loss
carryforwards................. -- -- -- -- (614) (34)
Alternative minimum tax......... -- -- -- -- 109 6
------ ---- ----- ---- ------ ----
$4,891 20% $ -- --% $ 109 6%
====== ==== ===== ==== ====== ====
</TABLE>
43
<PAGE> 45
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Numerator for basic and diluted net income (loss) per
share:
Net income (loss)....................................... $19,561 $ (523) $ 1,652
Denominator:
Denominator for basic net income (loss) per
share -- Weighted average shares..................... 34,236 27,018 5,556
Effect of dilutive securities:
Convertible preferred stock.......................... -- -- 15,604
Employee stock options............................... 2,632 -- 1,270
Denominator for diluted net income (loss) per
share -- adjusted weighted average shares and assumed
conversions............................................. 36,868 27,018 22,430
Basic net income (loss) per share......................... $ 0.57 $ (0.02) $ 0.30
Diluted net income (loss) per share....................... $ 0.53 $ (0.02) $ 0.07
</TABLE>
Options to purchase 151,000 shares of common stock were outstanding during
1999 but were not included in the computation of diluted earnings per share for
the year ended March 31, 1999 because the exercise price of the options was
greater than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
9. 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 contributed $264,700 and $97,602
during 1999 and 1998, respectively. No contributions to the plan were made
during 1997.
10. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK
The Company's 975,000 shares of no par Class A-1 redeemable convertible
preferred stock, 1,034,091 shares of no par Class A-2 redeemable convertible
preferred stock, 3,300,000 shares of no par Class B redeemable convertible
preferred stock, and 2,645,229 shares of no par Class C redeemable convertible
preferred stock automatically converted into 15,908,640 shares of common stock
on a two-for-one basis upon completion of the Initial Offering on June 6, 1997.
11. EMPLOYEE STOCK PURCHASE PLAN
In April 1997, the Company adopted its Employee Stock Purchase Plan
("ESPP"), which qualifies as an "employee stock purchase plan" under Section 423
of the Internal Revenue Code. All regular full-time employees of the Company
(including officers) and all other employees who meet the eligibility
requirements of the plan, may participate in the ESPP. An aggregate of 1,000,000
shares of Common Stock have been reserved for offering under the ESPP and are
available for purchase thereunder, subject to anti-dilution adjustments in the
event of certain changes in the capital structure of the Company. The Company
makes no cash contributions to the ESPP, but bears the expenses of its
administration.
44
<PAGE> 46
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTIONS
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 granting 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 and nonqualified stock 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 2,852,000 shares, subject to adjustment upon occurrence of
certain events affecting the Company's capitalization. The 1992 Option Plan was
terminated following the Initial Offering, at which time options to purchase
2,183,232 shares had been granted.
1997 KEY EMPLOYEES' STOCK OPTION PLAN
In April 1997, the Company adopted the 1997 Key Employees' Stock Option
Plan (the "1997 Option Plan"), which provides for the granting 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 2,600,000 shares, subject to adjustment in the event
of certain events affecting the Company's capitalization.
DIRECTORS' OPTION PLAN
In April 1997, the Company adopted the Nonemployee Directors' Stock Option
Plan. Under the terms of this plan, directors who are not employees of the
Company are entitled to receive options to acquire shares of common stock. An
aggregate of 400,000 shares of common stock have been reserved for issuance
under this plan, subject to adjustment for certain events affecting the
Company's capitalization. In 1999 and 1998, respectively, the Company issued
40,000 and 80,000 options to eligible participants under the plan. In addition,
during October 1998, the Company granted 30,000 options to certain directors
outside of the Nonemployee Directors' Stock Option Plan.
The Company has elected to follow 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 income (loss) and net income (loss)
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 assumptions for the years
ended March 31, 1999, 1998 and 1997, respectively: risk-free interest rate of
5.5%, 5.66% and 6%, no expected dividends, a volatility factor of .801, .877 and
.70 and a weighted average expected life of the options of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information follows (in thousands, except for per share information):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net income (loss)........................................... $19,561 $ (523) $1,652
Pro forma net income (loss)................................. $18,191 $ (876) $1,608
Pro forma basic net income (loss) per share................. $ 0.53 $(0.03) $ 0.29
Pro forma diluted net income (loss) per share............... $ 0.49 $(0.03) $ 0.07
</TABLE>
45
<PAGE> 47
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity of the Company's employee stock option plans follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICES
--------------------------- -----------------------------
AVAILABLE FOR OPTIONS
GRANT OUTSTANDING PER SHARE RANGE TOTAL
------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
March 31, 1996...................... 116,588 1,188,412 $ 0.08-$0.46 $ 220,533
Reserved.......................... 1,547,000 -- -- $ --
Granted........................... (926,120) 926,120 $ 0.46-$4.51 $ 1,944,852
Exercised......................... -- (36,160) $ 0.08-$0.14 $ (2,839)
Canceled.......................... 15,700 (15,700) $ 0.08-$0.46 $ (2,370)
Expired........................... -- -- -- $ --
---------- --------- ------------ -----------
March 31, 1997...................... 753,168 2,062,672 $ 0.08-$4.51 $ 2,160,176
Reserved.......................... 1,931,232 -- -- $ --
Granted........................... (587,150) 587,150 $5.16-$11.57 $ 3,789,262
Exercised......................... -- (476,104) $ 0.08-$3.03 $ (66,491)
Canceled.......................... 29,440 (29,440) $ 0.08-$9.45 $ (145,101)
Expired........................... -- -- -- $ --
---------- --------- ------------ -----------
March 31, 1998...................... 2,126,690 2,144,278 $0.08-$11.57 $ 5,737,846
Reserved.......................... -- -- -- $ --
Granted........................... (1,557,350) 1,557,350 $5.53-$47.56 $18,491,195
Exercised......................... -- (359,490) $0.08-$11.56 $ (501,812)
Canceled.......................... 36,586 (36,586) $0.08-$44.88 $ (119,307)
Expired........................... -- -- -- $ --
---------- --------- ------------ -----------
March 31, 1999...................... 605,926 3,305,552 $0.08-$47.56 $23,607,922
========== ========= ============ ===========
</TABLE>
Exercise prices for options outstanding as of March 31, 1999, ranged from
$0.08 to $47.56. The weighted average remaining contractual life of outstanding
options is 8.4 years. The weighted average exercise price of outstanding options
at March 31, 1999 is $7.14. At March 31, 1999 and 1998, options to purchase
583,762 and 505,378 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, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS REMAINING OPTIONS
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- -------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ 0.08 - 4.76........................................ 1,260,902 6.9 years 515,582
$ 4.76 - 9.51........................................ 905,650 8.9 years 64,180
$ 9.51 - 14.37........................................ 982,000 9.6 years 4,000
$14.27 - 19.03........................................ 9,000 9.7 years --
$19.03 - 23.78........................................ 35,500 9.8 years --
$23.78 - 28.54........................................ 8,500 9.8 years --
$28.54 - 33.29........................................ 31,500 9.9 years --
$33.29 - 38.05........................................ 36,000 9.9 years --
$38.05 - 42.81........................................ 17,000 10.0 years --
$42.81 - 47.56........................................ 19,500 10.0 years --
--------- ---------- -------
3,305,552 8.4 years 583,762
========= ========== =======
</TABLE>
46
<PAGE> 48
RF MICRO DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At March 31, 1999, the Company had reserved a total of 5,222,288 of its
authorized 50,000,000 shares of common stock for future issuance as follows:
<TABLE>
<S> <C>
Outstanding stock options under employee plans.............. 3,305,552
Possible future issuance under employee stock option
plans..................................................... 605,926
Outstanding options under non-employee directors' option
plan...................................................... 90,000
Possible future issuance under non-employee directors'
option plan............................................... 280,000
Outstanding directors' options outside of directors' option
plan...................................................... 30,000
Employee stock purchase plan................................ 910,810
---------
Total shares reserved............................. 5,222,288
=========
</TABLE>
14. RELATED PARTY TRANSACTIONS
In connection with the bridge financing in 1996 which was subsequently
converted to preferred stock, the Company issued to a shareholder warrants that
entitled the holder to purchase 133,892 shares of common stock at exercise
prices ranging from $1.375 to $3.025 per share. These warrants were exercised in
March, 1999.
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.
Additionally, TRW granted to the Company a worldwide right and license to
make, have made, use and sell the products manufactured in the Company's new
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 5,367,860 shares of restricted common
stock valued at $2,952,323. The restrictions on the stock terminated on July 15,
1998, 30 days after the date the Company's fabrication facility became
operational. 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 July 15, 1998: during
the first year, $30 million; during the second year, $65 million; and during the
third year, $125 million. For purposes of this provision, the facility became
operational on June 15, 1998.
In connection with the licensing agreement, the Company issued a warrant to
TRW to purchase up to 2,000,000 shares of the Company's common stock at an
exercise price of $5.00 per share. The TRW warrant first became exercisable on
June 15, 1998, the date that the Company's wafer facility became operational,
and was exercised on September 14, 1998. A value of $250,000 was recorded for
this warrant.
The previously restricted common stock and the related warrant were
assigned an aggregate value of $3,202,323, which represents the cost of the
Company's right to use the technology and, accordingly, a related intangible
asset has been recorded on the Company's balance sheet. Amortization of this
intangible asset is being provided on a straight-line basis over a fifteen year
estimated useful life, commencing September 1998. Should the technology license
be made nonexclusive under the circumstances described above, a resulting charge
to income would be recorded to recognize impairment, if any, of its value.
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 $31.9 million and $29.8
million in calendar years 1999 and 2000, respectively.
47
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is contained in our definitive proxy
statement relating to our Annual Meeting of Shareholders to be held on July 27,
1999 under the captions "Executive Officers," "Proposal 1 -- Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," which
are incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is contained in our definitive proxy
statement relating to our Annual Meeting of Shareholders to be held on July 27,
1999 under the caption "Management Compensation," which is incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is contained in our definitive proxy
statement relating to our Annual Meeting of Shareholders to be held on July 27,
1999 under the caption "Security Ownership," which is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is contained in our definitive proxy
statement relating to our Annual Meeting of Shareholders to be held on July 27,
1999 under the caption "Certain Transactions," which is incorporated by
reference herein.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of RF Micro Devices, Inc. included in
this Annual Report on Form 10-K are included in Item 8:
<TABLE>
<S> <C>
i. Balance Sheets as of March 31, 1999 and 1998.
ii. Statements of Operations for the years ended March 31, 1999,
1998 and 1997.
iii. Statements of Redeemable Convertible Preferred Stock and
Shareholders' Equity for the years ended March 31, 1999,
1998 and 1997.
iv. Statements of Cash Flows for the years ended March 31, 1999,
1998 and 1997.
v. Notes to the Financial Statements for the years ended March
31, 1999, 1998, and 1997.
</TABLE>
(a)(2) Schedule II; Valuation and Qualifying Accounts -- see additional
section of this Report.
No other financial statement schedules are to be filed with this Annual
Report on Form 10-K due to the absence of the conditions under which they are
required or because the required information is included within the consolidated
financial statements or the notes thereto included herein.
48
<PAGE> 50
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
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 -- First Amended and Restated Loan and Security Agreement,
dated July 14, 1998, 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.
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 -- Amended and Restated Nonemployee Directors' Stock Option
Plan of RF Micro Devices, Inc.+
10.6 -- Form of Stock Option Agreement (1997 Directors' Stock Option
Plan)+
10.7 -- Securities Purchase Agreement, dated June 6, 1996, between
RF Micro Devices, Inc. and TRW Inc.*
10.8 -- License and Technical Assistance Agreement, dated June 6,
1996, between RF Micro Devices, Inc. and the Electronic
Systems #1& Technology Division of the Space and Electronics
Group of TRW Inc.*
10.9 -- Supply Agreement, dated June 6, 1996, between RF Micro
Devices, Inc. and TRW Inc.*
10.10 -- Amendment to the Supply Agreement, dated June 6, 1996,
between RF Micro Devices, Inc. and TRW Inc.++
10.11 -- Restricted Stock Agreement, dated June 6, 1996, between RF
Micro Devices, Inc. and TRW Inc.*
10.12 -- Second Amended and Restated Registration Rights Agreement,
dated June 6, 1996, between RF Micro Devices, Inc. and
certain shareholders, as amended*
10.13 -- Lease Agreement, dated October 31, 1995, between RF Micro
Devices, Inc. and Piedmont Land Company, as amended*
10.14 -- Lease Agreement, dated October 9, 1996, between RF Micro
Devices, Inc. and Highwoods/Forsyth Limited Partnership, as
amended*
10.15 -- Master Equipment Lease Agreement, dated as of December 2,
1996, between Finova Technology Finance, Inc. and RF Micro
Devices, Inc.*
10.16 -- Lease Agreement, dated February 12, 1999, between Highwoods
Realty Limited Partnership and RF Micro Devices, Inc.
23 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule (filed in electronic format only)
27.2 -- Restated Financial Data Schedule (filed in electronic format
only)
</TABLE>
- ---------------
* Incorporated by reference to the exhibit filed with our Registration
Statement on Form S-1 (File No. 333-22625)
** Incorporated by reference to the exhibit filed with our Quarterly Report on
Form 10-Q for the quarterly period ended September 26, 1998
+ Executive compensation plan or agreement
++ Incorporated by reference to the exhibit filed with our Annual Report on Form
10-K for the fiscal year ended March 28, 1998
49
<PAGE> 51
(b) Reports on Form 8-K filed in the 4th quarter of fiscal 1999:
We filed a Current Report on Form 8-K on January 11, 1999 to disclose that
we announced on that date an expansion of our relationship with IBM to add
access to IBM's Silicon Germanium fabrication process. We also filed a Current
Report on Form 8-K on March 4, 1999 to disclose that we announced on March 3,
1999 that our board of directors had approved a two-for-one stock split of our
common stock, to be effected by a 100% share dividend payable on or around March
31, 1999 to shareholders of record on March 17, 1999.
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith and
incorporated by reference herein. The response to this portion of Item 14 is
submitted under Item 14(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted under Item 14(a)(2).
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RF Micro Devices, Inc.
Date: June 25, 1999
By: /s/ DAVID A. NORBURY
------------------------------------
David A. Norbury
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 25, 1999.
<TABLE>
<S> <C>
/s/ DAVID A. NORBURY /s/ WILLIAM A. PRIDDY, JR.
- ----------------------------------------------------- -----------------------------------------------------
Name: David A. Norbury Name: William A. Priddy, Jr.
Title: President, Chief Executive Title: Chief Financial Officer and
Officer And Director Vice President of Administration
(principal executive officer) (principal financial and accounting officer)
/s/ ERIK H. VAN DER KAAY /s/ DR. ALBERT E. PALADINO
- ----------------------------------------------------- -----------------------------------------------------
Name: Erik H. van der Kaay Name: Dr. Albert E. Paladino
Title: Director Title: Director
/s/ WILLIAM J. PRATT /s/ WALTER H. WILKINSON, JR.
- ----------------------------------------------------- -----------------------------------------------------
Name: William J. Pratt Name: Walter H. Wilkinson, Jr.
Title: Director Title: Director
/s/ TERRI D. ZINKIEWICZ
- -----------------------------------------------------
Name: Terri D. Zinkiewicz
Title: Director
</TABLE>
51
<PAGE> 53
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS DEDUCTIONS BALANCE AT END
PERIOD AND EXPENSES FROM RESERVE OF PERIOD
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Year ended March 31, 1999
Allowance for doubtful accounts......... $ 489,200 $ 244,569 $ 342,345 $ 391,424
Inventory reserve....................... 2,713,136 5,844,670 4,171,366 4,386,440
Warranty reserve........................ 220,189 434,213 130,726 523,676
Year ended March 31, 1998
Allowance for doubtful accounts......... 510,131 519,774 540,705 489,200
Inventory reserve....................... 846,855 2,316,281 450,000 2,713,136
Warranty reserve........................ 137,580 245,500 162,891 220,189
Year ended March 31, 1997
Allowance for doubtful accounts......... 489,131 21,000 -- 510,131
Inventory reserve....................... 80,511 766,344 -- 846,855
Warranty reserve........................ -- 137,580 -- 137,580
</TABLE>
<PAGE> 1
EXHIBIT 10.5
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
RF MICRO DEVICES, INC.
(As Amended and Restated Effective January 26, 1999)
<PAGE> 2
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
RF MICRO DEVICES, INC.
(As Amended and Restated Effective January 26, 1999)
1. Purpose.
The purposes of the Nonemployee Directors' Stock Option Plan of RF
Micro Devices, Inc., as amended and restated effective January 26, 1999 (the
"Plan"), are to compensate nonemployee members of the Board of Directors (the
"Board") of RF Micro Devices, Inc. (the "Corporation") for their service on the
Board, encourage and enable such members to acquire or to increase their
holdings of common stock of the Corporation (the "Common Stock") in order to
promote a closer identification of their interests with those of the Corporation
and its shareholders, thereby further stimulating their efforts to enhance the
efficiency, soundness, profitability, growth and shareholder value of the
Corporation, and allow the Corporation to attract and retain qualified
nonemployee members of the Board. These purposes will be carried out through the
granting of stock options to nonemployee Directors. Such options include options
granted to nonemployee Directors upon consummation of an initial public
offering, and, with respect to nonemployee Directors elected to the Board after
consummation of an initial public offering, upon the initial election or
appointment to the Board (collectively, "Initial Awards"), and options granted
to nonemployee Directors on an annual basis after consummation of an initial
public offering ("Annual Awards"). Initial Awards and Annual Awards are referred
to collectively herein as "Options" and individually as an "Option." Such
Options are not intended to qualify for treatment as incentive stock options
described in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). For the purposes herein, a "nonemployee Director" shall mean a Director
who is not at the time an option is granted an employee of the Corporation or a
related corporation.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors
of the Corporation, or, upon its delegation, by the Compensation
Committee of the Board (the "Committee"). To the extent deemed
necessary or advisable by the Board, the Committee shall include no
fewer than the minimum number of "non-employee directors," as such term
is defined in Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as may be required by Rule
16b-3 or any successor rule. For the purposes herein, the Board and,
upon its delegation of administrative authority to the Committee, the
Committee, shall (except for references to the Board in Section 13) be
referred to herein as the "Administrator."
(b) Any action of the Administrator may be taken by a written
instrument signed by all of the members of the Administrator and any
action so taken by written consent shall be as fully effective as if it
had been taken by a majority of the members at a meeting duly held and
called. Subject to the provisions of the Plan, the Administrator shall
have full and final authority, in its discretion, to establish, amend
and rescind rules and regulations for the administration of the Plan;
to construe and interpret the Plan, the rules and regulations, and the
agreements evidencing Options granted under the Plan; and to make all
other determinations deemed necessary or advisable for administering
the Plan. In addition, the Administrator shall have complete authority,
in its discretion, to accelerate the date that any Option shall become
exercisable in whole or in part, even if such Option was not otherwise
exercisable, without any obligation to accelerate any other Option
granted to any person.
3. Effective Date; Term of the Plan.
The effective date of the Plan was June 6, 1997, the date of
consummation of an initial public offering (as provided in Section 6(a)(i)
herein) (the "Public Offering Date"). The Plan was amended and restated
effective January 26, 1999. Options may be granted under the Plan on or after
the effective date, but not after the tenth anniversary of the Public Offering
Date.
<PAGE> 3
4. Shares of Common Stock Subject to the Plan.
The number of shares of Common Stock that may be issued pursuant to
Options shall not exceed in the aggregate 200,000 shares of authorized but
unissued Common Stock. The Corporation hereby reserves sufficient authorized
shares to provide for the exercise of Options granted under the Plan. Any shares
subject to an Option which, for any reason, expires or is terminated unexercised
as to such shares may again be subject to an Option granted under the Plan. If
there is any change in the shares of Common Stock because of a merger,
consolidation or reorganization involving the Corporation or a related
corporation, or if the Board declares a stock dividend or stock split
distributable in shares of Common Stock, or if there is a change in the capital
structure of the Corporation or a related corporation affecting the Common
Stock, the number of shares of Common Stock reserved for issuance under the Plan
shall be correspondingly adjusted, and the Administrator shall make such
adjustments to Options or to any provisions of the Plan as the Administrator
deems equitable to prevent dilution or enlargement of Options.
5. Eligibility.
An Option may be granted only to an individual who is a nonemployee
Director on the date the Option is granted. An eligible participant in the Plan
is referred to herein as a "nonemployee Director" or a "Director."
6. Grant of Options, etc.
(a) Initial Awards.
(i) Initial Awards Upon Completion of Initial Public
Offering. Each non-employee Director in service at the time of
consummation of an initial public offering of the Common Stock
shall receive an Option for 10,000 shares of Common Stock. The
grant of such Initial Award shall be effective concurrently
with the consummation of such initial public offering. For the
purposes of the Plan, the phrase "consummation of an initial
public offering" shall mean the closing of a firm commitment
underwritten public offering of the Company's Common Stock
pursuant to a registration statement on Form S-1 filed under
the Securities Act of 1933, as amended (the "Securities Act").
(ii) Initial Awards Upon Initial Election or
Appointment to the Board. Each nonemployee Director who is
first elected or appointed to the Board after consummation of
an initial public offering shall receive an Option to purchase
10,000 shares of Common Stock. The date of grant of such an
Initial Award shall be the fifth business day after the date
of the annual meeting of shareholders as to those nonemployee
Directors who are first elected at an annual meeting of
shareholders and the fifth business day after the date of
election or appointment to the Board as to those nonemployee
Directors who are first elected or appointed to the Board
other than at an annual meeting of shareholders.
(b) Annual Awards.
(i) Each nonemployee Director who is re-elected to
the Board by the shareholders of the Company at an annual or
other meeting of the shareholders occurring after consummation
of an initial public offering and before the 1999 Annual
Meeting of Shareholders shall be granted, on an annual basis,
an Option to purchase 5,000 shares of Common Stock. The date
of grant of such an Annual Award shall be the fifth business
day after the date of the annual or other shareholders meeting
at which such Director is re-elected.
(ii) Commencing with the 1999 Annual Meeting of
Shareholders, each nonemployee Director who is re-elected to
the Board by the shareholders of the Company at an annual or
other meeting of the shareholders shall be granted, on an
annual basis, an Option to purchase 10,000 shares
- 2-
<PAGE> 4
of the Common Stock. The date of grant of such an Annual Award
shall be the fifth business day after the date of the annual
or other shareholders meeting at which such Director is
re-elected.
7. Option Price.
The price per share of Common Stock at which an Option may be exercised
(the "Option Price") shall be the fair market value per share of the Common
Stock on the date the Option is granted. For this purpose, "fair market value"
shall be determined in accordance with the following provisions: (i) if the
shares of Common Stock are listed for trading on the New York Stock Exchange or
the American Stock Exchange, the fair market value shall be the closing sales
price per share of the shares on the New York Stock Exchange or the American
Stock Exchange (as applicable) on the date immediately preceding the date the
Option is granted, or, if there is no transaction on such date, then on the
trading date nearest preceding the date the Option is granted for which closing
price information is available, and, provided further, if the shares are quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market of the Nasdaq
National Market but are not listed for trading on the New York Stock Exchange or
the American Stock Exchange, the fair market value shall be the closing sales
price per share for such stock (or the closing bid, if no sales were reported)
as quoted on such system on the date immediately preceding the date the Option
is granted for which such information is available; or (ii) if the shares of
Common Stock are not listed or reported in any of the foregoing, then fair
market value shall be determined in good faith in accordance with the applicable
provisions of Section 20.2031-2 of the Federal Estate Tax Regulations, or in any
other manner consistent with the Code and accompanying regulations.
8. Option Period and Limitations on the Right to Exercise Options.
(a) The term of an Option (the "Option Period") shall be ten
years from the date of grant. Initial Awards shall become exercisable
as provided in Section 8(a)(i) below, and Annual Awards shall become
exercisable as provided in Section 8(a)(ii) below. To the extent that
all or part of an Option becomes exercisable but is not exercised, such
Option shall accumulate and be exercisable by the Director in whole or
in part at any time before the expiration of the Option Period. The
total number of shares that may be acquired upon the exercise of an
Initial Award or Annual Award shall be rounded down to the nearest
whole share. No fractional shares shall be issued. Any Option or
portion thereof not exercised before expiration of the Option Period
shall terminate.
(i) Initial Awards. Initial Awards that are granted
upon consummation of an initial public offering shall vest and
become exercisable in full immediately upon the date of grant.
Initial Awards that are granted after consummation of an
initial public offering and prior to January 26, 1999 shall
vest and become exercisable in three equal installments on
each of the first three anniversaries of the date of grant.
Initial Awards that are granted after January 26, 1999 shall
vest and become exercisable in three equal installments on the
date of grant and on each of the first and second
anniversaries of the date of grant.
(ii) Annual Awards. An Annual Award made prior to the
1999 Annual Meeting of Shareholders shall vest and become
exercisable in three equal installments on each of the first
three anniversaries of the date of grant. Commencing with
Annual Awards granted in conjunction with the 1999 Annual
Meeting of Shareholders and for each Annual Award granted
thereafter, such Annual Award shall vest and become
exercisable in three equal installments on the date of grant
and on each of the first and second anniversaries of the date
of grant.
(b) No Option shall be exercised unless the Director is, at
the time of exercise, a nonemployee Director and has been a Director
continuously since the date the Option was granted. Notwithstanding the
foregoing, if a Director's service on the Board terminates for any
reason (including death), that portion of his Option which was
exercisable immediately before such termination may be exercised by the
Director (or, in the event of his death, by such person or persons as
shall have acquired the right to exercise the Option by will
- 3-
<PAGE> 5
or the laws of intestate succession) at any time within 180 days
following the date of such termination, and after such 180-day period,
such Options shall terminate.
(c) An Option shall be exercised by giving written notice to
the Administrator or its designee at such time and place as the
Administrator shall direct. Such notice shall specify the number of
shares to be purchased pursuant to an Option and the aggregate purchase
price to be paid therefor, and shall be accompanied by the payment of
such purchase price. Such payment shall be in the form of (i) cash;
(ii) shares of Common Stock owned by the Director at the time of
exercise; (iii) shares of Common Stock withheld upon exercise; (iv)
delivery of written notice of exercise to the Administrator and
delivery to a broker of written notice of exercise and irrevocable
instructions to promptly deliver to the Corporation the amount of sale
or loan proceeds to pay the Option Price; or (v) a combination of such
methods. Shares of Common Stock tendered or withheld in payment upon
the exercise of an Option shall be valued at their fair market value on
the date of exercise, as determined in accordance with Section 7
herein.
(d) A Director or his legal representative, legatees or
distributees shall not be deemed to be the holder of any shares subject
to an Option unless and until certificates for such shares are issued
to him or them under the Plan. A certificate or certificates for shares
of Common Stock acquired upon exercise of an Option shall be issued in
the name of the Director (or his beneficiary) and distributed to the
Director (or his beneficiary) as soon as practicable following receipt
of notice of exercise and payment of the purchase price.
9. Nontransferability of Options.
(a) An Option shall not be transferable other than by will or
the laws of intestate succession, except as (i) may be otherwise
provided in an individual option agreement and (ii) may be permitted by
the Administrator in a manner consistent with the registration
provisions of the Securities Act. Except as may be permitted by the
preceding sentence, an Option shall be exercisable during the
Director's lifetime only by him or by his guardian or legal
representative.
(b) To the extent required by Rule 16b-3, shares of Common
Stock acquired upon exercise of an Option shall not, without the
consent of the Administrator, be disposed of by the Director until the
expiration of six months after the date the Option was granted.
10. Certain Definitions.
For purposes of the Plan, the following terms shall have the meaning
indicated:
(a) "Related corporation" means any parent, subsidiary or
predecessor of the Corporation.
(b) "Parent" or "parent corporation" shall mean any
corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation if, at the time as of which a
determination is being made, each corporation other than the
Corporation owns stock possessing fifty percent or more of the total
combined voting power of all classes of stock in another corporation in
the chain.
(c) "Subsidiary" or "subsidiary corporation" means any
corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation if, at the time as of which
a determination is being made, each corporation other than the last
corporation in the unbroken chain owns stock possessing fifty percent
or more of the total combined voting power of all classes of stock in
another corporation in the chain.
(d) "Predecessor" or "predecessor corporation" means a
corporation which was a party to a transaction described in Section
424(a) of the Code (or which would be so described if a substitution or
- 4-
<PAGE> 6
assumption under that section had occurred) with the Corporation, or a
corporation which is a parent or subsidiary of the Corporation, or a
predecessor of any such corporation.
11. Stock Option Agreement.
The grant of any Option under the Plan shall be evidenced by the
execution of an agreement (the "Agreement") between the Corporation and the
Director, a specimen of which is attached to the Plan. Each such Agreement shall
set forth the date of grant of the Option, the Option Price, the Option Period
and any other applicable terms and conditions.
12. Restrictions on Shares.
The Corporation may impose such restrictions on any shares issued
pursuant to the exercise of Options granted hereunder as it may deem advisable,
including without limitation restrictions under the Securities Act and the
requirements of any applicable self-regulatory organization and any blue sky or
securities laws applicable to such shares. Notwithstanding any other Plan
provision to the contrary, the Corporation shall not be obligated to issue,
deliver or transfer shares of Common Stock under the Plan or to take any other
action unless such action is in compliance with applicable laws, rules and
regulations (including but not limited to the requirements of the federal
securities laws). The Corporation may cause a restrictive legend to be placed on
any certificate issued pursuant to the exercise of an Option granted hereunder
in such form as may be prescribed from time to time by applicable laws and
regulations or as may be advised by legal counsel to the Corporation.
13. Amendment or Termination.
The Plan and any Option may be amended or terminated by action of the
Board; provided, that such amendment or termination shall not, without the
consent of a nonemployee Director, adversely affect the rights of such
nonemployee Director with respect to an outstanding Option held by such
nonemployee Director. The term of the Plan shall end on the earlier of: (i) the
effective date of termination of the Plan by the Board or (ii) that date Options
have been granted to purchase all of the aggregate shares which are available
for Options hereunder. Any Options outstanding at the end of the term shall
continue to be outstanding and exercisable for the remainder of the applicable
Option Period.
14. Section 16(b) Compliance.
It is the general intent of the Corporation that transactions under the
Plan shall comply in all respects with Rule 16b-3 under the Exchange Act, and,
if any Plan provision is later found not to be in compliance with Section 16 of
the Exchange Act, the provision shall be deemed null and void, and in all events
the Plan shall be construed in favor of Plan transactions meeting the
requirements of Rule 16b-3 or successor rules applicable to the Plan.
15. Applicable Law.
Except as otherwise provided herein, the Plan shall be construed and
enforced according to the laws of the State of North Carolina.
16. Change of Control.
(a) Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change of Control (as defined in Section
16(c) herein), all Options outstanding as of the date of such Change of
Control shall become fully exercisable, whether or not then otherwise
exercisable.
(b) Notwithstanding the foregoing, in the event of a merger,
share exchange, reorganization or other business combination affecting
the Corporation or a related corporation, the Administrator may, in its
- 5-
<PAGE> 7
sole and absolute discretion, determine that any or all Options granted
pursuant to the Plan shall not become exercisable on an accelerated
basis, if the board of directors of the surviving or acquiring
corporation, as the case may be, shall have taken such action,
including but not limited to the assumption of Options granted under
the Plan or the grant of substitute awards (in either case, with
substantially similar terms as Options granted under the Plan), as in
the opinion of the Administrator is equitable or appropriate to protect
the rights and interests of participants under the Plan. For the
purposes herein, if the Committee is acting as the Administrator
authorized to make the determinations provided for in this Section
16(b), the Committee shall be appointed by the Board of Directors,
two-thirds of the members of which shall have been directors of the
Corporation prior to the merger, share exchange, reorganization or
other business combinations affecting the Corporation or a related
corporation.
(c) For the purposes herein, a "Change of Control" shall be
deemed to have occurred on the earliest of the following dates:
(i) The date any entity or person that is not a
shareholder on the effective date of the Plan shall have
become the beneficial owner of, or shall have obtained voting
control over, fifty-one percent (51%) or more of the
outstanding Common Stock of the Corporation;
(ii) The date the shareholders of the Corporation
approve a definitive agreement (A) to merge or consolidate the
Corporation with or into another corporation, in which the
Corporation is not the continuing or surviving corporation or
pursuant to which any shares of Common Stock of the
Corporation would be converted into cash, securities or other
property of another corporation, other than a merger or
consolidation of the Corporation in which holders of Common
Stock immediately prior to the merger or consolidation have
the same proportionate ownership of Common Stock of the
surviving corporation immediately after the merger as
immediately before, or (B) to sell or otherwise dispose of all
or substantially all the assets of the Corporation; or
(iii) The date there shall have been a change in a
majority of the Board of Directors of the Corporation within a
12-month period unless the nomination for election by the
Corporation's shareholders of each new director was approved
by the vote of two-thirds of the directors then still in
office who were in office at the beginning of the 12-month
period.
For purposes herein, the term "person" shall mean any
individual, corporation, partnership, group, association or
other person, as such term is defined in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, other than the
Corporation, a subsidiary of the Corporation or any employee
benefit plan(s) sponsored or maintained by the Corporation or
any subsidiary thereof, and the term "beneficial owner" shall
have the meaning given the term in Rule 13d-3 under the
Exchange Act.
17. No Right to Continued Service.
Nothing in the Plan shall confer upon a Director any right to continue
in the service of the Corporation or a related corporation or to interfere in
any way with the right of the Corporation or related corporation to terminate a
Director's service at any time.
- 6-
<PAGE> 8
IN WITNESS WHEREOF, this 1999 Nonemployee Directors' Stock
Option Plan of RF Micro Devices, Inc., as amended and restated effective January
26, 1999, has been executed in behalf of the Corporation effective as of the
26th day of January, 1999.
RF MICRO DEVICES, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
Attest:
- ---------------------------------
Secretary
[Corporate Seal]
- 7-
<PAGE> 1
EXHIBIT 10.6
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
RF MICRO DEVICES, INC.
(Option Agreement)
THIS AGREEMENT (the "Agreement"), made the ____ day of ____________,
____, between RF MICRO DEVICES, INC., a North Carolina corporation (the
"Corporation"), and ______________ (the "Director");
R E C I T A L S :
In furtherance of the purposes of the Nonemployee Directors' Stock
Option Plan of RF Micro Devices, Inc., as amended (the "Plan"), the Corporation
and the Director hereby agree as follows:
1. The rights and duties of the Corporation and the Director under this
Agreement shall in all respects be subject to and governed by the provisions of
the Plan, the terms of which are incorporated herein by reference and made a
part of this Agreement.
2. The Corporation hereby grants to the Director pursuant to the Plan,
as a matter of separate inducement and agreement in connection with his services
to the Corporation, the right and option (the "Option") to purchase all or any
part of an aggregate of _____________ (____) shares of the Common Stock of the
Corporation (the "shares"), at the purchase price of $_________ per share. The
Option is designated as a nonqualified stock option and, as such, is not
intended to qualify for treatment as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended. The Option will expire if not
exercised in full on or before the _____ day of
_____________________, _____.
3. The Option shall become exercisable as provided in Section 8 of the
Plan. To the extent that an Option which is exercisable is not exercised, such
Option shall accumulate and be exercisable by the Director in whole or in part
at any time prior to expiration of the Option. Upon the exercise of an Option in
whole or in part, the Director shall pay the purchase price to the Corporation
in accordance with the provisions of Section 8 of the Plan, and the Corporation
shall as soon thereafter as practicable deliver to the Director a certificate or
certificates for the shares purchased.
4. Nothing contained in this Agreement or the Plan shall require the
Corporation or a related corporation to continue the services of the Director as
a director for any particular period of time, nor shall it require the Director
to remain in service to the Corporation or a related corporation as a director
for any particular period of time. Except as otherwise expressly provided in the
Plan, all rights of the Director under the Plan with respect to the unexercised
portion of his Option shall terminate immediately upon termination of the
services of the Director with the Corporation as a director.
5. This Option shall not be transferable (including by pledge or
hypothecation) other than by will or the laws of intestate succession. This
Option shall be exercisable during the Director's lifetime only by the Director
or by his guardian or legal representative.
6. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective executors, administrators,
next-of-kin, successors and assigns.
7. This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina.
IN WITNESS WHEREOF, this Agreement has been executed in behalf of the
Corporation and by the Director on the day and year first above written.
<PAGE> 2
RF MICRO DEVICES, INC.
By:_____________________________________
David A. Norbury
President and Chief Executive Officer
Attest:
________________________________
________________________
Secretary
[Corporate Seal]
DIRECTOR
________________________________________
Printed Name:___________________________
<PAGE> 3
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
OF
RF MICRO DEVICES, INC.
(Option Agreement)
SCHEDULE A
Date Option granted: ___________________, ______.
Date Option expires: ___________________, ______.
Number of shares subject to Option: ________ shares.
Option price (per share): $________.
Date Installment Number of Shares
First Exercisable in Installment
----------------- ----------------
<PAGE> 1
EXHIBIT 10.16
NORTH CAROLINA )
)
GUILFORD COUNTY )
THIS LEASE, made and entered into this the 12th day of February, 1999,
by and between HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina Limited
Partnership, hereinafter referred to as "Landlord" and R.F. MICRO DEVICES, INC.,
a North Carolina Corporation, hereinafter referred to as "Tenant."
RECITALS
Landlord is seized of the business premises described herein, having
space therein to let. Tenant desires to lease such space from Landlord. The
parties desire to enter into a Lease Agreement defining their respective rights,
duties and liabilities relating to the premises.
IN CONSIDERATION of the mutual covenants contained herein, the parties
agree as follows:
1. DESCRIPTION OF PREMISES: Landlord is the owner of a 136,000 rentable square
foot building (the "Building") located on certain real property at 494 Gallimore
Dairy Road, Suite A, Greensboro, Guilford County, North Carolina, being more
fully described on Exhibit "A" attached hereto and hereby made a part hereof.
The Leased Space shall consist of real property described on Exhibit
"A" attached hereto together with the Building and other improvements in the
amount of 136,000 rentable square feet, as outlined in red on Exhibit "B"
attached hereto, said space and real property, hereinafter referred to as the
"Premises." The entire Premises shall be for the exclusive use of Tenant, its
agents, servants, employees and invitees for office and related uses. The
Premises are more commonly known as Suite A.
Landlord represents and warrants that it is the owner in fee simple of
the Premises and that there are no covenants, restrictions, or zoning or other
regulations which prevent, or are violated by, this Lease or the use of the
Premises as contemplated herein.
2. TERM: The term of this Lease shall be for a period of fifteen (15) years,
beginning June 1, 1999, the "Commencement Date," continuing through May 31,
2014, the "Termination Date." For purposes of this Lease, the Building shall be
deemed completed upon issuance of a certificate of occupancy from the applicable
governmental authority, and a certificate of architect from Lockwood Greene
indicating that the property has been substantially completed in accordance with
Tenant approved construction drawings. The Lease, along with Tenant's rental
obligation, shall commence upon the issuance of a certificate of occupancy and
certificate or architect supplied by Lockwood Greene.
3. BASE RENT: Tenant shall pay rental for the Premises Lease in the amount of
three hundred ninety seven thousand one hundred twenty dollars and 00/100
($397,120.00) per year, payable in equal monthly installments of thirty three
thousand ninety three dollars and 33/100 ($33,093.33).
Rent shall increase on the third anniversary of the Commencement Date
by 4.5% from the previous Lease year. Rent shall also increase on the sixth,
ninth, and twelfth anniversaries of the Commencement Date by the same percentage
as eighty percent (80%) of the percentage increase in the Consumer Price Index
- -- All Items -- All Urban Consumers ("CPI"), issued by the U.S. Department of
Labor, for each prior thirty-six (36) month period. However, in no event shall
the base rent decrease as a result of a decrease in CPI.
As soon as practicable after the CPI for the anniversary date becomes
available, the Landlord shall furnish to Tenant a statement for setting froth
the adjustment, if any, to Rent as required by this paragraph 3. From the
beginning of each Lease Year until Landlord shall furnish Tenant with a
statement as aforesaid, Tenant shall continue to pay Rent at the rate it shall
have been obligated to pay during the preceding Lease Year. Beginning with the
first day of the calendar month following the date upon which Landlord shall
have delivered to Tenant each such statement, Tenant shall pay rent at the rate
required by this paragraph 3 and shall pay Landlord any difference between Rent
it shall have paid
<PAGE> 2
Landlord for such year and the adjusted Rental it shall have been obligated to
pay Landlord for such year under this paragraph 3. It is agreed that in the
event the aforesaid index is discontinued or revised, any other index with which
it is replaced shall be used in order to obtain substantially the same results
as would be obtained if there had been no such discontinuation or revision.
All rental payments are payable in advance on the first (1st) day of
each month without prior offset or deduction, except as set forth in the Lease,,
to Landlord at Landlord's address specified in section 4.1 hereof entitled
"NOTICES" or at such other place as Landlord may direct. In the event any Tenant
check tendered to Landlord in payment of its obligations hereunder is returned
by Tenant's bank for insufficient funds, any and all reasonable charges incurred
by Landlord as a result shall be billed to Tenant by Landlord as additional rent
hereunder.
4. OCCUPANCY AND ACCEPTANCE OF PREMISES: Landlord shall deliver actual
possession of the Premises to Tenant on the Commencement Date according to the
specifications indicated in Exhibit "B" attached hereto and by this reference
made a part hereof, provided Landlord is able to furnish to Tenant evidence
obtained from local governmental authorities having jurisdiction that the
Premises have been duly inspected and approved for Tenant's occupancy. If the
Premises are ready for Tenant's occupancy prior to the Commencement Date,
Landlord shall so notify Tenant and Tenant may accept such early occupancy,
provided, however, in such event Tenant shall pay to Landlord base rental
calculated on a daily basis assuming a 365 day year, for each day Tenant shall
occupy the Premises prior to the Commencement Date. If permission is given to
Tenant to occupy the Demised Premises prior to the date of commencement of the
term hereof, such occupancy shall be subject to all the provisions of this Lease
except for those relating to the term of this Lease.
Upon Tenant's occupancy of the Premises Tenant shall render to
Landlord, within ten (10) days of such occupancy date, a written notice listing
each and every respect in which the Premises are incomplete according to such
building specifications as noted above; Landlord shall then have sixty (60) days
from its receipt of said notice to complete those items contained in such
listing. The existence of such items shall not alter the Tenant obligation to
pay rent pursuant to Section 3.
During Tenant's move-in, a representative of the Tenant must be on-site
with any moving company to ensure proper treatment of Premises. Elevators in
multi-story office building must remain in use for the general public during
business hours. Any specialized use of elevators must be coordinated with the
Landlord's Property Manager. All packing materials and refuse must be properly
disposed of. Any damage or destruction due to moving will be the sole
responsibility of the Tenant.
Tenant shall, at its own expense, comply with all future governmental
regulations to include those relating to the Americans with Disabilities Act
(ADA). Landlord warrants that the Premises complies with such governmental
regulations as of the Commencement Date of this Lease.
Notwithstanding anything stated above to the contrary, the Tenant shall
have the right to enter into the Premises prior to the Commencement Date to
begin work necessary for the Tenant's upfitting of the Premises. All work
performed by the Tenant and the Tenant's contractors or subcontractors shall be
coordinated with the Landlord and the Landlord's contractors so as to not
interfere with the work performed by the Landlord's contractors. Tenant agrees
to indemnify and hold the Landlord harmless from any loss, cost and expense
suffered by the Landlord as a result of the Tenant or Tenant's contractors'
presence on the Premises prior to the Commencement Date. Should Landlord fail to
deliver the Premises in accordance with Tenant approved construction drawings by
_________________, then Tenant shall have the right to terminate the Lease.
5. AUDIT: If Tenant disputes the amount of operating expenses set forth in the
invoice from the Landlord within forth-five days after receipt thereof, and
provided Tenant is not then in default under this Lease, Tenant shall have the
right upon notice to have Landlord's book and records relating to operating
expenses audited by a qualified professional selected by Tenant or by Tenant
itself. If after such audit Tenant still disputes the amount of operating
expenses, a certification as to the proper amount shall be made by Landlord's
independent certified public accountant in consulting with Tenant's
professional, which certification shall be final and conclusive. If such audit
reveals that operating expenses were overstated by five percent (5%) or more in
the calendar year audited Landlord shall within thirty (30) days after
<PAGE> 3
the certification pay to Tenant the amount of any overstatement which it had
collected from Tenant. However, if such certification does not show that
Landlord had made such an overstatement then Tenant shall pay both the costs of
its professional as well as the reasonable charges of Landlord's independent
certified public accountant engaged to determine the correct amount of operating
expenses. If the certification shows that Landlord has undercharged Tenant then
Tenant shall within thirty (30) days pay to Landlord the amount of any
undercharge.
Books and records necessary to accomplish any audit permitted under
this Section shall be retained for twelve months after the end of each calendar
year, and on receipt of notice of Tenant's dispute of the operating expenses
shall be made available to Tenant to conduct the audit, which may be either at
the Premises, or at Landlord's office in Winston-Salem, North Carolina.
In the event that the Tenant elects to have a professional audit
Landlord's operating expenses as provided in this Lease, such audit must be
conducted by an independent nationally or regionally recognized accounting firm
that is not being compensated by Tenant on a contingency fee basis. All
information obtained through such audit as well as any compromise, settlement or
adjustment reached as a result of such audit shall be held in strict confidence
by Tenant and its officers, agents, and employees and as a condition to such
audit, the Tenant's auditor shall execute a written agreement agreeing that the
auditor is not being compensated on a contingency fee basis and that all
information obtained through such audit as well as any compromise, settlement or
adjustment reached as a result of such audit, shall be held in strict confidence
and shall not be revealed in any manner to any person except upon the prior
written consent of the Landlord, which consent shall not be unreasonably
withheld in Landlord's sole discretion, or if required pursuant to any
litigation between Landlord and Tenant materially related to the facts disclosed
by such audit, or if required by law.
No subtenant shall have any right to conduct an audit and no assignee
shall conduct an audit for any period during which such assignee was not in
possession of the Premises.
6. LATE PAYMENT OF RENT: All monthly installments of rent herein stipulated are
due in advance without prior offset or deduction, except as set forth in this
Lease, on the first (1st) day of each month during the term hereof, as set forth
in Section 3 hereof entitled "BASE RENT." All rents not received on the first
(1st) day of the month shall be deemed "past due" and all rents not received by
the Landlord by the tenth (10th) day of each month during the term hereof shall
be subject to a charge of 5% of the amount due.
In any such event, Landlord shall so invoice Tenant for any such
charge, which shall become due immediately upon Tenant's receipt of the invoice
but in no event later than ten (10) days from the invoice date.
Once any payment of rent is thirty (30) days past due, the total due,
including the 5% charge, shall bear interest at eighteen (18) percent per annum.
7. NO ACCORD AND SATISFACTION: No acceptance by Landlord of a lesser sum than
the Base Rent, late charges, additional rent and other sums then due shall be
deemed to be other than on account of the earliest installment of such payments
due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed as accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
8. USE: Premises shall be sued for such office, assembly, storage, distribution
and manufacturing activities as are allowed under existing zoning and recorded
covenants. Tenant shall not conduct, or allow to be conducted, on or within the
Premises any business or permit any act which in any way increases the cost of
fire insurance on the building or constitutes a nuisance or is contrary to or in
violation of the laws, statutes or ordinances of local state or federal
governments having jurisdiction and Tenant agrees to comply, at Tenant's
expense, with all governmental regulations, to include those relating to the
American with Disabilities Act (ADA). Tenant will pay to bring the Premises into
compliance with any revisions to the American with Disabilities Act (ADA) after
the Commencement Date of the Lease. Any violation of this provision by Tenant
shall be a material breach of this Lease, entitling Landlord to exercise any
rights or remedies contained herein or provided by law or other authority.
Landlord and Tenant hereby agree that the manufacturing of wafers as
contemplated by the Tenant does not violate existing zoning or any recorded
restrictive covenants.
<PAGE> 4
It is hereby agreed and understood that the following functions are
prohibited outside the building walls or in the parking or service areas:
storage of any item; manufacture or assembly of any product; refuse
accumulation; rallies or meetings; any conduct of business. Personal property of
Tenant of any type or size shall be permitted outside the Premises only during
times of loading or unloading operations.
9. QUIET ENJOYMENT: The Landlord covenants that Tenant, upon paying the Landlord
the rental stipulated herein together with all other charges reserved herein,
and performing the covenants, promises and agreements herein, shall peaceably
and quietly have, hold and enjoy the Premises and all rights, easements,
appurtenances and privilege belonging or appertaining thereto, during the full
term hereby granted and any extensions or renewals thereof.
10. COMMON AREAS: As used in this Lease, Common Areas shall mean all areas of
the entire building and appurtenance which are available for the common use of
tenants and which are not held for the exclusive use of the Tenant or other
tenants, including but not limited to: the parking areas and entrances and
exists thereto, driveways and truck service ways, sidewalks, landscaped areas,
access roads, building equipment rooms, and other areas and facilities provided
for the common or joint use and benefit of occupants of the Building, their
employees, agents, customers and invitees. Landlord reserves the right, from
time to time, to reasonable alter said common areas, including converting common
areas into leasable areas, constructing additional parking facilities in the
common areas, increasing or decreasing common area land and/or facilities and to
exercise control and management of the common areas and to establish, modify,
change and enforce such reasonable Rules and Regulations as Landlord in its
discretion may deem desirable for the management of the Building.
Tenants agree to abide by and conform to such rules and regulations and
shall be responsible for the compliance with same by its employees, agents,
customers and invitees. The failure of Landlord to enforce any of such Rules and
Regulations against Tenant or any other tenant shall not be deemed to be a
waiver of same.
Landlord shall have the right to restrict or close all or any portion
of the common areas at such times and for such periods as may, in the opinion of
the Landlord, be necessary to prevent a dedication thereof, or to preserve the
status thereof as private property, or to prevent the accrual of any rights in
any person; and Landlord may also close said common areas for purposes of
maintenance and repair as may be required from time to time.
Tenant shall pay to Landlord its proportionate share of the entire
common area maintenance cost. Tenant's proportionate share shall be the relation
of Tenant's 136,000 rentable square foot area to the 136,000 rentable square
foot of total building area, or 100%.
During the term hereof, Landlord shall notify Tenant of its
proportionate share due for such cost. Landlord shall have the option through
the Lease term to require Tenant's reimbursement on either a monthly, quarterly
or annual basis, at Landlord's sole discretion, to become due and payable as
additional rent within ten (10) days, if invoiced monthly or thirty (30) days,
if invoiced quarterly or annually, from the date of invoice.
11. ASSIGNMENT AND SUBLETTING: Tenant covenants and agrees that neither this
Lease nor the term hereby granted, nor any part thereof, will be assigned,
mortgaged, pledged, encumbered o otherwise transferred, by operation of law or
otherwise, and that neither the Premises, nor any part thereof, will be sublet
or advertised for subletting or occupied, by anyone other than Tenant, or for
any purpose other than as hereinabove set forth, without the prior written
consent of Landlord not to be unreasonably withheld. Landlord's withholding of
consent shall be deemed reasonable if the use or occupancy of the Premises by
such sublessee or assignee could make Landlord responsible for any costs of
compliance with the Americans with Disabilities Act (ADA) or any other
legislation by any governmental body.
12. LANDLORD'S REPAIRS: The Landlord shall maintain and keep in good condition
and repair the roof, parking areas and exterior landscaping, exterior and
supporting walls of the Building together with repairs necessary due to
structural defects, if any. Landlord shall also maintain and repair the
electrical writing (from the utility company's distribution lines to the
Premises, including the electrical service exclusive of fuses, fuse blocks,
breaker units or meter deposits) servicing the Premises, the water line
servicing the Premises, and the sanitary sewer lines and/or septic tank
servicing the Premises. However, the Landlord shall not be responsible for such
maintenance and repairs in the event the same are required as a result of the
negligence or willful act of the Tenant or its clients, customers, licensees,
<PAGE> 5
assignees, agents, employees or invitees and further, in any such event the cost
of such maintenance and repairs so required shall be the sole responsibility of
the Tenant.
To the extent any repairs required to be performed by the Landlord are
required, the Tenant shall immediately notify the Landlord that such repairs are
necessary. Provided Tenant's request is reasonable, Landlord shall immediately
commence such repairs and complete such repairs as soon as possible. Tenant
shall have the right to complete any repairs not completed by the Landlord in a
timely fashion, and offset such cost in the next month's rent (not to exceed one
month). Tenant shall provide to Landlord written documentation of said costs.
13. TENANT REPAIRS; ALTERATIONS: The Tenant shall effect, at its sole cost and
expense, all maintenance and repairs to the interior of said Premises, including
without limitation, the floor and wall coverings (whether paint or otherwise);
lights, light fixtures, and light bulbs; interior and exterior doors and door
locks, overhead doors; ceiling tiles; water heaters; windows, frames, glass,
window blinds; all heating, ventilating and air conditioning equipment; all
plumbing and electrical not described in Section 12 above; security systems and
any other improvements not required to be maintained by Landlord in the
immediately preceding Section 12 hereof, except in the event the improvements
installed by Landlord may be defective in material or labor in installation. All
such repairs and replacements required by this section shall be made only by
persons approved in advance by Landlord, not to be unreasonably withheld. Should
Tenant fail to comply with the maintenance and repairs required above, the
Landlord shall have the right, after ten (10) days prior written notice to
Tenant, to enter on the Premises and make necessary repairs and perform and
maintenance required. Any reasonable cost incurred by Landlord shall be paid by
the Tenant at cost plus ten percent (10%) overhead and ten percent (10%) for
profit.
Tenant shall submit to the Landlord for Landlords' prior written
approval all of the plans and specifications for any alterations, additions or
improvements in and to the Premises which tenant may deem desirable or necessary
in its use and occupancy thereof. Such alterations, additions or improvements
shall not be made without the prior written approval of Landlord. If any changes
are made to the plans by the Landlord, Tenant shall review final plans and
provide written approval prior to Landlord starting upfit construction. All such
alterations, additions or improvements shall be made in accordance with
applicable city, county, state and federal laws and ordinances, and building and
zoning rules and regulations and all present and future governmental regulations
relating to the Americans with Disabilities Act (ADA). Landlord's approval
hereunder shall not be deemed as warranty that tenant's alterations meet such
ADA regulations, however, such consent shall carry a requirement that such
alterations will be constructed by Tenant, at its own expense, in full
compliance with all existing ADA governmental regulations. Tenant shall be
liable for all damages or injuries which may result to any person or property by
reason of or resulting from any alterations, additions or improvements made by
it to the Premises and shall hold the Landlord harmless with respect thereto.
All additions and improvements made by the Tenant, except trade fixtures, shall
become a part of the Premises and shall, upon the termination or expiration of
this Lease, belong to Landlord except as may be otherwise set forth in a letter
agreement or other written instrument executed by the parties hereto and
attached to this Lease as an amendment hereto and thereby made a part hereof.
In the event Tenant performs any alterations, additions or improvements
to the Premises, Tenant agrees that it shall provide to Landlord a reproducible
set of as-built plans for Landlord's files.
If Tenant fails to perform Tenant's obligations under this Section,
Landlord may at its option enter upon the Premises after ten (10) days prior
written notice to Tenant, perform such obligation on Tenant's behalf, and the
cost thereof together with interest thereon shall become due and payable as
additional rental to Landlord together with Tenant's next rental installment.
At Landlord's option, Landlord may require that Tenant remove any or
all alterations or improvements at Tenant's expense upon termination of the
Lease.
14. HEATING, VENTILATION AND AIR CONDITIONING: The Tenant shall at its sole cost
and expense keep in force a maintenance contract for the entire term of this
Lease on all heating, air conditioning and ventilation equipment pertaining to
the Premises, providing for service inspections to be done on a routine basis as
proposed by such contract. Tenant shall submit a copy of said contract to
Landlord within ten (10) days after occupancy of the Premises. Landlord
<PAGE> 6
must approve the terms of the maintenance contract and the firm Tenant chooses
as the maintenance contractor, such approval not to be unreasonably withheld.
Landlord shall be responsible for replacement of any defective motor or
compressor within the system provided it is not as a result of negligence or
willful act of the Tenant, its clients, customers, licensees, assignees, agents,
employees, or invitees. However, Tenant's failure to provide the required
maintenance contract shall release Landlord from any and all liability for said
equipment.
Upon termination of this Lease, Tenant will deliver the HVAC equipment
in good operating condition.
15. FEDERAL REGULATION AND/OR PROHIBITION OF CFC's: Due to an environmental
threat that the earth's ozone layer has deteriorated, there is international
concern for the control of Chlorofluorocarbons ("CFC's") and possible ban
thereof. Future legislation could impose:
1) New maintenance standards and procedures on HVAC equipment in order
to reduce the amount of freon existing in the system; or
2) Conversion of the equipment in order to accommodate the use of a
substitute chemical; or
(3) Replacement of the equipment in the event the equipment does not
comply with the required performance and maintenance standards.
Landlord and Tenant hereby acknowledge that any costs associated with
the above shall be considered a maintenance item and shall be paid by Tenant.
Notwithstanding the preceding sentence, in the event that any such
rules and regulations as described above are enacted which require significant
changes to the HVAC equipment of the Premises during the last three years of the
term of this Lease (including the renewal term), the cost of bringing the HVAC
equipment on the Premises into compliance with such rules or regulations shall
be prorated among the Tenant and the Landlord based upon the anticipated useful
life of the HVAC equipment, as modified, and the remaining number of years left
in the term of this Lease.
16. SUBORDINATION AND ATTORNMENT: Tenant agrees that this Lease is subject and
subordinate to any and all mortgages or deeds of trust now or hereafter placed
on the property of which the Premises are a part, and this clause shall be self
operative without any further instrument necessary to effect such subordination;
however, if requested by Landlord, Tenant shall promptly execute and deliver to
Landlord any such certificate as Landlord may reasonably request evidencing such
subordination of this Lease to or the assignment of this Lease as additional
security for such mortgages or deeds of trust. Provided, however, in each case,
the holder of the mortgage or deed of trust shall agree that this Lease shall
not be divested by foreclosures or other default proceedings so long as tenant
shall not be in default under the terms of this Lease beyond any applicable cure
period set forth in this Lease. Tenant shall continue its obligations under this
Lease in full force and effect notwithstanding any such default proceedings
under a mortgage or deed of trust and shall attorn to the mortgagee, trustee or
beneficiary of such mortgage or deed of trust, and their successors or assigns,
and to the transferee under any foreclosure or default proceedings. The
subordination contained in this paragraph 16 shall not apply unless and until
the mortgagee or deed of trust holder agrees to the nondisturbance provisions
set forth above.
In the event of the sale, assignment, or transfer by Landlord of its
interest in the Premises to a successor in interest who expressly assumes the
obligation of the Landlord hereunder, and who is financially sound and
adequately capitalized, the Landlord shall thereupon be released or discharged
from all of its covenants and obligations hereunder, except such obligations
shall have accrued prior to any such sale, assignment or transfer; and Tenant
agrees to look solely to any successor in interest of the Landlord for
performance of any such obligations. Tenant shall have ten (10) days from its
receipt of Landlord's request to deliver any such fully executed documents to
Landlord. Tenant's failure to execute and deliver any such documents shall
constitute a default hereunder.
<PAGE> 7
17. CHANGE IN OWNERSHIP OF PREMISES: If the ownership of the Premises or the
name or address of the party entitled to receive rent hereunder shall be
changed, the Tenant may, until receipt of proper notice of such change(s),
continue to pay the rent and other charges herein reserved accrued and to accrue
hereunder to the party to whom and in the manner in which the last preceding
installment of rent or other charge was paid, and each such payment shall, to
the extent thereof, exonerate and discharge the Tenant.
18. CONDEMNATION: If the whole of the Building, or such substantial portion
thereof as will make Premises unusable for the purposes referred to herein,
shall be condemned by any legally constituted authority for any public use or
purpose, then in either of said events the term hereby granted shall cease from
the time when possession thereof is taken by the condemning authority, and
rental shall be accounted for as between Landlord and Tenant as of that date. In
the event the portion condemned is such that the remaining portion can, after
restoration and repaid, be made usable for Tenant's purposes, then this Lease
shall not terminate; however, the rent shall be reduced equitably to the amount
of the Premises taken. In such an event, Landlord shall make such repairs as may
be necessary as soon as the same can be reasonably accomplished, not to exceed
120 days. Such termination, however, shall be without prejudice to the rights of
either Landlord or Tenant, or both, to recover compensation and damage caused by
condemnation from the condemnor. It is further understood and agreed that
neither the Tenant nor Landlord shall have any rights in any award made to the
other by any condemnation authority.
Any minor condemnation or taking of the Premises for the construction
or maintenance of streets or highways shall not be considered a condemnation or
taking for the purposes of this Section 18 so long as the Premises shall not be
materially or adversely affected, ingress and egress for the remainder of the
Premises shall be adequate for the business of Tenant, and the provisions of any
loan documents of Landlord's lender which encumber the Premises are complied
with, and provided sufficient parking spaces remain as required under applicable
zoning requirements.
19. RIGHT OF LANDLORD TO ENTER; "FOR RENT" SIGNS: The Tenant agrees that the
Landlord or its agents may at all reasonable times enter upon the Premises for
the purpose of inspection or repair of the Building or the building systems and
such other purposes as Landlord may deem necessary or proper for the reasonable
protection of Landlord's interest in the Premises. In addition, the Landlord may
enter the Premises at all reasonable times to exhibit the Premises to
prospective purchasers. During the two (2) months immediately preceding the
final expiration of the term created hereunder or any renewal thereof, the
Landlord, may exhibit the Premises to prospective tenants and/or affix a notice
that the Premises are for rent; such notice shall not be greater than four (4)
square fee in area, and shall be affixed to a suitable part thereof, exclusive
of doors and windows and so as not to obstruct the Tenant's signs.
20. TAXES: Tenant agrees to pay before they become delinquent all taxes,
assessments and governmental charges of any kind and nature whatsoever
(hereinafter referred to as "taxes") lawfully levied or assessed against the
Premises during the term of the Lease. To the extent that taxes are levied or
assessed for any year in which the Tenant occupies the Premises for only a
portion of such year, taxes shall be prorated between the Tenant and the
Landlord based upon the actual number of days that the Tenant occupies the
Premises during such year.
If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereof, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment levy or charge measured by or based, in whole
or in part, upon such rents for the present or any future building or building
on the Premises, then all such taxes, assessments, levies or charges, or the
part thereof so measured or based, shall be deemed to be included with the term
"taxes" for the purposes hereof.
Tenant shall pay to Landlord its proportionate share of the entire cost
of all taxes referenced herein. Tenant's proportionate share shall be the
relation of Tenant's 136,000 rentable square foot area to the 136,000 rentable
square feet of total building area, or 100%. Real estate taxes, as referenced
herein, shall be defined as the amount of the total tax invoice (property
assessment x tax rate) and shall exclude any discount or late penalty charge and
shall include any charge or fee incurred by Landlord as a result of its attempt
in securing a reduction in the assessed value of the Property.
<PAGE> 8
During the term hereof, Landlord shall notify Tenant of its
proportionate share due for such cost. Landlord shall have the option through
the Lease term to require Tenant's reimbursement on either a monthly, quarterly
or annual basis, at Landlord's sole discretion, to become due and payable as
additional rent within ten (10) days, if invoiced monthly or thirty (30) days if
invoiced quarterly or annually from the date of invoice.
21. FIRE, EXTENDED COVERAGE AND LIABILITY INSURANCE: Landlord agrees to keep in
force policies of fire and extended coverage insurance which shall insure the
Building against such perils or loss as Landlord may deem appropriate including
loss of rents, vandalism and malicious mischief, in an amount equal to one
hundred percent (100%) of the replacement cost of the Building and the
improvements installed by Landlord. Landlord shall deliver certificates of such
insurance to Tenant prior to commencement of this Lease and at least ten days
prior to expiration of any existing certificate. Such certificate shall provide
that the insurance cannot be terminated by the insurer without providing thirty
(30) days prior written notice to Tenant.
Tenant agrees to maintain and keep in force, at its expense and
throughout the entire term hereof, insurance against fire and such other risks
as are from time to time included in standard extended coverage endorsements
including vandalism and malicious mischief, insuring Tenant's stock-in-trade,
trade fixtures, furniture, furnishings, special equipment and all other items of
personal property of Tenant located on or within the Premises and all such other
improvements as are made by the Tenant to the Premises. Tenant shall furnish to
Landlord a certificate evidencing Tenant's maintenance of such insurance
policies throughout the term hereof. All the furnishings, fixtures, equipment
effects and property of every kind, nature and description of Tenant and of all
persons claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be the Premises or elsewhere in the Building shall be a the sole
risk and hazard of Tenant, and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by leakage or bursting of
water pipes, steam pipes or other pipes, by theft or from any other cause, no
part of said loss or damage is to be charged to or to be borne by Landlord
unless the same shall be due to the gross negligence or willful misconduct of
Landlord.
In addition to the policies of fire and extended coverage insurance to
be kept and maintained by Landlord and Tenant herein, Landlord and Tenant shall
each obtain and keep in force during the term hereof and any extension or
renewal terms, policies of comprehensive general liability providing bodily
injury and liability property damage with combined single limits of at least
Five Hundred Thousand Dollars ($500,000.00). In addition thereto, Tenant shall
provide "umbrella coverage" in the amount of One Million Dollars
($1,000,000.00). The Tenant shall, in addition, name the Landlord as an
additional insured under such liability policies and shall provide the Landlord
a certificate of same within thirty (30) days after the execution of this Lease,
as shown on Exhibit "D".
Tenant agrees to pay to the Landlord its proportionate share of the
entire cost that Landlord may incur in the cost of maintaining the policies
required hereunder. Tenant's proportionate share shall be the relation of
Tenant's rentable square foot area to the 136,000 rentable square feet of total
building area, or 100%.
During the term hereof, Landlord shall notify Tenant of its
proportionate share due for such cost. Landlord shall have the option through
the Lease term to require Tenant's reimbursement on either a monthly, quarterly
or annual basis, at Landlord's sole discretion to become due and payable as
additional rent within ten (10) days, if invoiced monthly or thirty (30) days if
invoiced quarterly or annually from date of invoice.
22. DAMAGE AND DESTRUCTION: If the Building, improvements or other portions of
the Premises are rendered partially or wholly untenantable from fire or other
casualty, and if such damage cannot, in Landlord's reasonable estimation, be
materially restored within one hundred eighty (180) days of such damage, then
Landlord may, in its sole option, terminate this Lease as of the date of such
fire or casualty. For purposes hereof, the Building, or other portions of the
Premises shall be deemed "materially restored" if they are in such condition as
would not prevent or materially interfere with tenant's use of the Premises for
the purpose for which it was then being used.
If this Lease is not terminated pursuant to the above paragraph, then
Landlord shall proceed with all due diligence to repair and restore the
Building, at Landlord's cost, once it has been assured of the existence of and
payment of the insurance proceeds (except that Landlord may elect not to rebuild
if such damage occurs during the last year of the term of the Lease exclusive of
any option which is unexercised at the data of such damage).
<PAGE> 9
If this Lease is not terminated pursuant to the above paragraph, the
term of this Lease shall end on the date of such damage as if the date had been
originally fixed in this Lease for the expiration of term hereof. If the Lease
shall not be terminated by Landlord pursuant to the above paragraph and in the
event that the Landlord should fail to complete such repairs and material
restoration within one hundred eighty (180) days after the date of such damage,
Tenant may at its option and as its sole remedy terminate this Lease by
delivering written notice to Landlord whereupon the Lease shall end on the date
of such notice as if the date of such notice where originally fixed in this
Lease for the expiration of the term hereof; provided, however, that if
construction is delayed because of changes, deletions or additions in
construction requested by Tenant strikes, lockouts, casualties, acts of God,
war, material or labor shortages, governmental regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair of rebuilding shall be extended for the amount of time Landlord is so
delayed.
Tenant agrees that during any period of restoration or repair of
Premises, Tenant shall continue the operation of the Tenant's business within
the Premises to the extent practicable, During the period from the date of
damage until the date that the untenantable portion of the Premisses is
materially restored, the rent shall be reduced to the extent of the proportion
of the Premises which is untenable, however, there shall be no abatement of
other sums to be paid by Tenant to Landlord as required by this Lease.
In no event shall Landlord be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements which may
have been placed in or about the Premises by Tenant after the Commencement Date,
however, Landlord has the right but not the obligation to rebuild, repair or
replace at Tenant's expense so much of the partitions, fixtures, additions, and
other improvements as may be necessary to insure that the Premises are
materially restored.
23. LIABILITIES OF THE PARTIES: Tenant waives all claims against Landlord for
damages to goods of for injuries to persons on or about the Premises or common
areas from any cause arising at any time other than damages or injuries directly
resulting from Landlord or Landlord's agents or employees negligence or willful
misconduct. The tenant will indemnify Landlord on account of any damage or
injury to any persons, or to the goods of any person, arising from the use of
the Premises by the Tenant, or arising from the failure of Tenant to keep the
Premises in good condition as provided herein. The Landlord shall not be liable
to the Tenant for any damage by or from any act of negligence of any occupant of
the same Building, or by any owner or occupant of adjoining or contiguous
property.
Landlord waives all claims against Tenant for damages to goods or for
injuries on or about the Premises or common areas from any cause arising at any
time other than damages or injuries directly resulting from Tenant or Tenant's
agents or employees negligence or willful misconduct or Tenant's breach of its
obligation under this Lease. The Landlord will indemnify Tenant on account of
any damage or injury to any person, or to the goods of any person arising from
the negligence or willful misconduct of Landlord, its agents or employees.
The Tenant agrees to pay for all damages to the Building, as well as
all damage or injuries suffered by Tenant or occupants thereof caused by misuse
or neglect of the Premises by the Tenant to the extent not covered by insurance.
Landlord is specifically not responsible under any circumstance for any
damage to any computer, computer component, or computer peripheral, hardware or
software damaged by any interruption, usage or variation for whatever reason in
the electrical distribution system in the building.
Notwithstanding any other term or provision herein contained, it is
specifically understood and agreed that there shall be no personal liability of
Landlord (nor Landlord's agent, if any) in respect to any of the covenants,
conditions or provisions of this Lease. In the event of a breach or default by
Landlord of any of its obligations under this Lease, Tenant shall look solely to
the equity of the Landlord in the property for the satisfaction of Tenant's
remedies.
24. PARKING: The Landlord warrants that it will, without charge and throughout
the term of this Lease and any extensions or renewals thereof, provide the
Tenant with parking around the demised Premises which complies with applicable
city or county code. Tenant agrees to comply with the parking rules contained in
the Parking Rules and Regulations attached hereto as Exhibit "E" together with
all reasonable modifications and additions thereto which Landlord may from time
to time make.
<PAGE> 10
25. SIGNS: Landlord hereby agrees to allow Tenant to have a lighted or
spot-lighted sign, as long as such sign complies with standard building
finished. Said sign shall be at the sole expense of the Tenant.
26. UTILITIES: Landlord will provide utility service connections to the
Premises, including electrical service, natural gas (where available), water and
sewer.
Tenant shall procure for its own account and shall pay the cost of all
water, gas, electric power and fuel consumed or used in or at said Premises,
including appropriate deposits as required. Landlord shall not be liable to
Tenant in damages or otherwise for any interruptions, curtailments or suspension
of utility service. Tenant's responsibility for the payment of said utilities
shall begin upon entering the Premises for the purpose of construction and
fixturing.
Tenant shall be directly responsible for the cost and expense
associated with all utilities used by the Tenant in the Premises.
27. HEAT, VENTILATION, AND CLIMATE CONTROL COMFORT: Landlord has installed HVAC
equipment to provide adequate comfort (72-76 degrees) for normal office user
load requirements (one ton per 300 square feet). If determined before or during
Tenant's occupancy that the Tenant's use of high heat output equipment or other
intensive uses (i.e.: computer rooms, telephone rooms or work stations at
greater density than one person per 100 square fee), requires additional cooling
equipment, Landlord will install necessary additional HVAC equipment at Tenant's
sole expense.
28. PLATE GLASS BREAKAGE: Notwithstanding anything herein to the contrary,
except by negligence of Landlord, Tenant shall be solely responsible for repair
and replacement in the event of plate glass damage or breakage.
29. GARBAGE REMOVAL: Tenant will be responsible for providing a container for
garbage and arrange for its systematic pickup.
30. JANITORIAL SERVICES: Tenant shall provide janitorial services and supplies
to the Premises, at its own expense.
31. FIRE EXTINGUISHERS: Tenant covenants during the Term and such further time
as Tenant occupies any part of the Premises to keep the Premises equipped with
all safety appliances, included but not limited to an operating fire
extinguisher, required by law or ordinance or any other regulation of any public
or private authority having jurisdiction over the Premises (including insurance
underwriters or rating bureaus) because of any use made by Tenant and to procure
all licenses and permits so required because of such use and, if required by
Landlord, to do any work so required because of such use, it being understood
that the foregoing provisions shall not be construed to broaden in any way
Tenant's permitted uses.
32. EXTERMINATION: The Tenant shall, at it sole cost and expense, on at least a
quarterly basis, employ professional exterminators to control pests within the
Premises and supply Landlord with a copy of the contract therefor.
33. STORING OF FLAMMABLE MATERIALS: The Tenant agrees that it will store any
Dangerous/Flammable Materials in accordance with all applicable laws.
34. REPLACEMENT OF LIGHT BULBS: Tenant shall, at its sole cost and expense,
replace all light bulbs within the Premises.
35. KITCHEN APPLIANCES AND EQUIPMENT: In the event of installation of a kitchen
or kitchen equipment by either Landlord or Tenant, such maintenance and repair
of all items contained within the area shall be at the sole cost and expense of
Tenant, to include but not limited to: maintenance, repair and replacement of a
microwave oven, refrigerator, stove, ice maker, coffee maker, garbage disposal,
dishwasher, sink, faucet or any other item within the area. Tenant hereby
acknowledges to Landlord that any fixtures, excluding trade fixtures, described
herein are to become a
<PAGE> 11
part of the Premises and notwithstanding Section 36 herein, upon Tenant's
vacating the Premises, all fixtures shall remain the property of Landlord.
36. REMOVAL OF TENANT'S FIXTURES: The Tenant shall have the privilege at any
time, on or before vacating the Premises, of removing any or all of its personal
property, equipment and fixtures, and Tenant shall repair any damage caused by
the removal thereof and shall leave the Premises in good and clean condition and
repair.
37. DEFAULT BY TENANT: In the event Tenant shall fail to pay the monthly rental
rate by the due date, and such failure continues for five (5) business days
after Tenant receives notice of such nonpayment, which notice shall not be given
more than two (2) times annually during the term of this Lease, or if Tenant is
adjudicated a bankrupt; or if Tenant files a petition in bankruptcy under any
section or provision of the bankruptcy law, or if an involuntary petition in
bankruptcy is filed against Tenant, and same is not withdrawn or dismissed
within sixty (60) days from filing thereof, or if a receiver or trustee is
appointed for Tenant's property and the order appointing such receiver or
trustee remains in force for thirty (30) days after the entry of such order, or
if, whether voluntarily or involuntarily, Tenant takes advantage of any debtor
relief proceedings under any present or future law, reduced payment thereof
deferred, or if Tenant makes an assignment for the benefit of the creditors, or
if Tenant's effects shall be levied upon or attached under process against
Tenant, not satisfied or dissolved within thirty (30) days after written notice
from Landlord to Tenant to obtain satisfaction thereof, or if Tenant shall
vacate or abandon the Premises, or if Tenant shall fail to perform or observe
any other covenant, agreement, or condition to be performed or kept by the
Tenant under the terms and provisions of this Lease, and such failure shall
continue to thirty (30) days after written notice thereof has been given by
Landlord to Tenant, then in any one of such events, Landlord shall have the
right, at the option of the Landlord, then or at any time thereafter while such
defaults continue, to elect either: (1) to cure such default or defaults at the
expense of Tenant and without prejudice to any other remedies which it might
otherwise have, any payment made or expenses incurred by Landlord in curing such
default shall bear interest thereon at 10% per annum, or at such maximum legal
rate as permitted by North Carolina law, whichever shall be lower, to be and
become additional rent to be paid by Tenant with the next installment of rent
falling due thereafter, or (2) to re-enter the Premises and dispossess Tenant
and anyone claiming under tenant, with or without an order of the court, and
remove their effects, and take complete possession of the Premises and then
elect to take any one or (to the extent not inconsistent) more of the following
actions: (i) declare this Lease forfeited and the term ended; or (ii) elected to
continue this lease in full force and effect, but with the right at any time
thereafter to declare this Lease forfeited and the term ended; or (iii) declare
Tenant's right to possession of the Premises to be terminated; or (iv) exercise
any other remedies or maintain any action permitted to landlords pursuant to the
laws of the State of North Carolina, or any other applicable law. In such
re-entry the Landlord may, without committing trespass, have all persons and
Tenant's personal property removed from the Premises. Tenant hereby covenants in
such event for itself and all others occupying the Premises under Tenant; to
peacefully yield up and surrender the Premises to the Landlord. Should Landlord
declare either (i) this Lease forfeited and the term ended; (ii) the termination
of Tenant's right to possession of the Premises; then in any one such events,
Landlord shall be entitled to recover from Tenant the rental and all other sums
due and owing by Tenant to the date of termination, plus the costs of curing all
of Tenant's defaults existing at or prior to the date of termination, plus
rental for the balance of the term under this Lease less any rental obtained by
Landlord on another Lease for the balance of the term remaining under this
Lease. Should Landlord, following default as aforesaid, elect to continue this
Lease in full force, Landlord shall use its best efforts to rent the Premises by
private negotiations, with or without advertising, and on the best terms
available for the remainder of the term hereof, or for such longer or shorter
period as Landlord shall deem advisable. Tenant shall remain liable for payment
of all rentals and other charges and costs imposed on Tenant herein, in the
amounts, at the times and upon the conditions as herein provided, but Landlord
shall credit against such liability of the Tenant all amounts received by
Landlord from such re-letting after first reimbursing itself for all costs
incurred in curing Tenant's defaults and re-entering, preparing and refinishing
the Premises for re-letting, and the Premises, and for the payment of any
procurement fee and commission paid to obtain another tenant, and for all
attorney fees and legal costs incurred by Landlord.
As used in this Lease the term "attorney's fees" or "reasonable
attorney's fees" shall mean actual fees incurred at customary hourly rates
notwithstanding any statutory presumption.
<PAGE> 12
38. RE-ENTRY BY LANDLORD: No re-entry by landlord or any action brought by
landlord to oust Tenant from the premises shall operate to terminate this lease
unless Landlord shall give written notice of termination to Tenant, in which
event Tenant's liability shall be as above provided. No right or remedy granted
to landlord herein is intended to be exclusive of any other right or remedy, and
each and every right and remedy herein provided shall be cumulative and in
addition to any other right or remedy hereunder or now or hereafter existing in
law or equity or by statute. In the event of termination of this lease, Tenant
waives any and all rights to redeem the Premises either given by any statute now
in effect or hereafter enacted.
39. WAIVER OF RIGHTS: No waiver by Landlord of any provision hereof shall be
deemed to be a waiver of any other provision hereof or of any subsequent breach
by Tenant of the same or any other provision. Landlord's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of
any provision hereof other than the failure of Tenant to pay the particular rent
as accepted regardless of Landlords' knowledge of said preceding breach at the
time of acceptance of such rent.
41. NOTICES: All notices provided for herein shall be in writing and shall be
deemed to have been given when deposited in the United States mails, postage
fully prepaid, and directed to the parties hereto at their respective addresses
give below:
Landlord: HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
380 Knollwood Street, Suite 430
Winston-Salem, North Carolina 27103
Tenant: R.F. MICRO DEVICES, INC.
494 Gallimore Dairy Road, Suite A
Greensboro, North Carolina 27409
Either party may, in addition, deliver written notice by hand delivery.
Further, the parties hereto may give or receive notice by or from their
respective attorneys and may, by like notice, designate a new address to which
subsequent notice shall be directed.
42. COMPLIANCE WITH LAWS: In addition to other provisions herein, Tenant shall
promptly execute and comply with all laws, ordinances, rules, regulations and
requirements of any or all federal, state and municipal authorities having
jurisdiction over the manner in which the Tenant's business is conducted, but
only insofar as these laws, ordinances, rules and regulations and requirements
are violated by the conduct of Tenant's business.
43. RULES AND REGULATIONS: Tenant, its agents, servants and invitees shall
observe faithfully and comply strictly with the rules and regulations set forth
on the schedule designated BUILDING RULES AND REGULATIONS, attached hereto as
Exhibit "C" and by this reference made a part hereof. Landlord shall have the
right, from time to time, during the term of this Lease to make reasonable
changes in, and additions to, said rules and regulations, provided such changes
and additions do not unreasonably affect the conduct of Tenant's business in the
Premises. Any failure by Landlord to enforce any said rules and regulations now
or hereafter in effect, either against Tenant or any other tenant in the
Building, shall not constitute a waiver of such rules and regulations. The
defined words in this Lease, whenever used in said rules and regulations, shall
have the same meanings as herein.
As used in this agreement, "Hazardous Materials" shall mean any
hazardous or toxic substance, material, water or similar term which is regulated
by local authorities, the State of North Carolina or the United States of
America, including, but not limited to, any material, substance, waste or
similar term which is (i) defined as a hazardous material under the laws of the
State of North Carolina; (ii) defined as a hazardous substance under Section 311
of the Federal Water Pollution Control Act (33 U.S. C. Section 1317); (iii)
defined as a hazardous waste under Section 1004 of the Federal Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); (iv) defined as
a hazardous waste substance under Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C.
<PAGE> 13
Section 9601 et seq.); (v) defined as a hazardous waste or toxic substance,
waste, material or similar term in rules and regulations, as amended from time
to time, which are adopted by any administrative agency including, but not
limited to, the Environmental Protection Agency, the Occupational Safety and
Health Administration, and any such similar local, state or federal agency
having jurisdiction over the Premises whether or not such rules and regulations
have the force of law; (vi) defined as a hazardous or toxic waste, substance,
material or similar term in any statute, regulation, rule or law enacted or
adopted at any time after the date of this agreement by local authorities, the
State of North Carolina, or the federal government.
The Tenant agrees that any discharge from the Premises of any Hazardous
Material shall comply with applicable laws and/or permit. Tenant shall
immediately notify the Landlord of any discharge that does not materially comply
with applicable laws and/or permitted levels.
The Tenant shall promptly pay, discharge or remove any lien upon the
Premises relating to the presence of any Hazardous Material, and shall indemnify
and hold harmless the Landlord, from any and all loss, damage or expense
resulting from such Hazardous Material that exists upon or is discharges from
the Premises in violation of any law by Tenant.
This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Materials present in the soil or ground water on or under the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises and Building caused or permitted by Tenant results in
levels of Hazardous Materials, Tenant shall promptly take all actions at its
sole expense that are necessary to return the same to the condition existing
prior to the introduction of any such hazardous material thereto, provided that
Landlord's approval of such actions shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions would not potentially
have any material adverse long-term or short-term effect on the Premises and
Building. The foregoing indemnity shall survive the expiration or earlier
termination of this Lease. If Tenant falls to take such action and unless
Tenant's failure is due to Landlord's unreasonably withholding approval of
Tenant's actions, Landlord may take action and Landlord shall be entitled to
recover from Tenant, upon demand in writing, all costs of such action. This
indemnification excludes any and all environmental conditions that are currently
present on the Premises.
45. SURRENDER: The Tenant shall surrender the premises in good and clean
condition and repair, excepting only normal wear and tear and damage by fire or
other casualty damage covered by insurance and paid to Landlord. Tenant shall
not remain in the Premises without the benefit of a written Lease or renewal
agreement executed by the parties hereto prior to the expiration of the then
existing term. No other holding over of the Premises shall be allowed on any
basis whatsoever.
The delivery of keys or after such tender of possession of the Premises
to Landlord or to an employee of Landlord shall not operate as a termination of
this Lease or a surrender of the premises.
Any pro-rated rent or damages in excess of the security deposit held by
Landlord shall be invoiced by Landlord and payable by Tenant within ten (10)
days from the date of invoice.
46. HOLDOVER: In the event Tenant remains in possession of the leased premises
after the expiration of the term of this Lease, without having first extended
this Lease by written agreement with Landlord, such holding over shall not be
construed as a renewal or extension of this Lease. Such holding over shall be
deemed to have created and be construed as tenancy from month to month,
terminable on 30 days notice in writing from either party to the other. The
monthly rental to be paid shall be 150% of the monthly rental payable during the
last month of the term of this Lease. All other terms and conditions of this
Lease shall continue to be applicable for both Landlord and Tenant.
If Tenant fails to surrender the premises to Landlord on expiration of
the term as required by this Section, Tenant shall hold Landlord harmless from
all damages resulting from Tenant's failure to surrender the Premises,
<PAGE> 14
including without limitation, claims made by the succeeding Tenant resulting
from Tenant's failure to surrender the premises.
47. LIENS: If Tenant shall cause any material to be furnished to the Premises or
labor to be performed thereon or therein, Landlord shall not under any
circumstances be liable for the payment of any expenses incurred or for the
value of any work done or material furnished. All such work shall be at Tenant's
expense and Tenant shall be solely and wholly responsible to all contractors,
laborers, and materialmen furnishing labor and material to the Premises. Nothing
herein shall authorize the Tenant or any person dealing through, with or under
Tenant to charge the Premises or any interest of the Landlord therein or this
Lease with any mechanic's liens or other liens or encumbrances whatsoever. On
the contrary, (and notice is hereby given) the right and power to charge any
lien or encumbrance of any kind against the Landlord or its estate is hereby
expressly denied.
48. BENEFITS, BURDENS AND ENTIRE AGREEMENT: This Lease is binding on and
benefits the parties hereto and their respective heirs, legal representatives,
successors, nominees and assigns. Liability hereunder shall be joint and several
upon all who sign this agreement. Throughout this agreement the masculine gender
shall be deemed to include the feminine, the feminine the masculine, the
singular the plural and the plural the singular.
This Lease contains the entire agreement between the parties hereto
with respect to the Premises leased hereunder; further, this Lease may not be
modified, altered or amended except by an instrument in writing, executed by the
parties hereto or their respective heirs, legal representatives, successors,
nominees or assigns and which instrument shall be attached hereto as an
amendment to this Lease and shall thereby become a part hereof.
49. ATTORNEY'S FEES: If either Landlord or Tenant files an action to enforce any
agreement contained in this Lease, or for breach of any covenant or condition,
the prevailing party in any such action, or the party settling to its benefit,
shall be reimbursed by the other party for reasonable attorneys' fees in the
action.
In the event Landlord refers a default by Tenant to an attorney for
collection and a suit is not filed, Tenant agrees to pay reasonable attorney
fees if action is not filed thereunder.
50. GOVERNING LAW: This Lease shall be governed by and construed under the laws
of the State of North Carolina.
51. ESTOPPEL CERTIFICATES: Tenant shall execute and deliver to Landlord, upon
its occupancy of the Premises, a certificate/statement provided by Landlord,
certifying that this Lease is unmodified and in full force and effect and other
factual data relating to the Lease or the Premises which Landlord may reasonably
request. Furthermore, Tenant may be required, from time to time during the term
of the Lease, to execute and deliver to Landlord a certificate/statement for
purposes of refinancing, syndication, sale of property, etc. In such event,
Tenant shall have ten (10) days from its receipt thereof from Landlord to
execute and deliver such fully executed certificate/statement to Landlord.
Tenant's failure to execute said certificate shall constitute a default
hereunder. During the term of this Lease, the Landlord will, upon written
request by Tenant, provide Tenant with similar estoppel certificates as
described above.
52. BROKERAGE FEES: Landlord and Tenant represent to each other that no broker
("Broker") has represented either party in respect to this transaction.
53. CHRONIC DEFAULTS: Tenant will be in "Chronic Default" under this Lease if
Tenant commits a default (either a Monetary or Non-Monetary Default) during any
365-day period in which any of the following combinations of default has already
occurred (even though said defaults may have been timely cured):
(1) Two Monetary Defaults; or
(2) Three Non-Monetary Defaults; or
<PAGE> 15
(3) One Monetary Default and two Non-Monetary Defaults
(a) Remedies. If Tenant is in Chronic Default, Landlord may immediately
exercise any or all remedies available under this Lease or at law or in equity,
all without giving Tenant any notice or an opportunity to cure the last default
causing Tenant's Chronic Default (notwithstanding any notice and cure provision
or other lease provision to the contrary).
(b) Definitions. For the purpose of this Section, (1) a Monetary
Default occurs if Tenant fails to pay any sum of money when due (including, but
not limited to, Base Rent, Additional Rent, Percentage Rent, Escalation Rent,
Common Area Maintenance Charges, Utility Charges, Pass-thru Expenses, or other
Rent); (2) a Non-Monetary Default occurs if Tenant fails to perform any of its
obligations under this Lease other than the timely payment of money.
54. EVIDENCE OF AUTHORITY: If requested by Landlord, Tenant shall furnish
appropriate legal documentation evidencing the valid existence and good standing
of Tenant and the authority of any parties signing this lease to act for Tenant.
If Tenant signs as a corporation, each of the persons executing this Lease on
behalf of Tenant does hereby covenant and warrant that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in North Carolina, that the corporation has full right and authority to
enter into this Lease and that each of the persons signing on behalf of the
corporation is authorized to do so.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement or have caused their duly authorized representatives to execute same
in two (2) original counterparts, as of the day and year first above written.
Landlord:
Highwoods/Forsyth Limited Partnership,
a North Carolina General Partnership
By: Highwoods Properties, Inc., General Partner
By: /s/ John O. Dunn, III, Vice President
Attest:
/s/ Julie K. Gioco
Assistant Secretary
(Corporate Seal)
Tenant:
RF Micro Devices, Inc.,
a North Carolina corporation
By: /s/ David A. Norbury, President
Attest:
/s/ William A. Priddy, Jr.
Assistant Secretary
(Corporate Seal)
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-31037) pertaining to the 1997 Key Employees' Stock
Option Plan of RF Micro Devices, Inc., the Nonemployee Directors' Stock Option
Plan of RF Micro Devices, the Employee Stock Purchase Plan of RF Micro Devices,
Inc. and the RF Micro Devices 1992 Stock Option Plan of our report dated April
23, 1999, with respect to the financial statements and schedules of RF Micro
Devices, Inc. included in the Annual Report (Form 10-K) for the year ended March
31, 1999.
/s/ Ernst & Young LLP
Raleigh, North Carolina
June 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AS OF MARCH 31, 1999 AND THE CONDENSED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 147,545
<SECURITIES> 0
<RECEIVABLES> 23,697
<ALLOWANCES> 0
<INVENTORY> 27,335
<CURRENT-ASSETS> 199,718
<PP&E> 73,383
<DEPRECIATION> 5,952
<TOTAL-ASSETS> 275,758
<CURRENT-LIABILITIES> 31,800
<BONDS> 0
0
0
<COMMON> 224,746
<OTHER-SE> 6,160
<TOTAL-LIABILITY-AND-EQUITY> 275,758
<SALES> 152,852
<TOTAL-REVENUES> 152,852
<CGS> 99,325
<TOTAL-COSTS> 129,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,244
<INCOME-PRETAX> 24,452
<INCOME-TAX> 4,891
<INCOME-CONTINUING> 19,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,561
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AS OF MARCH 31, 1998 AND THE CONDENSED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 16,360
<SECURITIES> 0
<RECEIVABLES> 6,993
<ALLOWANCES> 0
<INVENTORY> 24,869
<CURRENT-ASSETS> 48,303
<PP&E> 43,274
<DEPRECIATION> 1,966
<TOTAL-ASSETS> 93,364
<CURRENT-LIABILITIES> 14,077
<BONDS> 0
0
0
<COMMON> 80,224
<OTHER-SE> (13,461)
<TOTAL-LIABILITY-AND-EQUITY> 93,364
<SALES> 45,350
<TOTAL-REVENUES> 45,350
<CGS> 29,246
<TOTAL-COSTS> 46,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> (523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
