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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
---------------
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended June 28, 1997
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 0-24360
SPECTRIAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 77-0023003
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
</TABLE>
350 WEST JAVA DRIVE
SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices)
TELEPHONE NUMBER (408) 745-5400
(Registrant's telephone number, including area code)
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 / /
As of June 28, 1997 there were 8,357,157 shares of the Registrant's Common Stock
outstanding.
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SPECTRIAN CORPORATION
FORM 10-Q
INDEX
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<CAPTION>
PAGE NO.
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<S> <C>
Cover Page.............................................................................................. 1
Index................................................................................................... 2
PART I--FINANCIAL INFORMATION
ITEM 1--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated balance sheets--June 28, 1997 and March 31, 1997............................. 3
Condensed consolidated statements of operations--three months ended June 28, 1997 and June 29,
1996............................................................................................... 4
Condensed consolidated statements of cash flows--three months ended June 28, 1997 and June 29,
1996............................................................................................... 5
Notes to condensed consolidated financial statements................................................ 6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 8
PART II--OTHER INFORMATION
ITEM 6--Exhibits...................................................................................... 20
Signatures.......................................................................................... 21
</TABLE>
2
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SPECTRIAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, MARCH 31,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 11,825 $ 6,240
Accounts receivable, less allowance for doubtful accounts of $362 and $365,
respectively......................................................................... 22,259 15,825
Inventories............................................................................ 22,903 17,301
Prepaid expenses and other current assets.............................................. 1,846 1,806
----------- -----------
Total current assets................................................................. 58,833 41,172
Property and equipment, net.............................................................. 25,714 25,461
----------- -----------
$ 84,547 $ 66,633
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 15,077 $ 8,101
Accrued liabilities.................................................................... 10,112 7,421
Current portion of debt obligations.................................................... 1,522 1,588
----------- -----------
Total current liabilities............................................................ 26,711 17,110
Debt obligations, net of current portion................................................. 6,705 7,057
----------- -----------
Total liabilities.................................................................... 33,416 24,167
----------- -----------
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized; 8,357,157 and 8,265,230
shares issued and outstanding, respectively.......................................... 55,665 53,395
Accumulated deficit.................................................................... (4,534) (10,929)
----------- -----------
Total shareholders' equity........................................................... 51,131 42,466
----------- -----------
$ 84,547 $ 66,633
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----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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SPECTRIAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 28, JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
Revenues.................................................................................... $ 45,766 $ 9,923
--------- ---------
Costs and expenses:
Cost of product sales..................................................................... 32,051 8,491
Research and development.................................................................. 4,241 4,293
Selling, general and administrative....................................................... 3,461 2,379
--------- ---------
39,753 15,163
--------- ---------
Operating income (loss)................................................................. 6,013 (5,240)
Interest expense, net....................................................................... (19) (74)
Other income, net........................................................................... 1,530 --
--------- ---------
Income (loss) before income taxes........................................................... 7,524 (5,314)
Income tax expense.......................................................................... 1,129 --
--------- ---------
Net income (loss)........................................................................... $ 6,395 $ (5,314)
--------- ---------
--------- ---------
Net income (loss) per share:
Primary................................................................................. $ 0.72 $ (0.66)
Fully diluted........................................................................... $ 0.68 $ (0.66)
Shares used in computing per share amounts:
Primary................................................................................. 8,917 8,039
Fully diluted........................................................................... 9,390 8,039
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 28, JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................................... $ 6,395 $ (5,314)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
activities:
Gain on sale of subsidiary............................................................... (1,530) --
Depreciation and amortization............................................................ 2,088 1,453
Stock option compensation expense........................................................ -- 25
Tax benefit associated with stock options................................................ 1,129 --
Changes in operating assets and liabilities
Accounts receivable.................................................................... (7,167) 5,968
Inventories............................................................................ (7,178) (5,155)
Prepaid expenses and other assets...................................................... (77) (147)
Accounts payable....................................................................... 7,762 (1,408)
Accrued liabilities.................................................................... 2,940 (811)
--------- ---------
Net cash provided by (used for) operating activities................................. 4,362 (5,389)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of short-term investments............................................... -- 3,002
Purchase of property and equipment......................................................... (3,516) (4,699)
Proceeds from sale of subsidiary........................................................... 4,016 --
--------- ---------
Net cash provided by (used for) investing activities................................. 500 (1,697)
--------- ---------
Cash flows from financing activities:
Proceeds from debt......................................................................... -- 6,000
Repayment of debt.......................................................................... (418) --
Proceeds from sales of Common Stock, net................................................... 1,141 804
--------- ---------
Net cash provided by financing activities............................................ 723 6,804
--------- ---------
Net increase (decrease) in cash and cash equivalents................................. 5,585 (282)
Cash and cash equivalents, beginning of period....................................... 6,240 1,163
--------- ---------
Cash and cash equivalents, end of period............................................. $ 11,825 $ 881
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of the management, the statements include all
adjustments (which are of a normal and recurring nature) necessary for the fair
presentation of the financial information set forth therein. These financial
statements should be read in conjunction with the Company's audited consolidated
financial statements as incorporated by reference in the Company's Form 10-K for
fiscal year ended March 31, 1997. The interim results presented herein are not
necessarily indicative of the results of operations that may be expected for the
full fiscal year ending March 31, 1998, or any other future period.
NOTE 2: BALANCE SHEET COMPONENTS
Balance sheet components are as follows:
<TABLE>
<CAPTION>
JUNE 28, MARCH 31,
1997 1997
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<S> <C> <C>
(IN THOUSANDS)
Inventories:
Raw materials........................................................ $ 11,769 $ 9,315
Work in process...................................................... 9,850 6,699
Finished goods....................................................... 1,284 1,287
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$ 22,903 $ 17,301
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Property and equipment:
Machinery and equipment.............................................. $ 37,098 $ 37,181
Land, building and improvements...................................... 2,828 2,822
Furniture and fixtures............................................... 1,376 1,376
Leasehold improvements............................................... 898 867
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42,200 42,246
Less accumulated depreciation and amortization....................... 16,486 16,785
--------- -----------
$ 25,714 $ 25,461
--------- -----------
--------- -----------
Accrued liabilities:
Employee compensation and benefits................................... $ 4,306 $ 3,772
Warranty............................................................. 2,440 1,940
Other accrued liabilities............................................ 3,366 1,709
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$ 10,112 $ 7,421
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--------- -----------
</TABLE>
NOTE 3: REVENUE RECOGNITION
The Company recognizes product sales upon shipment and concurrently accrues
for expected warranty expenses. Repair and service revenues are recognized when
the service is performed.
6
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SPECTRIAN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: EARNINGS PER SHARE COMPUTATION
Primary net income (loss) per share has been computed using the weighted
average number of outstanding shares of common stock and common equivalent
shares from stock options outstanding (when dilutive using the treasury stock
method). Common stock options are assumed to be exercised and the proceeds used
to buy back common stock using the treasury stock method and the Company's
average stock price for the quarter ended June 28, 1997. Due to the net loss
incurred during the three month period ending June 29, 1996, common stock
options outstanding would be antidilutive and are therefore not included in the
loss per share calculation for that period. Fully diluted net income per share
for the quarter ended June 28, 1997 was computed using the treasury stock method
and the Company's stock price at June 28, 1997.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 requires the presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures [or potentially dilutive securities,
such as convertible debt, options and warrants], diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 31, 1997. The
Company expects that basic EPS will be higher than primary earnings per share as
presented in the accompanying consolidated financial statements, and that
diluted EPS will approximate fully diluted earnings per share as presented in
the accompanying condensed consolidated financial statements.
7
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ARE "FORWARD LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD
LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO: THE STATEMENTS IN THE SECOND
PARAGRAPH OF "OVERVIEW" REGARDING THE IMPACT ON THE COMPANY OF A LOSS OF A MAJOR
OEM CUSTOMER; THE STATEMENTS IN "FACTORS AFFECTING FUTURE OPERATING RESULTS;"
THE STATEMENTS IN THE SECOND PARAGRAPH OF "--LIQUIDITY AND CAPITAL RESOURCES"
CONCERNING RENEWAL OF THE REVOLVING LINE OF CREDIT; AND THE STATEMENTS IN THE
LAST PARAGRAPH UNDER "--LIQUIDITY AND CAPITAL RESOURCES" REGARDING THE
ANTICIPATED SPENDING FOR CAPITAL ADDITIONS IN FISCAL 1998 AND THE SUFFICIENCY OF
THE COMPANY'S AVAILABLE RESOURCES TO MEET WORKING CAPITAL AND CAPITAL
EXPENDITURE REQUIREMENTS. THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN ARE
BASED ON CURRENT EXPECTATIONS AND ENTAIL VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH
FORWARD LOOKING STATEMENTS.
OVERVIEW
The Company designs, manufactures and markets highly linear single carrier
and multicarrier radio frequency ("RF") power amplifiers that support a broad
range of worldwide analog and digital wireless transmissions standards,
including AMPS, TDMA, CDMA, TACS and GSM. The Company, founded in 1984 to
perform design and engineering services, first entered the commercial amplifier
market in 1988 and shipped its first cellular power amplifiers in 1990. The
Company's revenues are now derived primarily from sales to a limited number of
OEMs in the wireless infrastructure equipment market, in particular Northern
Telecom Limited ("Northern Telecom"). The Company pursues a strategy of vertical
integration in its design and manufacturing processes, including the opening of
a 3-inch wafer fabrication facility in 1985 and the conversion in 1996 an
increased capacity at its 4-inch wafer fabrication facility. As a result, the
Company has a higher level of fixed costs and is dependent upon substantial
revenue to achieve profitability. In the third quarter of fiscal 1996 and the
first quarter of fiscal 1997, product orders fell sharply resulting in
substantial losses. In recent periods, orders have increased significantly and
the Company has returned to profitability.
During fiscal 1996, Northern Telecom and Nortel Matra accounted for
approximately 58% and 17% of revenues, respectively. During fiscal 1997,
Northern Telecom and Nortel Matra accounted for approximately 63% and 12% of
revenues, respectively. During the three months ended June 28, 1997, Northern
Telecom, Nortel Matra Communications ("Nortel Matra"), in which Northern Telecom
has an equity interest, and LG Information and Communications Limited ("LGIC")
accounted for approximately 55%, 22% and 18% of revenues, respectively. The
Company's business, financial condition and results of operations have been
materially adversely affected in the past by anticipated orders failing to
materialize and by deferrals or cancellations of orders as a result of changes
in OEM requirements. If the Company were to lose Northern Telecom or any other
major OEM customer, or if orders by Northern Telecom or any other major OEM
customer were to otherwise materially decrease either in unit quantity or in
price, the Company's business, financial condition and results of operations
would be materially adversely affected.
The Company's vertical integration strategy entails a number of risks,
including a high level of fixed and variable costs, the management of complex
processes, dependence on a single source of supply and a strict regulatory
environment. During periods of low demand, high fixed wafer fabrication costs
are likely to have a material adverse effect on the Company's operations. In
addition, the Company's strategy of frequently introducing and rapidly expanding
the manufacture of new products to meet evolving OEM
8
<PAGE>
customer and service provider needs has caused the Company to experience high
materials and manufacturing costs, including high scrap and material waste,
significant material obsolescence, labor inefficiencies, high overtime hours,
inefficient material procurement and an inability to recognize economies of
scale.
The market for the Company's products is becoming increasingly competitive.
The Company has recently begun selling its power amplifier products in South
Korea, as well as directly to cellular service providers where its competitors
are already established as suppliers. In addition, the Company competes with at
least one amplifier manufacturer for business from Northern Telecom. This
competition has resulted in, and will continue to result in reduced average
selling prices for the Company's products, which accordingly will negatively
impact gross margins.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement
of operations data of the Company expressed as a percentage of total revenues
and the gross margin on product sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
JUNE 29, JUNE 28,
1996 1997
----------- -----------
Revenues...................................................................................... 100.0% 100.0%
----- -----
Costs and expenses:
Cost of product sales....................................................................... 85.6 70.0
Research and development.................................................................... 43.2 9.3
Selling, general and administrative......................................................... 24.0 7.6
----- -----
Total costs and expenses.................................................................. 152.8 86.9
----- -----
Operating income (loss)................................................................... (52.8) 13.1
Interest income (expense), net................................................................ (0.8) --
Other income, net............................................................................. -- 3.3
----- -----
Income (loss) before income taxes........................................................... (53.6) 16.4
Income tax expense............................................................................ -- 2.4
----- -----
Net income (loss)......................................................................... (53.6)% 14.0%
----- -----
----- -----
Gross margin on product sales................................................................. 11.2% 29.1%
</TABLE>
REVENUES. The Company's revenues increased by 361% to $45.8 million for the
three months ended June 28, 1997 from $9.9 million for the three months ended
June 29, 1996. This substantial increase in revenues reflects both the below
normal customer demand experienced in the quarter ended June 29, 1996 as well as
a significant increase in demand, primarily by Northern Telecom, for the
Company's existing single carrier TDMA, CDMA and GSM products and the
introduction and customer acceptance of several new single carrier products,
including second generation CDMA and GSM products.
COST OF PRODUCT SALES. Cost of product sales consists primarily of raw
materials, RF semiconductor fabrication costs, amplifier assembly and test
costs, overhead and warranty costs, and does not include costs incurred in
connection with non-recurring engineering ("NRE") revenues. The Company's cost
of product sales increased by 278% to $32.1 million for the three months ended
June 28, 1997 from $8.5 million for the three months ended June 29, 1996. Gross
margin on product sales was 29.1% for the three months ended June 28, 1997 as
compared to 11.2% for the three months ended June 29, 1996. The significant
improvement in product gross margin primarily reflects the benefits of spreading
fixed manufacturing overhead spending over a larger number of units sold for the
three months ended June 28, 1997 compared to the three months ended June 29,
1996.
9
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses include
the cost of designing, developing or reducing the manufacturing cost of
amplifiers and RF semiconductors. The Company's R&D expenses decreased by 1.2%
to $4.2 million in the three months ended June 28, 1997 from $4.3 million in the
three months ended June 29, 1996. Research and development spending in the three
months ended June 29, 1996 included development costs for the Company's 4-inch
wafer fabrication facility. The slight decrease in R&D spending in the three
months ended June 28, 1997 reflects the absence of these facility development
costs offset by increased spending, primarily in semiconductor R&D. R&D expenses
as a percentage of revenues decreased to 9.3% in the three months ended June 28,
1997 from 43.2% for the three months ended June 29, 1996, reflecting the
substantially higher revenue levels in the three months ended June 28, 1997.
Research and development expenses also include costs associated with NRE
revenues, which were not material in either three month period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses include compensation and benefits for sales, marketing, senior
management and administrative personnel, commissions paid to independent sales
representatives, professional fees and other expenses. The Company's SG&A
expenses increased by 45.5% to $3.5 million for the three months ended June 28,
1997 from $2.4 million for the three months ended June 29, 1996, primarily due
to increases in sales and administrative headcount, outside commissions paid for
South Korean sales and to a lesser extent the establishment of a South Korean
sales support office. SG&A expenses as a percentage of revenues decreased to
7.6% for the three months ended June 28, 1997 from 24.0% for the three months
ended June 29, 1996 as a result of the substantially higher revenue levels in
the three months ended June 28, 1997.
INTEREST INCOME (EXPENSE), NET. Interest expense, net for the three months
ended June 28, 1997 was $19,000 compared to net interest expense of $74,000 for
the three months ended June 29, 1996. The reduction in net interest expense was
primarily the result of higher interest income earned on higher cash balances.
OTHER INCOME, NET. Other income of $1.5 million was recorded during the
three months ended June 28, 1997 representing the net gain realized from the
cash sale of the Company's wholly owned subsidiary, American Microwave
Technology, Inc. ("AMT"), to the management group and employees of AMT. No other
expense or other income was recorded in the three months ended June 29, 1996.
INCOME TAXES. The Company recorded an income tax expense of $1.1 million
for the three months ended June 28, 1997. The effective tax rate of 15% reflects
the use of net operating loss carryforwards for the three months ended June 28,
1997. No tax provision was made during the three months ended June 29, 1996 due
to the substantial net loss incurred in that quarter. At June 28, 1997, the
Company had federal and state net operating loss carryforwards ("NOLs") for tax
reporting purposes of approximately $29 million and $9 million, respectively.
Approximately $8.9 million of the benefit of the federal and state NOLs relate
to stock option compensation and will be credited to equity when realized. The
Company's ability to use its NOLs against taxable income may be subject to
restrictions and limitations under Section 382 of the Internal Revenue Code of
1986, as amended, in the event of a change in ownership of the Company as
defined therein.
FACTORS AFFECTING FUTURE OPERATING RESULTS
CUSTOMER CONCENTRATION; DEPENDENCE ON NORTHERN TELECOM. The wireless
infrastructure equipment market is dominated by a small number of large original
equipment manufacturers ("OEMs"), including LM Ericsson Telephone Company
("Ericsson"), Lucent Technologies, Inc. ("Lucent"), Motorola Corporation
("Motorola"), Northern Telecom, Nortel Matra, and Siemens AG ("Siemens"). The
Company's revenues are derived primarily from sales to a limited number of these
OEMs, particularly Northern Telecom and Nortel Matra. During fiscal 1996,
Northern Telecom and Nortel Matra accounted for approximately 58% and 17% of
revenues, respectively. During fiscal 1997, Northern Telecom and Nortel Matra
accounted for approximately 63% and 12% of revenues, respectively. During the
three months
10
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ended June 28, 1997, Northern Telecom, Nortel Matra and LGIC accounted for
approximately 55%, 22% and 18% of revenues, respectively. Furthermore, a
substantial portion of revenues from Northern Telecom and Nortel Matra in fiscal
1996, fiscal 1997 and the three months ended June 28, 1997 resulted from sales
of a limited number of the Company's products. The Company's business, financial
condition and results of operations have been materially adversely affected in
the past by anticipated orders failing to materialize and by deferrals or
cancellations of orders as a result of changes in OEM requirements. The Company,
Northern Telecom and Nortel Matra have an agreement, renegotiated annually,
pursuant to which Northern Telecom and Nortel Matra commit to purchase a
substantial percentage of their annual power amplifier requirements from the
Company according to a tiered pricing structure. This contract is subject to
renegotiation in the fall of 1997 and there can be no assurance that Northern
Telecom and Nortel Matra will enter into a similar contract in the future or
otherwise agree to purchase the same or similar levels of their power amplifier
requirements from the Company or purchase their power amplifier requirements on
the same or similar pricing terms. Any reduction in the level of purchases of
the Company's amplifiers by Northern Telecom and Nortel Matra, either in
absolute quantities or as a percentage of their total power amplifier needs, or
any material reduction in pricing without significant offsets, would have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, if the Company were to lose Northern Telecom or
any other major OEM customer as a customer, or if orders by Northern Telecom or
any other major OEM customer were to otherwise materially decrease, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, wireless infrastructure equipment
manufacturers have come under increasing price pressure from wireless service
providers, which in turn has resulted in downward pricing pressure on the
Company's products. The Company expects to incur increasing pricing pressures
from Northern Telecom and other major OEM customers in future periods, which
could result in declining average sales prices for the Company's products. As
part of the effort to diversify its product base, in fiscal 1997 the Company
began to sell multicarrier amplifier systems directly to service providers. The
Company recognizes that these sales may be in conflict with potential or current
OEM sales and seeks to work with its OEM equipment suppliers so that the service
provider receives a Spectrian power amplifier system directly or through the
OEM. There can be no assurance, however, that the Company's direct sales to
service providers will not cause its OEM equipment suppliers to reduce orders or
terminate their relationships with the Company. Any such reduction or
termination would have a material adverse effect on the Company's business,
financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly and annual
results have in the past been, and will continue to be, subject to significant
fluctuations due to a number of factors, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In particular, the Company's quarterly and annual results of
operations are likely to vary due to the timing, cancellation, delay or
rescheduling of OEM customer orders and shipments; the timing of announcements
or introductions of new products by the Company, its competitors or their
respective OEM customers; the acceptance of such products by wireless equipment
OEMs and their customers; variations in manufacturing efficiencies, yields and
costs; competitive factors such as the pricing, availability, and demand for
competing amplification products; changes in average sales prices and product
mix; variations in operating expenses; changes in manufacturing capacity and
variations in the utilization of this capacity; shortages of key supplies; the
long sales cycles associated with the Company's customer specific products; the
timing and level of product and process development costs; and changes in
inventory levels. While the Company maintains a backlog, the Company's OEM
customers may cancel or defer orders without significant penalty. Anticipated
orders from the Company's OEM customers have in the past failed to materialize
and delivery schedules have been deferred or canceled as a result of changes in
OEM customer requirements and the Company expects this pattern to continue as
customer requirements continue to change and industry standards continue to
evolve. Reduced demand for wireless infrastructure equipment in the latter part
of fiscal 1996 and the early part of fiscal 1997, driven partly by delays in the
build-out of PCS infrastructure, caused significant fluctuations in the
Company's product sales during that period of time.
11
<PAGE>
There can be no assurance that the Company will not experience such fluctuations
in the future. In addition, the Company has in the past experienced high
manufacturing costs, due in part to rapid increases in production, that have
adversely affected the Company's results of operations. The Company's gross
margins vary by product due to specific product pricing, design characteristics,
production volumes and other factors. The Company establishes its expenditure
levels for product development and other operating expenses based on its
expected revenues, and expenses are relatively fixed in the short term. As a
result, variations in timing of revenues can cause significant variations in
quarterly results of operations. There can be no assurance that the Company will
be profitable on a quarter-to-quarter basis in the future. The Company believes
that period to period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Due to all the foregoing factors, it is likely that in some future quarter or
quarters the Company's revenues or operating results will not meet the
expectations of public stock market analysts or investors. In such event, the
market price of the Company's Common Stock would be materially adversely
affected.
INTERNAL AMPLIFIER DESIGN AND PRODUCTION CAPABILITIES OF OEMS. The Company
believes that a majority of the present worldwide production of power amplifiers
is captive within the manufacturing operations of wireless equipment OEMs, many
of which have chosen not to purchase amplifiers from outside suppliers.
Furthermore, the Company believes that once those OEMs that are willing to
purchase from third party amplifier vendors are reluctant to switch once
committed to a particular merchant vendor. Consequently, the Company has only
limited opportunities to increase revenues by replacing internal OEM amplifier
production or displacing other merchant amplifier suppliers. As a result, the
Company's future success is substantially dependent upon the extent to which
these major wireless equipment OEMs elect to purchase from outside sources
rather than manufacture their own amplifiers. Among the Company's current OEM
customers, Northern Telecom, Nortel Matra, LGIC and QUALCOMM Incorporated
("QUALCOMM") continuously evaluate whether to manufacture their own amplifiers.
There can be no assurance that the Company's major OEM customers will continue
to rely, or increase their reliance, on the Company as an external source of
supply for their power amplifiers, or that other wireless equipment OEMs will
become customers of the Company. Furthermore, the Company's OEM customers and
other wireless infrastructure equipment manufacturers are protective of their
intellectual property, which may contribute to their decision not to seek power
amplifiers from external sources as the compatibility of their own products with
third party amplifiers requires extensive specifications. While the Company
takes measures to ensure the confidentiality of any such intellectual property
disclosed to the Company by the OEM customers or developed by the Company for
such customers, the appearance of a close working relationship with a particular
OEM customer may adversely affect the Company's ability to establish or maintain
a relationship with, or sell products to, competitors of that OEM customer. If,
for any reason, the major wireless infrastructure equipment suppliers do not
purchase or continue to purchase their power amplifiers from merchant suppliers,
the Company's business, results of operations and financial condition will be
materially adversely affected.
RAPID TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS; DEPENDENCE ON NEW
PRODUCTS. The markets in which the Company and its OEM customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. The Company's future success
depends upon the acceptance of the Company's products, which in turn depends on,
among other things, timely completion of new product designs, customization of
products to meet the needs of its OEM customers, achievement of acceptable
manufacturing yields, and wireless service provider demand for the systems
solutions provided by the Company's OEM customers. In particular, because the
Company's strategy of rapidly bringing to market products customized for
numerous and evolving RF modulation standards requires developing and achieving
volume production of a large number of distinct products, the Company's ability
to rapidly design and produce individual products for which there is significant
OEM customer demand will be a critical determinant of the Company's future
success. The Company believes this ability will become increasingly critical as
any increased adoption of Personal Communications Services ("PCS") and Wireless
Local Loop ("WLL") technology is expected to lead to the proliferation of
12
<PAGE>
numerous additional RF modulation standards, including solutions customized for
individual markets. No assurance can be given that the Company's product
development efforts will be successful, that its new products will meet customer
requirements and be accepted or that its OEM customers' product offerings will
achieve customer acceptance. If a significant number of development projects do
not result in significant volume production, the Company's business, financial
condition and results of operations could be materially adversely affected. If
technologies or standards supported by the Company's or its customers' products
become obsolete or fail to gain widespread commercial acceptance, the Company's
business may be materially adversely affected. In addition, the increasing
demand for wireless communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for such products, generally following
extensive investigation of and deliberation over competing technologies. The
delays inherent in the governmental approval process may in the future cause the
cancellation, postponement or rescheduling of the installation of communications
systems by the Company's customers. These delays in the past have had and in the
future may have a material adverse effect on the sale of products by the Company
and on its results of operations.
RISKS ASSOCIATED WITH INTERNAL WAFER FABRICATION. The Company's operation
of its manufacturing facilities entails a number of risks, including a high
level of fixed and variable costs, the management of complex processes,
dependence on a single source of supply and a strict regulatory environment.
First, fixed costs consist primarily of occupancy costs, investment in
manufacturing equipment, repair, maintenance and depreciation costs related to
equipment and fixed labor costs related to manufacturing and process
engineering. During periods of low demand, high fixed wafer fabrication costs
are likely to have a material adverse effect on the Company's results of
operations. Second, the Company's strategy of frequently introducing and rapidly
expanding the manufacture of new products to meet evolving OEM customer and
service provider needs has caused the Company to experience high materials and
manufacturing costs, including high scrap and material waste, significant
material obsolescence, labor inefficiencies and overtime expenses, inefficient
material procurement and an inability to recognize economies of scale. These
high manufacturing costs and production interruptions have had an adverse effect
on the Company's results of operations. In addition, the Company has made and
expects to continue to make pricing commitments to OEM customers in anticipation
of achieving such manufacturing cost reductions. Any failure to achieve such
manufacturing cost reductions could have a material adverse effect on the
Company's business, financial condition and results of operations. Third, the
design and fabrication of RF semiconductors is a complex and precise process.
Such manufacturing is sensitive to a wide variety of factors, including
variations and impurities in the raw materials, difficulties in the fabrication
process, performance of the manufacturing equipment, defects in the masks used
to print circuits on a wafer and the level of contaminants in the manufacturing
environment. As a result of these and other factors, semiconductor manufacturing
yields from time to time in the past have suffered, and there can be no
assurance that the Company will be able to achieve acceptable production yields
in the future. In addition, the Company's wafer fabrication facility represents
a single point of failure in its manufacturing process that would be costly and
time-consuming to replace if its operation were interrupted. The interruption of
wafer fabrication operations or the loss of employees dedicated to the wafer
fabrication facility could have a material adverse effect on the Company's
business, financial condition and results of operations. Any failure to maintain
acceptable wafer production levels, either from the Company's facility or from a
third party wafer supplier, will have a material adverse effect on the Company's
business, financial condition and results of operations. Finally, the Company's
operation of a wafer fabrication facility subjects the Company to a variety of
local, state and federal governmental regulations relating to the storage,
discharge, handling, emission, generation, manufacture and disposal of toxic or
other hazardous substances used to manufacture the Company's products. The
Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits to conduct its business. However, the failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
13
<PAGE>
cessation of operations. In addition, compliance with such regulations could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY. The Company expects that its
customers will continue to establish demanding specifications for quality,
performance and reliability that must be met by the Company's products. RF
semiconductors as complex as those offered by the Company often encounter
development delays and may contain undetected defects or failures when first
introduced or after commencement of commercial shipments. The Company has from
time to time in the past experienced product quality, performance or reliability
problems, although no such problems have had a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
multicarrier power amplifiers have a higher probability of malfunction because
of their greater complexity. There can be no assurance that defects or failures
will not occur in the future relating to the Company's product quality,
performance and reliability that may have a material adverse effect on the
Company's business, financial condition and results of operations. If such
defects or failures occur, the Company could experience lost revenue, increased
costs (including warranty expense, costs associated with customer support and
other product liability related costs), delays in or cancellations or
rescheduling of orders or shipments and product returns or discounts, any of
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
SOLE OR LIMITED SOURCES OF MATERIALS AND SERVICES. The Company currently
procures from single sources certain components and services for its products
including cast housings, printed circuit boards, specialized RF components (such
as monolithic microwave integrated circuits) and specialized sub-assemblies. The
Company purchases these components and services on a purchase order basis, does
not carry significant inventories of these components and does not have any
long-term supply contracts with its sole source vendors. Although the Company is
currently identifying potential alternative sources of these components, its
reliance on sole sources entails certain risks, including reduced control over
the price, timely delivery, reliability and quality of the components. Because
certain of the Company's sole source and limited source suppliers have limited
operating histories and limited financial and other resources, they may prove to
be unreliable sources of supply. If the Company were to change any of its sole
source vendors, the Company would be required to requalify the components with
each new vendor. Requalification could prevent or delay product shipments which
could materially and adversely affect the Company's business, financial
condition and results of operations. Any inability of the Company to obtain
timely deliveries of components of acceptable quality in required quantities or
a significant increase in the prices of components for which the Company does
not have alternative sources could materially adversely affect the Company's
business, financial condition and results of operations. The Company has
occasionally experienced difficulties in obtaining these components, and no
assurance can be given that shortages will not occur in the future.
DECLINING AVERAGE SALES PRICES. The Company has experienced, and expects to
continue to experience, declining average sales prices for its products.
Wireless infrastructure equipment manufacturers have come under increasing price
pressure from wireless service providers, which in turn has resulted in downward
pricing pressure on the Company's products. Therefore, the Company expects to
incur increasing pricing pressures from Northern Telecom and its other major OEM
customers in future periods, which could result in declining average sales
prices for the Company's products. In addition, competition among merchant
suppliers has increased the downward pricing pressure on the Company's products.
Since wireless infrastructure equipment manufacturers frequently negotiate
supply arrangements far in advance of delivery dates, the Company often must
commit to price reductions for its products before it is aware of how, or if,
cost reductions can be obtained. To offset declining average sales prices, the
Company believes that in the near term it must achieve manufacturing cost
reductions, and in the longer term it must develop new products that incorporate
advanced features and can be sold at higher average sales prices. If, however,
the Company is unable to achieve such cost reductions, the Company's gross
margins will decline, and such decline will have a material adverse effect on
the Company's business, financial condition and
14
<PAGE>
results of operations. Also, to the extent that new products are not developed
in a timely manner, do not achieve customer acceptance or do not generate higher
sales prices and margins, the Company's business, financial condition and
results of operations would be materially adversely affected.
RISKS OF INTERNATIONAL SALES. Sales outside of the United States were 72%,
73% and 88% of revenues in fiscal 1996, fiscal 1997 and the three months ended
June 28, 1997, respectively. The Company expects that international sales will
continue to account for a significant percentage of the Company's total revenues
for the foreseeable future. These sales involve a number of inherent risks,
including imposition of government controls, currency exchange fluctuations,
potential insolvency of international distributors and representatives, reduced
protection for intellectual property rights in some countries, the impact of
recessionary environments in economies outside the United States, political
instability and generally longer receivables collection periods, as well as
tariffs and other trade barriers. In addition, because substantially all of the
Company's foreign sales are denominated in U.S. dollars, increases in the value
of the dollar would increase the price in local currencies of the Company's
products in foreign markets and make the Company's products relatively more
expensive and less price competitive than competitors' products that are priced
in local currencies. There can be no assurance that these factors will not have
a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations. Furthermore, a large portion of the Company's existing customers and
potential new customers are servicing new markets in developing countries that
the Company's customers expect will deploy wireless communication networks as an
alternative to the construction of a wireline infrastructure. If such countries
decline to construct wireless communication systems, or construction of such
systems is delayed for any reason, including business and economic conditions
and changes in economic stability due to factors such as increased inflation and
political turmoil, such delays could have a material adverse effect on the
Company's business, results of operations and financial condition.
RELIANCE UPON GROWTH OF WIRELESS SERVICES. Sales of power amplifiers to
wireless infrastructure equipment suppliers have in the past accounted, and are
expected in the future to account, for substantially all of the Company's
product sales. Demand for wireless infrastructure equipment is driven by demand
for wireless service. Although demand for power amplifiers has grown in recent
years, if demand for wireless services fails to increase or increases more
slowly than the Company or its OEM customers currently anticipate, the Company's
business, financial condition and results of operations would be materially and
adversely affected. The success of the Company depends to a considerable extent
upon the continued growth and increased availability of cellular and other
wireless communications services, including PCS and WLL, in the United States
and internationally. There can be no assurance that the volume and variety of
wireless communications services will continue to grow, or that such services
will create a demand for the Company's products. The Company believes that
continued growth in wireless usage depends on significant reductions in
infrastructure capital equipment cost per subscriber and corresponding
reductions in wireless service rates, which currently generally remain
substantially higher than rates charged by wireline companies.
MARKET FOR THE COMPANY'S PRODUCTS IS HIGHLY COMPETITIVE. The wireless
communications equipment industry is extremely competitive and is characterized
by rapid technological change, new product development and product obsolescence,
evolving industry standards and significant price erosion over the life of a
product. The ability of the Company to compete successfully and sustain
profitability depends in part upon the rates at which wireless equipment OEMs
incorporate the Company's products into their systems and the Company captures
market share from other merchant suppliers. The Company's major OEM customers,
including Northern Telecom, Nortel Matra, LGIC and QUALCOMM, continuously
evaluate whether to manufacture their own amplification products or purchase
them from outside sources such as the Company. There can be no assurance that
these OEM customers will incorporate the Company's products into their systems
or that in general they will continue to rely, or expand their reliance, on
external sources of supply for their power amplifiers. These customers and other
large manufacturers of wireless communications equipment could also elect to
enter the merchant market and
15
<PAGE>
compete directly with the Company, and at least one OEM, NEC Corporation
("NEC"), has already done so. Such increased competition could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company's principal competitors in the market for wireless amplification
products provided by merchant suppliers currently include AML Communications,
Amplidyne, Hewlett-Packard Wireless Infrastructure Division, M/A-COM (a
subsidiary of AMP), Microwave Power Devices, NEC and Powerwave Technologies.
Certain of these competitors have, and potential future competitors could have,
substantially greater technical, financial, marketing, distribution and other
resources than the Company and have, or could have, greater name recognition and
market acceptance of their products and technologies. No assurance can be given
that the Company's competitors will not develop new technologies or enhancements
to existing products or introduce new products that will offer superior price or
performance features compared to the Company's products. To the extent that OEMs
increase their reliance on external sources for their power amplification needs,
more competitors could be attracted to the market. The Company expects its
competitors to offer new and existing products at prices necessary to gain or
retain market share. The Company has experienced significant price competition,
which has in the past affected gross margins. Certain of the Company's
competitors have substantial financial resources which may enable them to
withstand sustained price competition or downturns in the power amplification
market. There can be no assurance that the Company will not be subject to
increased price competition or that the Company will be able to compete
successfully in the future.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY. The Company's ability to
compete successfully and achieve future revenue growth will depend, in part, on
its ability to protect its proprietary technology and operate without infringing
the rights of others. The Company has a policy of seeking patents on inventions
resulting from its ongoing research and development activities. The Company has
been awarded 14 United States patents, and has 15 United States patent
applications pending, including one that has been allowed but not yet formally
issued. The Company also has been awarded six foreign patents and has seven
foreign patent applications pending. There can be no assurance that the
Company's pending patent applications will be allowed or that the issued or
pending patents will not be challenged or circumvented by competitors.
Notwithstanding the Company's active pursuit of patent protection, the Company
believes that the success of its business depends more on the collective value
of its patents, specifications, computer aided design and modeling tools,
technical processes and employee expertise. The Company generally enters into
confidentiality and non-disclosure agreements with its employees, suppliers, OEM
customers, licensees and potential customers and licensees and limits access to
and distribution of its proprietary technology. However, there can be no
assurance that such measures will provide adequate protection for the Company's
trade secrets or other proprietary information, or that the Company's trade
secrets or proprietary technology will not otherwise become known or be
independently developed by competitors. The failure of the Company to protect
its proprietary technology could have a material adverse effect on its business,
financial condition and results of operations.
RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT. The communications equipment
industry is characterized by vigorous protection and pursuit of intellectual
property rights or positions, which have resulted in significant and often
protracted and expensive litigation. Although there is currently no pending
intellectual property litigation against the Company, the Company or its
suppliers may from time to time be notified of claims that the Company may be
infringing patents or other intellectual property rights owned by third parties.
If it is necessary or desirable, the Company may seek licenses under such
patents or other intellectual property rights. However, there can be no
assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain a license from
a third party for technology used by the Company or otherwise secure rights to
use such technology could cause the Company to incur substantial liabilities, to
suspend the manufacture of products or expend significant resources to develop
non-infringing technology. There can be no assurance that the Company would be
successful in such development or that such licenses would be available on
reasonable terms, if at all. In the event that any third party makes
16
<PAGE>
a successful claim against the Company or its customers and either a license is
not made available to the Company on commercially reasonable terms or a "design
around" is not practicable, the Company's business, financial condition and
results of operations would be materially adversely affected. Furthermore, the
Company may initiate claims or litigation against third parties for infringement
of the Company's proprietary rights or to establish the validity of the
Company's proprietary rights. Litigation by or against the Company could result
in significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation results in a
favorable determination for the Company. In the event of an adverse result in
any such litigation, the Company could be required to pay substantial damages,
indemnify its customers, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology,
discontinue the use of certain processes or obtain licenses to the infringing
technology.
GOVERNMENT REGULATION OF COMMUNICATIONS INDUSTRY. Radio frequency
transmissions and emissions, and certain equipment used in connection therewith,
are regulated in the United States, Canada and throughout the rest of the world.
Regulatory approvals generally must be obtained by the Company in connection
with the manufacture and sale of its products, and by wireless service providers
to operate the Company's products. The United States Federal Communications
Commission (the "FCC") and regulatory authorities abroad constantly review RF
emission issues and promulgate standards based on such reviews. If more
stringent RF emission regulations are adopted, the Company and its OEM customers
may be required to alter the manner in which radio signals are transmitted or
otherwise alter the equipment transmitting such signals, which could materially
adversely affect the Company's products and markets. The enactment by federal,
state, local or international governments of new laws or regulations or a change
in the interpretation of existing regulations could also materially adversely
affect the market for the Company's products. Although recent deregulation of
international communications industries along with recent radio frequency
spectrum allocations made by the FCC have increased the potential demand for the
Company's products by providing users of those products with opportunities to
establish new wireless personal communications services, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded personal communications services
will continue or that other future regulatory changes will have a positive
impact on the Company. The increasing demand for wireless communications has
exerted pressure on regulatory bodies worldwide to adopt new standards for such
products, generally following extensive investigation of and deliberation over
competing technologies. The delays inherent in this governmental approval
process have in the past caused, and may in the future cause, the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company's OEM customers. These delays have had in the past, and in the
future may have, a material adverse effect on the sale of products by the
Company to such OEM customers.
ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of local,
state and federal governmental regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of toxic or other
hazardous substances used to manufacture the Company's products. The Company
believes that it is currently in compliance in all material respects with such
regulations and that it has obtained all necessary environmental permits to
conduct its business. Nevertheless, the failure to comply with current or future
regulations could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its manufacturing processes or cessation
of operations. Compliance with such regulations could require the Company to
acquire expensive remediation equipment or to incur substantial expenses.
Certain facilities formerly occupied by the Company were located near a
Superfund site in an area (the "Study Area") to be studied by the United States
Environmental Protection Agency (the "EPA") for hazardous substance
contamination. While the Company believes that the EPA has concluded that the
Company has not contributed to the contamination or release of hazardous
materials in the Superfund site or the Study Area, no assurance can be given
that the Company will not receive a notice from the EPA indicating that the
Company is liable for significant cleanup costs with respect to the Superfund
site or the Study Area which could have a material adverse effect on the
17
<PAGE>
Company's business, financial condition and results of operations. Any failure
by the Company to control the use, disposal, removal or storage of, or to
adequately restrict the discharge of, or assist in the cleanup of, hazardous or
toxic substances, could subject the Company to significant liabilities,
including joint and several liability under certain statutes. The imposition of
such liabilities could materially adversely affect the Company's business,
financial condition and results of operations.
PRODUCT LIABILITY RISKS. If wireless telecommunications systems or other
systems or devices that rely on or incorporate the Company's products are
determined, perceived or alleged to create a health risk, the Company could be
named as a defendant, and held liable, in product liability lawsuits commenced
by individuals alleging that the Company's products harmed them. The occurrence
of any of such event could have a material adverse effect on the Company's
business, results of operations and financial condition. Any alleged health or
environmental risk could also lead to a delay or prohibition against the
installation of wireless networks which could have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, an inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability could inhibit the
commercialization of the Company's products and have a material adverse effect
on the Company's business, results of operations and financial condition. Any
such delay or prohibition would have a material adverse effect on the Company's
business, results of operations and financial condition.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL. The growth in the
Company's business has placed, and is expected to continue to place, a
significant strain on the Company's personnel, management and other resources.
The Company's ability to manage any future growth effectively will require it to
attract, train, motivate, manage and retain new employees successfully, to
integrate new employees into its overall operations and in particular its
manufacturing operations, to retain the continued service of its key technical,
marketing and management personnel (particularly highly skilled RF semiconductor
and amplifier design, process and test engineers), and to continue to improve
its operational, financial and management information systems. The Company's
President and Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer have each joined the Company within the last 18 months, and
there can be no assurance that the new management will be able to work
effectively as a team. Although the Company has employment contracts with
several of its executive officers, these agreements do not obligate such
individuals to remain in the employment of the Company. The Company does not
maintain key man life insurance on any of its key technical personnel. The
competition for such personnel is intense, and the loss of key employees could
have a material adverse effect on the Company.
VOLATILITY OF STOCK PRICE. The market price of the shares of Common Stock
has recently been and is likely to continue to be highly volatile, and is
affected significantly by factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, announcements by the Company's customers
regarding their business or prospects, changes in analysts' expectations,
governmental regulatory action, developments with respect to patents or
proprietary rights, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. The market price of the Company's Common Stock has fluctuated
substantially in recent periods, from a low of $7.00 on December 31, 1996 to a
high of $51 5/16 on July 17, 1997. On July 24, 1997 the last reported sale price
of the Common Stock as reported on the Nasdaq National Market was $44 7/8.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth through its initial public offering of
Common Stock in August 1994 and through private sales of equity securities,
capital equipment leases, bank lines of credit and cash flows from operations.
Cash provided by operations was $4.4 million for the three months ended June 28,
1997, while cash used by operations in fiscal 1997 was $8.1 million. In fiscal
1996 and fiscal 1995, cash
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provided by operations was $9.6 million and $7.0 million, respectively. The cash
used by operations in fiscal 1997 was principally for purchasing inventory to
support increased production ramps for increasing product shipment volumes. In
addition, cash from operations was impacted by the Company's net loss in fiscal
1997 and higher receivables levels as a result of higher shipment volumes,
offset in large part by increased depreciation expense, higher accounts payable
driven by higher inventory levels and higher accrued liabilities for warranty
and employee benefits, among others. The increase in cash provided by operations
in fiscal 1996 primarily related to improved collections of accounts receivable
and management of accounts payable, partially offset by increased inventory.
As of June 28, 1997, the Company had working capital of $32.1 million
including $11.8 million in cash and cash equivalents. In addition, the Company
has a revolving line of credit of $6.0 million with a bank secured by the
majority of the Company's assets which expires in September 1997, and a $4.0
million term loan with the same bank to be secured by a portion of the Company's
capital equipment assets as the loan is drawn down. The Company intends to renew
this revolving line of credit. Under the terms of the master agreement governing
both of these credit instruments, the Company is required to maintain certain
minimum working capital, net worth, profitability and other specific financial
ratios. As of June 28, 1997, the Company was in compliance with these financial
covenants. There were no borrowings outstanding against these lines of credit as
of June 28, 1997.
In January 1997, the Company borrowed $6.0 million under a term loan secured
by certain capital equipment. The loan, which expires in January 2002, requires
the payment of monthly principal plus interest and is subject to certain minimum
working capital, net worth and other specific financial ratios. The Company was
in compliance with these covenants as of June 28, 1997. In March 1997, the
Company also secured a $3.2 million real estate loan, which expires in April
2007, for the purchase of a light industrial building for its future facilities
expansion.
Additions to property and equipment were $3.5 million, $16.3 million, $28.2
million and $5.8 million in the three months ended June 28, 1997, fiscal 1997,
fiscal 1996 and fiscal 1995, respectively. Capital additions during fiscal 1997
included manufacturing test equipment required to support new product ramps and
increase factory capacity, equipment purchased for the new 4-inch wafer
fabrication facility, research and development test equipment to support various
development projects and the acquisition of a 39,000 square foot building
located between the Company's two existing leased facilities in Sunnyvale,
California. In November 1996, the Company completed a sale of its principal
facilities in Sunnyvale, California including its 4-inch wafer fabrication
facility, originally purchased during fiscal 1996. The proceeds from the sale of
the facilities were $16.3 million, net of fees, commissions and closing costs.
The Company anticipates spending approximately $15 million over the next 12
months for capital additions primarily to support manufacturing capacity
requirements, development projects and facilities expansion. Based on the
Company's current working capital position, the cash flows the Company expects
to generate from fiscal 1998 operations and the available line of credit the
Company expects to renew, the Company believes that sufficient resources will be
available to meet the Company's cash requirements for at least the next twelve
months. Cash requirements for periods beyond the next twelve months depend on
the Company's profitability, timing and level of capital expenditures, working
capital requirements and rate of growth.
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<PAGE>
ITEM 6: EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
10.7.3 Amended and Restated Business Loan Agreement between Registrant and
Silicon Valley Bank dated February 11, 1997 and ancillary
documents thereto.
11.1 Statement regarding computation of net income (loss) per share
27.1 Financial Data Schedule
</TABLE>
20
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SIGNATURES
Pursuant to the requirements 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.
Dated: July 25, 1997
SPECTRIAN CORPORATION
(Registrant)
/s/ BRUCE R. WRIGHT
------------------------------------------
Bruce R. Wright
EXECUTIVE VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER
AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C>
10.7.3 Amended and Restated Business Loan Agreement between Registrant and Silicon Valley Bank dated
February 11, 1997 and ancillary documents thereto.
11.1 Statement regarding computation of net income (loss) per share
27.1 Financial Data Schedule
</TABLE>
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
BORROWER: SPECTRIAN CORPORATION
350 WEST JAVA DRIVE
SUNNYVALE, CA 94089
LENDER: SILICON VALLEY BANK
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
===============================================================================
THIS AMENDED AND RESTATED BUSINESS LOAN AGREEMENT BETWEEN SPECTRIAN
CORPORATION ("BORROWER") AND SILICON VALLEY BANK ("LENDER") IS MADE AND
EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR
COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN
OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE
DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH
LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND
FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS
AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS."
BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR
EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS,
WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING,
RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO
LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND
SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of FEBRUARY 11, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the
United States of America.
AGREEMENT. The word "Agreement" means this Amended and Restated Business
Loan Agreement, as this Amended and Restated Business Loan Agreement may
be amended or modified from time to time, together with all exhibits and
schedules attached to this Amended and Restated Business Loan Agreement
from time to time.
BORROWER. The word "Borrower" means Spectrian Corporation. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes indebtedness
now existing or hereinafter arising, or incurred, including, without
limitation, the indebtedness evidence by the Note, including, all
principal and interest, together with all other indebtedness and costs
and expenses for which Borrower is responsible under this Agreement or
under any of the Related Documents.
LENDER. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accomodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or
refinancing note or notes therefor.
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 2
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchased money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed or trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Loan Advance and each subsequent Loan Advance under this Agreement
shall be subject to the fulfillment to Lender's satisfaction of all of the
conditions set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each
disbursement of Loan proceeds, as of the date of any renewal, extension
or modification of any Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
California and is validly existing and in good standing in all states
in which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which
it is presently engaged or presently proposes to engage. Borrower also
is duly qualified as a foreign corporation and is in good standing in
all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower, do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lenders as
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable. Borrower owns and has good title to all of
Borrower's
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 3
properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release", as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20
of the California Health and Safety Code, Section 25100, et seq., or
other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has
been (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners
or occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such
matters. (c) Neither Borrower nor any tenant, contractor, agent or
other authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste
or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the
properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section
of the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended.
PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
REGULATIONS G, T, AND U. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning
of Regulations G, T and U of the Board of Governors of the Federal
Reserve System).
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 350 West Java Drive,
Sunnyvale, CA 94089. Unless Borrower has designated otherwise in
writing this location is also the office or offices where Borrower
keeps its records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
CLAIMS AND DEFENSES. There are no defenses or counterclaims, offsets or
other adverse claims, demands or actions of any kind, personal
or otherwise, that Borrower, Grantor, or any Guarantor could assert
with respect to the Note, Loan, Indebtedness, this Agreement, or the
Related Documents.
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 4
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than five (5) days upon becoming available, copies of
all statements, reports and notices sent or made available generally by
each Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission. All financial reports required to
be provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent
basis, and certified by Borrower as being true and correct.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender, at the same time the Financial Statements referred to above are
submitted to Lender, and at the time of each disbursement of Loan
proceeds, with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Borrower shall provide to
Lender, prior to the initial advance under the line of credit facility,
and, thereafter, not later than twenty (20) days after the end of each
month, with an aged list of accounts receivable and accounts payable
(or 20 days after the end of each fiscal quarter if the outstanding
balance under the line of credit facility remains at zero ($0.00)).
Lender shall conduct audits at Lender's discretion. Borrower's deposit
account will be debited for the audit expense and a notification will
be mailed to Borrower.
FINANCIAL COVENANTS. Borrower shall maintain, on a quarterly basis,
beginning quarter ending March 31, 1997, a minimum quick ratio of 1.25
to 1.00; a minimum tangible net worth of $38,000,000.00; a minimum
liquidity of 2 times the outstanding balance under Borrower's term loan
facilities; and a maximum total debt to tangible net worth ratio of
1.00 to 1.00. Furthermore, Borrower shall achieve quarterly
profitability, with an allowance for one quarterly loss in each fiscal
year not to exceed $750,000.00.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender. Each
insurance policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by any act,
omission or default of Borrower or any other person. In connection with
all policies covering assets in which Lender holds or is offered a
security interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 5
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's expense,
all such investigations, studies, samplings and testings as may be requested
by Lender or any governmental authority relative to any substance defined as
toxic or a hazardous substance under any applicable federal, state, or local
law, rule, regulation, order or directive, or any waste or by-product thereof,
at or affecting any property or any facility owned, leased or used by
Borrower.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender.
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and
state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that Borrower
or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's
financial condition, in the financial condition of any Guarantor, or in the
value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of
the Loan or any other loan with Lender.
BORROWING BASE FORMULA. Funds shall be advanced under the Line according to a
borrowing base formula, as determined by Lender on a monthly basis, defined as
follows: (a) the lessor of (i) $6,000,000.00 or (ii) the sum of eighty percent
(80%) of eligible domestic, Canadian and pre-approved accounts receivable and
one hundred percent (100%) of accounts receivable supported by letters of
credit (in form and substance acceptable to Lender), minus (b) the face amount
of outstanding letters of credit (including drawn but unreimbursed letters of
credit, minus (c) the Credit Card Sublimit. Eligible accounts receivable
shall include, but not be limited to, those accounts outstanding less than 90
days from the date of invoice, excluding government, non-approved foreign,
contra, and intercompany accounts; and exclude accounts wherein 50% or more
of the account is outstanding more than 90 days from the date of invoice.
Except for Northern Telecom, which shall be allowed a concentration of up to
40% of total accounts, any account which alone exceeds 25% of total accounts
will be ineligible to the extend said account exceeds 25% of total accounts.
Also exclude any credit balances which are aged past 90 days. Also ineligible
are any accounts which Lender in its sole judgment excludes for valid credit
reasons.
LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement,
Lender agrees to issue or cause to be issued letters of credit for the
account of Borrower in an aggregate face amount not to exceed the lesser of
(i) $6,000,000.00 or the Borrowing Base formula minus (ii) the Credit Card
Sublimit, minus (iii) the then outstanding principal balance of the line of
credit facility; PROVIDED that the face amount of outstanding letters of
credit (including drawn but unreimbursed Letters of Credit) shall not in any
case exceed One Million and 00/100 Dollars ($1,000,000.00). Each such letter
of
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 6
credit shall have an expiry date no later than one hundred eighty (180) days
after the maturity date of the line of credit provided that Borrower's letter
of credit reimbursement obligation shall be secured by cash on terms
acceptable to Lender at any time after the maturity date if the term of the
Agreement is not extended by Lender. All such letters of credit shall be, in
form and substance, acceptable to Lender in its sole discretion and shall be
subject to the terms and conditions of Lender's form of application and
letter of credit agreement.
Borrower shall indemnify, defend and hold Lender harmless from any loss,
cost, expense or liability, including, without limitation, reasonable
attorneys' fees, arising out of or in connection with any letters of credit
agreement.
Borrower may request that Lender issue a letter of credit payable in a
currency other than United States Dollars. If a demand for payment is made
under any such letter of credit, Lender shall treat such demand as an Advance
to Borrower of the equivalent of the amount thereof (plus cable charges) in
United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable transfer to
the country of which it is the currency.
Upon the issuance of any letter of credit payable in a currency other than
United States Dollars, Lender shall create a reserve (the "Letter of Credit
Reserve") under the line of credit for letters of credit against fluctuations
in currency exchange rates, in an amount equal to ten percent (10%) of the
face amount of such letter of credit. The amount of such reserve may be
amended by Lender from time to time to account for fluctuations in the
exchange rate. The availability of funds under the line of credit shall be
reduced by the amount of such reserve for so long as such letter of credit
remains outstanding.
CREDIT CARD SUBLIMIT. Subject to the terms and conditions of the Loan
Agreement, Lender agrees to issue or cause to be issued corporate credit
cards for the executives of Borrower in an aggregate credit limit not to
exceed One Hundred Thousand and 00/100 Dollars ($100,000.00). Such aggregate
credit limit shall reduce the amount otherwise available to be borrowed under
the line of credit, by a factor of 1.25 (i.e. in an amount equal to
$125,000.00) (the "Credit Card Sublimit"). All such credit cards shall be
subject to Lender's forms, in its sole discretion.
LOAN ADVANCES. Lender, in its discretion, will make Loans to Borrower, in
amounts determined by Lender, up to the amounts defined and permitted in this
Agreement and the Related Documents, including, but not limited to the Note
or Notes executed by Borrower (the "Credit Limit"). Borrower's responsible
for monitoring the total amount of Loans and Indebtedness outstanding from
time to time, and Borrower shall not permit the same, at any time, to exceed
the Credit Limit. If, at any time, the total of all outstanding Loans and
Indebtedness exceed the Credit Limit. Borrower shall immediately pay the
amount of the excess to Lender, without notice or demand.
AMENDMENT AND RESTATEMENT. This Amended and Restated Business Loan Agreement
amends and restates the terms and conditions of that certain Business Loan
Agreement dated May 21, 1992, as amended. The indebtedness continues to be
secured by, among other things a Commercial Security Agreement dated March
21, 1996, executed by Borrower.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 7
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
DEFAULT RATE. Following an Event of Default, including failure to pay upon
final maturity, Lender, at its option, may de one or both of the following:
(i) increase the variable interest rate on the Note to five (5) percentage
points over the otherwise effective interest rate, and (ii) add any unpaid
accrued interest to the principal and such sum shall bear interest therefrom
until paid in full.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Santa Clara County, the State of California. Lender and
Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against
the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of the
persons signing below is responsible for all obligations in this
Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower
or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights granted
under the participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
BORROWER INFORMATION. Borrower consents to the release of
information on or about Borrower by Lender in accordance with any court
order, law or regulation and in response to credit inquiries concerning
Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and
Lender is a debtor and creditor relationship and not fiduciary in
nature, nor is the relationship to be construed as creating any
partnership or joint venture between Lender and Borrower. Borrower is
exercising its own judgment with respect to Borrower's business. All
information supplied to Lender is for Lender's protection only and no
other party is entitled to rely on such information. There is no duty
for Lender to review, inspect, supervise, or inform Borrower of any
matter with respect to Borrower's business. Lender and Borrower intend
that Lender may reasonably rely on all information supplied by Borrower
to Lender, together with all representations and warranties given by
Borrower to Lender, without investigation or confirmation by Lender and
that any investigation or failure to investigate will not diminish
Lender's right to so rely.
NOTICE OF LENDER'S BREACH. Borrower must notify Lender in writing
of any breach of this Agreement or the Related Documents by Lender and
any other claim, cause of action or offset against Lender within thirty
(30) days after the occurrence of such breach or after the accrual of such
claim, cause of action or offset. Borrower waives any claim, cause of
action or offset for which notice is not given in accordance with this
paragraph. Lender is entitled to rely on any failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender
harmless from and against all claims, costs, expenses, losses, damages,
and liabilities of any kind, including but not limited to attorneys'
fees and expenses, arising out of any matter relating directly or
indirectly to the indebtedness, whether resulting from internal disputes
of the Borrower, disputes between Borrower and any Guarantor, or whether
involving any third parties, or out of any other matter whatsoever
related to this Agreement or the Related Documents, but excluding any
claim or liability which arises as a direct result of Lender's gross
negligence or willful misconduct. This indemnity shall survive full
repayment and satisfaction of the indebtedness and termination of this
Agreement.
COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts, taken together, shall constitute
one and the same Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of
Lender's expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with the
Loans made pursuant to this Agreement. Lender may pay someone else to
help collect the Loans and to enforce this Agreement, and Borrower will
pay that amount. This includes, subject to any limits under applicable
law. Lender's attorneys' fees and Lender's legal expenses, whether or
not there is a lawsuit, including attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
NOTICES. All notices required to be given under this Agreement
shall be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice
to the other parties, specifying that the purpose of the notice is to
change the party's address. To the extent
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AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 8
permitted by applicable law, if there is more than one Borrower, notice
to any Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified to
be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context
of any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by
or on behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered
to have been relied upon by Lender and will survive the making of the
Loan and delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance
of this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Agreement.
No prior waiver by Lender, nor any course of dealing between Lender and
Borrower, or between Lender and any Grantor, shall constitute a waiver
of any of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in
any instance shall not constitute continuing consent in subsequent
instances where such consent is required, and in all cases such consent
may be granted or withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AMENDED AND
RESTATED BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF FEBRUARY 11, 1997.
BORROWER:
Spectrian Corporation
By: /s/ Garrett A. Garrettson
------------------------------
Name: Garrett A. Garrettson
----------------------------
Title: President and CEO
---------------------------
LENDER:
Silicon Valley Bank
By: /s/ Michael J. Rose
-----------------------------
Name: Michael J. Rose
---------------------------
Title: Vice President
--------------------------
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
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BORROWER: SPECTRIAN CORPORATION LENDER: SILICON VALLEY BANK
350 WEST JAVA DRIVE 3003 TASMAN DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
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<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount: $6,000,000.00 Initial Rate: 8.250% Date of Note: February 11, 1997
</TABLE>
PROMISE TO PAY. Spectrian Corporation ("Borrower") promises to pay to Silicon
Valley Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Six Million & 00/100 Dollars ($6,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date
of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 31, 1997. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
February 28, 1997, and all subsequent interest payments are due on the same day
of each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each time the prime rate is adjusted by
Silicon Valley Bank. The Index currently is 8.250% per annum. The interest
rate to be applied to the unpaid principal balance of this Note will be at a
rate equal to the index, resulting in an initial rate of 8.250% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 5.000 percentage points over the index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Santa Clara
County, the State of California. Lender and Borrower hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. (Initial Here /s/ GAG) This Note shall
be governed by and construed in accordance with the laws of the State of
California.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds received from
its business activities in accounts maintained by Borrower at Silicon Valley
Bank. Borrower hereby requests and authorizes Lender to debit any of Borrower's
accounts with Lender, specifically, without limitation, Account Number
___________, for payments of principal and interest due on the loan and any
other obligations owing by Borrower to Lender. Lender will notify Borrower of
all debits which Lender makes against Borrower's accounts. Any such debits
against Borrower's accounts in no way shall be deemed a set-off.
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT. This Note is subject to and shall
be governed by all the terms and conditions of the Amended and Restated Business
Loan Agreement of even date herewith, between Lender and Borrower, as such
agreement may be amended from time to time, which Amended and Restated Business
Loan Agreement is incorporated herein by reference.
AMENDMENT AND RESTATEMENT. This Amended and Restated Promissory Note amends and
restates the terms and conditions of the obligations of Borrower under that
certain Promissory Note dated May 21, 1992, as amended (the "Original Note")
from Borrower to Lender. Nothing contained in
<PAGE>
AMENDED AND RESTATED
02-11-1997 PROMISSORY NOTE Page 2
(Continued)
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this Amended and Restated Promissory Note shall be deemed to create or represent
the issuance of new indebtedness or exchange by Borrower of the Original Note
for a new Promissory Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Spectrian Corporation
By: /s/ Garrett A. Garrettson
-------------------------------------
Name: Garrett A. Garrettson , Title: President and CEO
-------------------------------- ----------------------
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<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
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BORROWER: SPECTRIAN CORPORATION LENDER: SILICON VALLEY BANK
350 WEST JAVA DRIVE 3003 TASMAN DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
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LOAN TYPE. This is a Variable Rate (at SILICON VALLEY BANK PRIME RATE, making
an initial rate of 8.250%), Revolving Line of Credit Loan to a Corporation for
$6,000,000.00 due on July 31, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for (please
initial):
/ / _____ Personal, Family, or Household Purposes or Personal Investment.
/x/ _____ Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $6,000,000.00 as follows:
Amount paid to Borrower directly: $0.00
Undisbursed Funds: $6,000,000.00
-------------
Note Principal: $6,000,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED FEBRUARY 11, 1997.
BORROWER:
Spectrian Corporation
By: /s/ Garrett A. Garrettson
-------------------------------------
Name: Garrett A. Garrettson , Title: President and CEO
-------------------------------- ----------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROMISSORY NOTE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BORROWER: SPECTRIAN CORPORATION LENDER: SILICON VALLEY BANK
350 WEST JAVA DRIVE 3003 TASMAN DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $4,000,000.00 INITIAL RATE: 9.000% DATE OF NOTE:
FEBRUARY 11, 1997
PROMISE TO PAY. Spectrian Corporation ("Borrower") promises to pay to Silicon
Valley Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Four Million & 00/100 Dollars ($4,000,000.00)
or so much as may be outstanding, together with interest on the unpaid
outstanding principal balance of each advance. Interest shall be calculated from
the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
The Draw Period shall begin as of this date and shall end on October 31,
1997 (the "Draw Period"). Borrower will pay regular monthly payments of all
accrued unpaid Interest due as of each payment date, beginning February 28,
1997 and all subsequent Interest payments will be due on the last day of
each month thereafter. The outstanding principal balance on October 31,
1997 will be payable in thirty-six (36) even payments of principal, plus
interest due as of each payment date, beginning November 30, 1997 and all
subsequent payments of principal and interest will be due on the last day
of each month thereafter. The final payment, due on October 31, 2000, will
be for all outstanding principal plus all accrued interest not yet paid.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may
or may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each time the prime rate
is adjusted by Silicon Valley Bank. THE INDEX CURRENTLY IS 8.250% PER ANNUM.
THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE
WILL BE AT A RATE OF 0.750 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN
INITIAL RATE OF 9.000% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related
Documents. (d) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (e) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies
or any of the other events described in this default section occurs with
respect to any guarantor of this Note. (h) A material adverse change occurs
in Borrower's financial condition, or Lender believes the prospect of payment
or performance of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Upon Borrower's
failure to pay all amounts declared due pursuant to this section, including
failure to pay upon final maturity, Lender, at its option, any also, if
permitted under applicable law, increase the variable interest rate on this
Note to 5.750 percentage points over the Index. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SANTA
CLARA COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
LINE OF CREDIT. This Note evidences a straight line of credit through the draw
period. Once the total amount of principal has been advanced, Borrower is not
entitled to further loan advances. Advances under this Note, as well as
directions for payment from Borrower's accounts, may be requested orally or in
writing by Borrower or by an authorized person. Lender may, but need not,
require that all oral requests be confirmed in writing. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT. This Note is governed by all
the terms and conditions of the Amended and Restated Business Loan Agreement
of even date herewith, between Borrower and Lender, as such agreement may be
amended from time to time, which Amended and Restated Business Loan Agreement
is incorporated herein by this reference.
PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of Twenty
Thousand and 00/100 Dollars ($20,000.00) plus all
<PAGE>
PROMISSORY NOTE PAGE 2
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
out-of-pocket expenses.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds received
from its business activities in accounts maintained by Borrower at Silicon
Valley Bank. Borrower hereby requests and authorizes Lender to debit any of
Borrower's accounts with Lender, including, without limitation, Account
Number ___________ for payments of principal and interest due on the loan and
any other obligations owing from Borrower to Lender. Lender will notify
Borrower of all debits which Lender makes against Borrower's accounts. Any
such debits against Borrower's accounts in no way shall be deemed a set-off.
ADVANCE RATE. At any time from the date hereof through the end of the Draw
Period, Borrower may request advances (each an "Advance" and collectively, the
"Advances") from Lender in an aggregate amount not to exceed the principal
amount of the Note. To evidence the Advances, Borrower shall deliver to Lender,
at the time of each Advance request, an invoice for the equipment to be
purchased. The Advances shall only be used to purchase equipment between
November 1, 1996 and October 31, 1997 and shall not exceed one hundred percent
(100%) of the invoice amount approved by Lender, excluding taxes, shipping and
installation expense.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon perfect Lender's security interest
in the collateral; and take any other action deemed necessary by Lender without
the consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL OF THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
SPECTRIAN CORPORATION
BY: /s/ Garrett A. Garrettson
------------------------------
NAME: Garrett A. Garrettson, TITLE: President and CEO
---------------------- -------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BORROWER: SPECTRIAN CORPORATION LENDER: SILICON VALLEY BANK
350 WEST JAVA DRIVE 3003 TASMAN DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN TYPE. This is a Variable Rate (0.750% over SILICON VALLEY BANK PRIME
RATE, making an initial rate of 9.000%), Non-Revolving Line of Credit Loan to
a Corporation for $4,000,000.00 due on October 31, 2000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
/ / Personal, Family, or Household Purposes or Personal Investment.
/X/ Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Purchase of new
equipment.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will
be disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $4,000,000.00 as follows:
Undisbursed Funds: $4,000,000.00
-------------
Note Principal: $4,000,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid In Cash: $20,000.00
$20,000.00 Loan Fees
Other Charges Paid In Cash: $35.00
$35.00 UCC Search
-------------
Total Charges Paid In Cash: $20,035.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT
AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO
LENDER. THIS AUTHORIZATION IS DATED FEBRUARY 11, 1997.
BORROWER:
Spectrian Corporation
By: /s/ Garrett A. Garrettson
------------------------------------------------
Name: Garrett A. Garrettson, Title: President and CEO
----------------------- -------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CORPORATE RESOLUTION TO BORROW
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BORROWER: SPECTRIAN CORPORATION LENDER: SILICON VALLEY BANK
350 WEST JAVA DRIVE 3003 TASMAN DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF SPECTRIAN CORPORATION
(THE "CORPORATION"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of California as a
corporation for profit, with its principal office at 350 West Java Drive,
Sunnyvale, CA 94089, and is duly authorized to transact business in the State
of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on 2/5/97, at which a quorum was present and voting, or by
other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees,
or agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
- ----- --------- -----------------
Garrett A. Garrettson President and CEO x /s/ Garrett A. Garrettson
- --------------------- ----------------- ---------------------------
Steven J. Blair Acting CFO/Secy x /s/ Steven J. Blair
- --------------------- ----------------- ---------------------------
acting for and on behalf of the Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Lender"), on such terms as may be agreed upon between the Corporation
and Lender, such sum or sums of money as in their judgment should be
borrowed, without limitation.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Lender, and also to execute and
deliver to Lender one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
notes, any portion of the notes, or any other evidence of credit
accomodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment
of any loans or credit accomodations so obtained, any promissory notes
so executed (including any amendments to or modifications, renewals,
and extensions of such promissory notes), or any other or further
indebtedness of the Corporation to lender at any time owing, however
the same may be evidenced, any property now or hereafter belonging to
the Corporation or in which the Corporation now or hereafter may have
an interest, including without limitation all real property and all
personal property (tangible or intangible) of the Corporation. Such
property may be mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered at the time such loans are obtained or such
indebtedness is incurred, or at any other time or times, and may be
either in addition to or in lieu of any property theretofore mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
required by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of
them, are given; and also to execute and deliver to Lender any other
written instruments, any chattel paper, or any other collateral, of any
kind or nature, which Lender may deem necessary or proper in connection
with or pertaining to the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause
such proceeds to be credited to the account of the Corporation with
Lender, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, INCLUDING AGREEMENTS WAIVING THE
RIGHT TO A TRIAL BY JURY, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these Resolutions and performed prior to the passage of these
Resolutions are hereby ratified and approved, that these Resolutions
shall remain in full force and effect and Lender may rely on these
Resolutions until written notice of their revocation shall have been
delivered to and received by Lender. Any such notice shall not affect
any of the Corporation's agreements or commitments in effect at the
time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in
writing at Lender's address shown above (or such other addresses as
Lender may designate from time to time) prior to any (a) change in the
name of the Corporation, (b) change in the assumed business name(s) of
the Corporation, (c) change in the management of the Corporation, (d)
change in the authorized signer(s), (e) conversion of the Corporation
to a new or different type of business entity, or (f) change in any
other aspect of the Corporation that directly or indirectly relates to
any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been
notified.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Lender's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amounts
as, in the judgment of an authorized signer or signers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock
for such class, series and number and on such terms, as an officer of
Borrower shall deem appropriate.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as
the case may be, and occupy the positions set opposite their respective
names; that the foregoing Resolutions now stand of record on the books
of the Corporation; and that the Resolutions are in full force and
effect and have not been modified or revoked in any manner whatsoever. The
Corporation has no corporate seal, and therefore, no seal is affixed to
this certificate.
<PAGE>
02-11-1997 CORPORATE RESOLUTION T0 BORROW Page 2
(Continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, I have hereunto set my hand on February 11, 1997 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
x /s/ Steven J. Blair
-------------------------------
x
-------------------------------
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Spectrian Corporation
LOAN OFFICER: Mike Rose
DATE: February 11, 1997
Loan Fee -- pd up
UCC Search 35.00
TOTAL FEE DUE $35.00
------------- ------
Please indicate the method of payment:
{ } A check for the total amount is attached.
{X} Debit DDA# ____________ for the total amount.
{ } Loan proceeds
By: /s/ PO Monahan
- ----------------------
(Authorized Signer)
/s/ Michael Rose 3/3/97
- ------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
BORROWING BASE CERTIFICATE
COLLATERAL SCHEDULE
- -------------------------------------------------------------------------------
Borrower: Spectrian Corporation Lender: Silicon Valley Bank
350 West Java Drive 3003 Tasman Drive
Sunnyvale, CA 94089 Santa Clara, CA 95054
COMMITMENT AMOUNT: $6,000,000.00
- -------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
- -------------------
1. Accounts Receivable Book
Value as of $
-------- -------------
Non LC Supported LC Supported
a. Amounts over 90 days $ $
---------------- --------------
b. Balance of 50% over 90 $ $
day accounts ---------------- --------------
c. Credit balances over $ $
90 days ---------------- --------------
d. Non Approved Foreign $ $
Accounts ---------------- --------------
e. Governmental Accounts $ $
---------------- --------------
f. Contra Accounts $ $
---------------- --------------
g. Intercompany/Employee $ $
Accounts ---------------- --------------
h. Excess 25% Concentration* $ $
---------------- --------------
i. Other (please explain on $ $
reverse) ---------------- --------------
2. TOTAL ACCOUNTS RECEIVABLE $ $
DEDUCTIONS ---------------- --------------
3. Eligible Accounts (Line #1 $ $
minus line #2 ---------------- --------------
4(a). Funds Available (Advance $
Rate 80% Non LC Supported) ----------------
4(b). Funds Available (Advance $
-------------
4(c). Funds Available (4(a) plus
4(b)) $
-------------
* 40% Concentration allowed for
Northern Telecom
OTHER COLLATERAL (Explain: NONE)
- ----------------
5. Other Collateral Value as of _______ $
--------------
6. Net value of Other Collateral (____%) $
(ineligible) --------------
7. Funds available: The lesser of $______ or $
_______% of Line #6 --------------
LOAN ACTIVITY
- -------------
8. Total Funds Available (Lesser Line #4(c) or $
$6,000,000.00) --------------
9. Loan Balance as of ______________ $
--------------
10. Outstanding under Sublimits (e.g. L/C, $
Credit Card) as of _________ --------------
11. RESERVE POSITION (Line #8 minus Line #9 and $
Line #10) --------------
The undersigned represents and warrants that as of __________, 19_____, the
foregoing is true, complete and correct, and that the information reflected in
this Collateral Schedule complies with the representations and warranties set
forth in the AMENDED AND RESTATED BUSINESS LOAN AGREEMENT, as may be amended
from time to time, between the undersigned and Silicon Valley Bank February 11,
1997.
COMMENTS:
----------------------------
BANK USE ONLY
Received By:
---------------
Date:
--------------
Reviewed By:
--------------
Date:
-----------------
----------------------------
SPECTRIAN CORPORATION
By:
------------------------
Name:
----------------------
Title:
---------------------
<PAGE>
COMPLIANCE CERTIFICATE
To: SILICON VALLEY BANK
Credit Department
3003 Tasman Drive
Santa Clara, CA 95054
From: SPECTRIAN CORPORATION
The undersigned authorized Officer of SPECTRIAN CORPORATION, hereby certifies
that in accordance with the terms and conditions of the Amended and Restated
Business Loan Agreement the borrower is in complete compliance for the period
ending __________________ of all required conditions and terms except as
noted below. Attached herewith are the required documents supporting the
above certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistent from one period to the next except as explained in an accompanying
letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
10K, 10Q and 8K + CC Within five (5) days after filing w/SEC YES/NO
A/R, A/P + BBC Monthly, within 20 days* YES/NO
*If line of credit is at zero ($0.00) balance, then quarterly, within 20 days.
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
MAINTAIN ON A QUARTERLY BASIS (UNLESS OTHERWISE NOTED):
Minimum Quick Ratio 1.25:1.00 ____:1.00 YES/NO
Max. Debt/TNW 1.00:1.00 ____:1.00 YES/NO
Min. Tangible Net Worth $38,000,000.00 $__________ YES/NO
Min. Liquidity 2.00 X outstanding
term loan balance $__________ YES/NO
Profitability Quarterly basis $__________ YES/NO
With allowance for one quarterly loss not to
exceed $750,000.00 in any fiscal year.
COMMENTS REGARDING EXCEPTIONS:
For purposes of the foregoing, Liquidity shall be defined as unrestricted
cash (and equivalents) plus the net available under Borrower's accounts
receivable line of credit facility.
Very truly yours,
SPECTRIAN CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
______________________________
BANK USE ONLY
RECEIVED BY: _____________
DATE: ________________
REVIEWED BY: _____________
COMPLIANCE STATUS: YES/NO
______________________________
<PAGE>
EXHIBIT 11.1
SPECTRIAN CORPORATION AND SUBSIDIARY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 28 JUNE 29,
1997 1996
--------- ---------
<S> <C> <C>
Net income (loss)............................................................................ $ 6,395 $ (5,314)
--------- ---------
--------- ---------
Weighted average number of shares:
Primary:
Common stock............................................................................... 8,301 8,039
Common stock equivalents--stock options.................................................... 616 n/a*
--------- ---------
Total primary shares..................................................................... 8,917 8,039
--------- ---------
--------- ---------
Fully diluted:
Common stock............................................................................... 8,301 8,039
Common stock equivalents--stock options.................................................... 1,089 n/a*
--------- ---------
Total fully diluted shares............................................................... 9,390 8,039
--------- ---------
--------- ---------
Net income (loss) per share--primary......................................................... $ 0.72 $ (0.66)
--------- ---------
--------- ---------
Net income (loss) per share--fully diluted................................................... $ 0.68 $ (0.66)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
* Due to the loss in this period, stock options outstanding would be
antidilutive and are therefore not included in the calculation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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</TABLE>
