<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
SPECTRIAN CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA (PRIOR TO PROPOSED 350 WEST JAVA DRIVE 77-0023003
REINCORPORATION) SUNNYVALE, CALIFORNIA 94089 (IRS Employer
DELAWARE (IF PROPOSED (408) 745-5400 Identification Number)
REINCORPORATION IS COMPLETED) (Address, including zip code,
(State or other jurisdiction and
of incorporation or telephone number, including
organization) area code, of Registrant's
principal executive offices)
</TABLE>
-------------------
BRUCE R. WRIGHT
EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND SECRETARY
SPECTRIAN CORPORATION
350 W. JAVA DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 745-5400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT P. LATTA, ESQ. ROBERT V. GUNDERSON, JR., ESQ.
CHRIS F. FENNELL, ESQ. JAY K. HACHIGIAN, ESQ.
Wilson Sonsini Goodrich & Rosati Gunderson Dettmer Stough Villeneuve
Professional Corporation Franklin & Hachigian, LLP
650 Page Mill Road 155 Constitution Drive
Palo Alto, California 94304 Menlo Park, California 94025
(415) 493-9300 (415) 321-2400
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share(3)...... 2,300,000 $45.25 $104,075,000 $31,538
</TABLE>
(1) Includes 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the registration
fee. The estimate is made pursuant to Rule 457(o) of the Securities Act of
1933, as amended.
(3) Includes Preferred Share Purchase Rights which, prior to the occurrence of
certain events, will not be exercisable or evidenced separately from the
Common Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JULY 25, 1997
2,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
THE COMPANY'S COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SPCT." ON JULY 24, 1997, THE LAST SALE PRICE OF THE COMMON STOCK AS
REPORTED ON THE NASDAQ NATIONAL MARKET WAS $44 7/8 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
--------------------- ----------------------- -----------------------
<S> <C> <C> <C>
PER SHARE.............................. $ $ $
TOTAL (3).............................. $ $ $
</TABLE>
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $500,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 300,000
ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF THE
UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP, COUNSEL FOR
THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1997, AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW
YORK, N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, ANY SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE HEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY
SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Incorporation of Certain Documents by Reference......... 2
Prospectus Summary...................................... 3
The Company............................................. 4
Risk Factors............................................ 5
Use of Proceeds......................................... 15
Dividend Policy......................................... 15
Price Range of Common Stock............................. 15
Capitalization.......................................... 16
Selected Consolidated Financial Data.................... 17
<CAPTION>
PAGE
-----
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 18
Business................................................ 27
Management.............................................. 40
Description of Capital Stock............................ 43
Underwriters............................................ 47
Legal Matters........................................... 48
Experts................................................. 48
Additional Information.................................. 48
</TABLE>
-------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") are incorporated herein by
reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997; (2) the Company's Definitive Proxy Statement on Schedule
14A and Notice of Annual Meeting of Stockholders filed with the Commission on
June 26, 1997; (3) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997 and (4) the description of the Company's Preferred Share
Purchase Rights contained in the Registration Statement on Form 8-A filed with
the Commission on January 17, 1997.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Common Stock
hereunder shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of the filing of such reports and documents. The
Company hereby undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon
written or oral request of such person a copy of any or all of the foregoing
documents incorporated herein by reference (exclusive of exhibits, unless such
exhibits are specifically incorporated by reference into such documents).
Requests for such documents should be submitted in writing to the Corporate
Secretary at the corporate headquarters of the Company at 350 West Java Drive,
Sunnyvale, California 94089, by telephone at (408) 745-5400 or by electronic
mail at [email protected].
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.
-------------------
Spectrian, The Power in Wireless Communications and the Spectrian logo are
registered trademarks of Spectrian Corporation. All other trademarks or service
marks appearing in this Prospectus are the property of their respective holders.
-------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS, INCLUDING
FINANCIAL INFORMATION, SHARE AND PER SHARE DATA (I) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) REFLECTS THE COMPLETION OF THE
PROPOSED REINCORPORATION OF THE COMPANY AS A DELAWARE CORPORATION. IF THE
PROPOSED REINCORPORATION OF THE COMPANY AS A DELAWARE CORPORATION IS NOT
CONSUMMATED, THE COMPANY WILL REMAIN A CALIFORNIA CORPORATION. SEE "THE COMPANY"
AND "DESCRIPTION OF CAPITAL STOCK."
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDER-
WRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND
PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITERS."
-------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. CERTAIN
STATEMENTS SET FORTH BELOW CONSTITUTE "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 (COLLECTIVELY THE "REFORM
ACT"). SEE DISCUSSION OF FORWARD LOOKING STATEMENTS ON PAGE 5 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
THE COMPANY
Spectrian Corporation designs, manufactures and markets highly linear radio
frequency ("RF") power amplifiers that address the needs of wireless
infrastructure equipment suppliers and their service provider customers.
Spectrian's amplifiers deliver high linearity, are produced cost-effectively in
volume, support multiple transmission standards and demonstrate high field
reliability. These attributes enable service providers to improve spectrum
efficiency resulting in reduced cost per subscriber, to rapidly deploy new
services and to offer enhanced quality and reliability of service.
Spectrian's amplifiers achieve high linearity through the Company's
expertise in RF semiconductor technology, solid state device physics, thermal
and mechanical packaging design, advanced circuit design, amplifier linear
correction technologies, advanced signal processing techniques, control systems
and computer aided design and modeling. The Company has pursued a strategy of
vertical integration of its design and manufacturing processes, from design and
development of the semiconductor die through assembly and automated testing
using proprietary software and systems that minimize manufacturing cycle times.
This strategy results in shortened time to market, reduced unit costs, increased
quality and reliability, and rapid achievement of volume production.
The Company's products are deployed in cellular, PCS and WLL networks
worldwide and support every major domestic and international transmission
standard, including the Advanced Mobile Phone Services ("AMPS") and Total Access
Communications System ("TACS") analog standards, and the Time Division Multiple
Access ("TDMA"), Code Division Multiple Access ("CDMA") and Global System for
Mobile Communications ("GSM") digital standards. The Company's customers include
large wireless OEMs, including Northern Telecom, Nortel Matra, LG Information
and Communications Limited ("LGIC") and QUALCOMM, as well as emerging
manufacturers including Harris, Tellabs and Watkins-Johnson.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.......................................... 2,000,000 shares(1)
Common Stock to be outstanding after the offering............. 10,357,157 shares(2)
Use of proceeds............................................... For general corporate purposes, including working capital,
capital expenditures and facilities expansion
Nasdaq National Market symbol................................. SPCT
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, -----------
----------------------------------------------------- JUNE 29,
1993 1994 1995 1996 1997 1996
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(3):
Revenues........................................................ $ 24,458 $ 37,859 $ 62,478 $ 72,113 $ 88,252 $ 9,923
Operating income (loss)......................................... 2,262 118 5,252 4,760 (3,599) (5,240)
Income (loss) before income taxes............................... 2,027 (549) 5,643 5,649 (3,991) (5,314)
Net income (loss)(4)............................................ 116 (549) 5,473 5,480 (3,991) (5,314)
Net income (loss) per share(4)(5)............................... $ 0.02 $ (0.41) $ 0.74 $ 0.67 $ (0.49) $ (0.66)
Shares used in computing per share amounts(5)................... 4,849 1,325 7,435 8,193 8,152 8,039
<CAPTION>
JUNE 28,
1997
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(3):
Revenues........................................................ $ 45,766
Operating income (loss)......................................... 6,013
Income (loss) before income taxes............................... 7,524
Net income (loss)(4)............................................ 6,395
Net income (loss) per share(4)(5)............................... $ 0.72
Shares used in computing per share amounts(5)................... 8,917
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------------------
ACTUAL AS ADJUSTED(6)
--------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(3):
Working capital...................................................................................... $ 32,122 $ 116,885
Total assets......................................................................................... 84,547 169,310
Long term debt, net of current portion............................................................... 6,705 6,705
Stockholders' equity................................................................................. 51,131 135,894
</TABLE>
- ------------
(1) Assumes the Underwriters' over-allotment option to purchase 300,000 shares
is not exercised. See "Underwriters."
(2) Based on the number of shares of Common Stock outstanding as of June 28,
1997. Excludes (i) 1,780,470 shares of Common Stock issuable upon exercise
of options outstanding under the Company's 1992 Stock Plan and 1994 Director
Option Plan (collectively, the "Stock Plans") at June 28, 1997 at a weighted
average exercise price of $14.61 per share and (ii) 140,811 shares of Common
Stock reserved for future grant or issuance under the Stock Plans and the
Company's 1994 Employee Stock Purchase Plan. In addition, the Company is
seeking shareholder approval for a 610,000 share increase in the number of
shares reserved for issuance under the Stock Plans and the 1994 Employee
Stock Purchase Plan at the Company's Annual Meeting of Shareholders
currently scheduled to be held on July 31, 1997. See "Capitalization."
(3) The Company's fiscal year ends on March 31 and each of the Company's first
three fiscal quarters ends on the Saturday nearest the end of the respective
calendar quarter.
(4) During the fiscal year ended March 31, 1993 the Company discontinued its
military contract manufacturing operation. Income from continuing operations
for the year ended March 31, 1993 was $2,027,000.
(5) See Note 4 of Notes to Condensed Consolidated Financial Statements contained
in the Company's quarterly report on Form 10-Q for the three months ended
June 28, 1997, incorporated herein by reference, for information concerning
the per share computations. Fully diluted per share amounts were not
required to be disclosed as these amounts were not materially different from
the primary per share amounts for all periods presented except for the three
months ended June 28, 1997, for which fully diluted net income per share was
$0.68 and the number of shares used in computing fully diluted net income
per share was 9,390,000.
(6) As adjusted to reflect the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $44 7/8 per share and
after deducting estimated underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
Spectrian Corporation designs, manufactures and markets highly linear radio
frequency ("RF") power amplifiers that address the needs of wireless
infrastructure equipment suppliers and their service provider customers.
The market for wireless communications services has grown significantly
during the past decade fueled by decreasing prices for wireless handsets, a more
favorable regulatory environment, increasing competition among service providers
and a greater availability of services and RF spectrum. The continuing growth of
the wireless communications market has resulted in the crowding of transmissions
within the available RF spectrum. Because the radio frequencies assigned to
transmissions are fixed, service providers are seeking new methods of more
efficiently using the RF spectrum in order to increase capacity. Wireless
carriers' ability to more effectively manage scarce spectrum resources and
accommodate a larger number of subscribers is partly dependent on their ability
to broadcast signals with high "linearity." Linearity is the degree to which
amplified signals remain within their prescribed band of spectrum with low
distortion or interference from adjacent channels. In current systems, the RF
power amplifier is generally the source of the greatest amount of signal
distortion. Consequently, obtaining RF power amplifiers with high linearity is
critical to a service provider's ability to reduce interference levels and
thereby increase system capacity.
Spectrian's amplifiers achieve high linearity through the Company's
expertise in RF power semiconductor technology, solid state device physics,
thermal and mechanical packaging design, advanced circuit design, amplifier
linear correction technologies, advanced signal processing techniques, control
systems and computer aided design and modeling. The Company has pursued a
strategy of vertical integration of its design and manufacturing processes, from
design and development of the semiconductor die through assembly and automated
testing with proprietary software and systems that minimize manufacturing cycle
times. This strategy results in shortened time to market, reduced unit costs,
increased quality and reliability, and rapid achievement of volume production.
The Company's products are deployed in cellular, PCS and WLL networks
worldwide and support every major domestic and international transmission
standard, including the Advanced Mobile Phone Services ("AMPS") and Total Access
Communications System ("TACS") analog standards, and the Time Division Multiple
Access ("TDMA"), Code Division Multiple Access ("CDMA") and Global System for
Mobile Communications ("GSM") digital standards. The Company's customers include
large wireless OEMs, including Northern Telecom, Nortel Matra, LG Information
and Communications Limited and QUALCOMM, as well as emerging manufacturers
including Harris, Tellabs and Watkins-Johnson.
The Company was incorporated in California in 1984 under the name Microwave
Modules & Devices, Inc. and changed its name to Spectrian Corporation in 1992.
Pursuant to its Definitive Proxy Statement on Schedule 14A dated June 26, 1997,
the Company is seeking the approval of its shareholders to reincorporate into
Delaware. Should the Company's shareholders approve the proposal at the
Company's Annual Meeting of Shareholders currently scheduled to be held on July
31, 1997, the Company intends to complete the reincorporation through a merger
with and into its wholly-owned subsidiary, Spectrian Corporation, a Delaware
corporation, prior to the completion of this offering. Unless the context
otherwise requires, references in this Prospectus to "Spectrian" and the
"Company" refer to Spectrian Corporation, a California corporation, and to its
anticipated successor, Spectrian Corporation, a Delaware corporation. If the
proposed reincorporation of the Company as a Delaware corporation is not
consummated, the Company will remain a California corporation. See "Description
of Capital Stock." The Company's principal executive offices are located at 350
W. Java Drive, Sunnyvale, California 94089, and its telephone number at that
address is (408) 745-5400. The Company's homepage can be located on the Internet
at http:\\www.spectrian.com. Information contained on the Company's Web site
does not constitute part of this Prospectus.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED BY
THIS PROSPECTUS. WHEN USED IN THIS PROSPECTUS, THE WORDS "EXPECTS,"
"ANTICIPATES" AND "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
RISKS DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS. SUCH STATEMENTS AND
DISCUSSIONS CONTAIN FORWARD LOOKING INFORMATION WITHIN THE MEANING OF THE REFORM
ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD
LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.
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 Limited ("Northern Telecom"), Nortel Matra
Communications ("Nortel Matra"), in which Northern Telecom has an equity
interest, 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 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
5
<PAGE>
effect on the Company's business, financial condition and results of operations.
See "Business--OEM Customers, Sales and Marketing."
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. There can be no assurance
that the Company will not experience such fluctuations in the future. See
"Business--OEM Customers, Sales and Marketing." 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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
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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. See "Business--OEM Customers, Sales and
Marketing."
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
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. See "Business--OEM Customers, Sales and
Marketing," "--Manufacturing" and "--Research and Development."
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
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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 cessation of
operations. In addition, compliance with such regulations could require the
Company to acquire expensive remediation equipment or to incur substantial
expenses. See "Business--Manufacturing" and "--Facilities."
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. See "Business--Manufacturing."
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,
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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. See
"Business--Manufacturing."
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 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. See "Business-- Manufacturing."
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. See
"Business--OEM Customers, Sales and Marketing."
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
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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. See
"Business--Industry Background."
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 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. See "--Internal Amplifier Design and
Production Capabilities of OEMs."
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. See "Business--Competition."
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
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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. See "Business--Patents and Proprietary
Technology."
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 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. See "Business--Patents and Proprietary 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
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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
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. See "Business--Manufacturing."
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
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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. See "Business--Employees" and
"Management."
RISKS ASSOCIATED WITH POTENTIAL FUTURE ACQUISITIONS. The Company frequently
evaluates strategic opportunities available to it and may pursue acquisitions of
complementary products, technologies or businesses. While no material
acquisitions are currently being negotiated or planned, future acquisitions by
the Company may result in the diversion of management's attention from the
day-to-day operations of the Company's business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions by the Company have the
potential to result in dilutive issuances of equity securities, the incurrence
of additional debt, and amortization expenses related to goodwill and other
intangible assets that may materially adversely affect the Company's business,
financial condition and results of operations.
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. See
"Price Range of Common Stock."
DISCRETIONARY USE OF PROCEEDS OF THIS OFFERING. The Company has no current
specific plans for the use of the net proceeds of this offering. As a
consequence, the Company's management will retain broad discretion in the
allocation of these net proceeds. There can be no assurance that the proceeds
will be used in a manner that the stockholders deem optimal or that the proceeds
can or will be invested to yield a significant return. Upon the completion of
this offering, the Company will have more than $95 million of cash and cash
equivalents (assuming a public offering price of $44 7/8 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses), substantially all of which will be investment grade,
interest-bearing obligations for an indefinite period. See "Use of Proceeds."
ANTI-TAKEOVER EFFECT OF DELAWARE LAW; CERTAIN CHARTER AND BYLAWS PROVISIONS;
SHAREHOLDER RIGHTS PLAN; ISSUANCE OF PREFERRED STOCK. Certain provisions of the
Company's Certificate of Incorporation and Bylaws, such as advance notice
requirements for stockholder meeting proposals or director nominations, may have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price certain investors may be willing to pay in
the future for shares of the Company's Common Stock. Certain provisions of
Delaware law applicable to the Company could also delay or make more difficult a
merger, tender offer or proxy contest involving the Company, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met. In
addition, the Board of Directors of the Company adopted a Shareholder Rights
Plan in October 1996 (the "Rights Plan"). Pursuant to the Rights Plan, the Board
declared a dividend of one Preferred Stock Purchase Right per share of Common
13
<PAGE>
Stock (the "Rights") and each such Right has an exercise price of $126.00. The
Rights become exercisable upon the occurrence of certain events, including the
announcement of a tender offer or exchange offer for the Company's Common Stock
or the acquisition of a specified percentage of the Company's Common Stock by a
third party. The exercise of the Rights could have the effect of delaying,
deferring or preventing a change in control of the Company, including, without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of the Company's Common Stock. The Board of Directors has
the authority to issue up to 5,000,000 shares of undesignated Preferred Stock
and to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
shares of undesignated Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the Company's stockholders. For example, in connection with
the Company's Shareholder Rights Plan, the Board of Directors designated 20,000
shares of Preferred Stock as Series A Participating Preferred Stock although
none of such shares have been issued. The Preferred Stock could be issued with
voting, liquidation, dividend and other rights superior to those of the holders
of Common Stock. The issuance of Preferred Stock under certain circumstances
could have the effect of delaying, deferring or preventing a change in control
of the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon the completion of this offering, the
Company will have outstanding 10,357,157 shares of Common Stock, of which
10,344,731 shares will be freely tradable without restriction. For a period of
90 days from the date of this Prospectus, the Company's executive officers and
directors have agreed that without the prior written consent of Morgan Stanley &
Co. Incorporated they will not (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, lend, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer, or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into a swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, other than an
aggregate of 100,000 shares by all such executive officers and directors which
shall include no more than 30,000 shares by any such individual. Thereafter, all
shares can be sold in the public market subject to certain volume and other
restrictions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, upon completion of this offering, there will be
outstanding options to purchase a total of approximately 1,780,470 shares of the
Company's Common Stock under the Company's stock option plans. Sale of
substantial amounts of such shares in the public market or the prospect of such
sales could adversely affect the market price of the Company's Common Stock. The
Company has agreed, subject to certain exceptions, in the Underwriting Agreement
that, without the prior written consent of Morgan Stanley & Co. Incorporated, it
will not issue, offer, sell, grant options to purchase or otherwise dispose of
any of the Company's equity securities or any other securities convertible into
or exchangeable with the Company's Common Stock or other equity securities for a
period of 90 days after the first date that any shares of Common Stock are
released for sale in the offering. The lock-up agreements may be released at any
time as to all or any portion of the shares subject to such agreements at the
sole discretion of Morgan Stanley & Co. Incorporated. See "Shares Eligible for
Future Sale" and "Underwriters."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$84.8 million (approximately $97.6 million if the Underwriters' over-allotment
option is exercised in full), at an assumed public offering price of $44 7/8 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses. The Company expects to use approximately $15
million of the net proceeds for capital expenditures over the next twelve
months. The Company expects to use the remaining net proceeds of this offering
for general corporate purposes, including working capital and facilities
expansion. From time to time, the Company may use a portion of the net proceeds
to acquire businesses, products or technologies complementary to the Company's
current business, although it has no such commitments and no such acquisitions
are currently being negotiated or planned. Pending such uses, the Company
intends to invest funds in investment grade, interest-bearing obligations.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company is prohibited from paying cash dividends without the consent of certain
of its lenders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SPCT" since August 4, 1994. The following table sets forth for
the periods indicated the high and low sale prices for the Company's Common
Stock, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended March 31, 1996:
First Quarter.............................................................. $40 1/2 $26
Second Quarter............................................................. 51 1/4 33
Third Quarter.............................................................. 34 15 3/4
Fourth Quarter............................................................. 28 1/2 17
Fiscal Year Ended March 31, 1997:
First Quarter.............................................................. $25 1/2 $13
Second Quarter............................................................. 15 1/4 7
Third Quarter.............................................................. 13 7 3/8
Fourth Quarter............................................................. 14 3/8 7 5/8
Fiscal Year Ending March 31, 1998:
First Quarter.............................................................. $37 3/4 $10 3/4
Second Quarter (through July 24, 1997)..................................... 51 5/16 35 1/4
</TABLE>
On July 24, 1997, the last reported sale price of the Company's Common Stock
on the Nasdaq National Market was $44 7/8 per share. As of June 28, 1997 there
were approximately 282 holders of record of the Company's Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth on an unaudited basis the capitalization of
the Company as of June 28, 1997 and as adjusted to give effect to the sale by
the Company of 2,000,000 shares of Common Stock offered hereby at an assumed
public offering price of $44 7/8 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 28, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current portion of debt obligations.............................. $ 1,522 $ 1,522
--------- -----------
--------- -----------
Debt obligations, less current portion........................... $ 6,705 $ 6,705
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized;
none issued and outstanding.................................. -- --
Common Stock, $.001 par value; 20,000,000 shares authorized;
8,357,157 shares issued and outstanding, actual; 10,357,157
shares issued and outstanding, as adjusted(1)................ 8 10
Additional paid-in capital..................................... 55,657 140,418
Accumulated deficit............................................ (4,534) (4,534)
--------- -----------
Total stockholders' equity................................... 51,131 135,894
--------- -----------
Total capitalization....................................... $ 57,836 $ 142,599
--------- -----------
--------- -----------
</TABLE>
- ---------
(1) Based on the number of shares of Common Stock outstanding as of June 28,
1997. Excludes (i) 1,780,470 shares of Common Stock issuable upon exercise
of options outstanding under the Company's Stock Plans at June 28, 1997 at a
weighted average exercise price of $14.61 per share and (ii) 140,811 shares
of Common Stock reserved for future grant or issuance under the Stock Plans
and the Company's 1994 Employee Stock Purchase Plan. In addition, the
Company is seeking shareholder approval for a 610,000 share increase in the
number of shares reserved for issuance under the Stock Plans and the 1994
Employee Stock Purchase Plan at the Company's 1997 Annual Meeting of
Shareholders currently scheduled to be held on July 31, 1997.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five-year period ended March 31, 1997, are derived
from the consolidated financial statements of Spectrian Corporation and its
subsidiaries, which financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. The consolidated financial statements as of March 31,
1996 and 1997, and for each of the years in the three-year period ended March
31, 1997, and the report thereon, are incorporated by reference herein. The
selected consolidated financial data set forth below as of June 28, 1997 and for
the three months ended June 29, 1996 and June 28, 1997 were derived from
unaudited condensed consolidated financial statements of the Company, which are
incorporated by reference herein and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position at that date and results
of operations for those periods. The results for the three months ended June 28,
1997 are not necessarily indicative of the results for any future period. The
selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
incorporated by reference herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, -----------
----------------------------------------------------- JUNE 29,
1993 1994 1995 1996 1997 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues............................................ $ 24,458 $ 37,859 $ 62,478 $ 72,113 $ 88,252 $ 9,923
--------- --------- --------- --------- --------- -----------
Costs and expenses:
Cost of product sales............................. 14,796 22,154 39,068 45,355 65,322 8,491
Research and development.......................... 3,461 10,058 11,374 14,548 17,230 4,293
Selling, general and administrative............... 3,939 5,529 6,784 7,450 9,299 2,379
--------- --------- --------- --------- --------- -----------
Total costs and expenses........................ 22,196 37,741 57,226 67,353 91,851 15,163
--------- --------- --------- --------- --------- -----------
Operating income (loss)......................... 2,262 118 5,252 4,760 (3,599) (5,240)
Interest income (expense), net...................... (235) (667) 391 889 (392) (74)
Other income, net................................... -- -- -- -- -- --
--------- --------- --------- --------- --------- -----------
Income (loss) before income taxes............... $ 2,027 (549) 5,643 5,649 (3,991) (5,314)
---------
---------
Income tax expense.................................. -- 170 169 -- --
--------- --------- --------- --------- -----------
Net income (loss)(2)................................ $ 116 $ (549) $ 5,473 $ 5,480 $ (3,991) $ (5,314)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Net income (loss) per share(2)(3)................... $ 0.02 $ (0.41) $ 0.74 $ 0.67 $ (0.49) $ (0.66)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Shares used in computing per share amounts(3)....... 4,849 1,325 7,435 8,193 8,152 8,039
<CAPTION>
JUNE 28,
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues............................................ $ 45,766
-----------
Costs and expenses:
Cost of product sales............................. 32,051
Research and development.......................... 4,241
Selling, general and administrative............... 3,461
-----------
Total costs and expenses........................ 39,753
-----------
Operating income (loss)......................... 6,013
Interest income (expense), net...................... (19)
Other income, net................................... 1,530
-----------
Income (loss) before income taxes............... 7,524
Income tax expense.................................. 1,129
-----------
Net income (loss)(2)................................ $ 6,395
-----------
-----------
Net income (loss) per share(2)(3)................... $ 0.72
-----------
-----------
Shares used in computing per share amounts(3)....... 8,917
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------- JUNE 28,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Working capital.............................................. $ 3,355 $ 7,859 $ 28,317 $ 12,710 $ 24,062 $ 32,122
Total assets................................................. 17,115 20,965 45,070 55,922 66,633 84,547
Debt and capital lease obligations, net of current
portion(4)................................................. 1,961 3,634 -- -- 7,057 6,705
Total stockholders' equity................................... 5,953 9,765 37,056 44,838 42,466 51,131
</TABLE>
- ------------
(1) The Company's fiscal year ends on March 31 and its first three fiscal
quarters end on the Saturday nearest the end of the calendar quarter.
(2) During the fiscal year ended March 31, 1993 the Company discontinued its
military contract manufacturing operation. Income from continuing operations
for the year ended March 31, 1993 was $2,027,000.
(3) See Note 4 of Notes to Condensed Consolidated Financial Statements contained
in the Company's quarterly report on Form 10-Q for the three months ended
June 28, 1997, incorporated herein by reference, for information concerning
the per share computations. Fully diluted per share amounts were not
required to be disclosed as these amounts were not materially different from
the primary per share amounts for all periods presented except for the three
months ended June 28, 1997, for which fully diluted net income per share was
$0.68, and the number of the shares used in computing the fully diluted net
income per share was 9,390,000. Net income per share from continuing
operations for the fiscal year ended March 31, 1993 was $0.42.
(4) See Note 4 of Notes to Consolidated Financial Statements set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1997 incorporated by reference herein for a description of the Company's
debt and lease obligations.
17
<PAGE>
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.
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 THE ANALYSIS OF "--YEARS ENDED
MARCH 31, 1997 AND 1996" UNDER "--REVENUES" REGARDING FUTURE NRE REVENUES AND
UNDER "--COST OF PRODUCT SALES" REGARDING ANTICIPATED PRODUCT INTRODUCTIONS,
RELATED COST IMPROVEMENTS AND TRENDS OFFSETTING SUCH COST IMPROVEMENTS; 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 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. 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 and 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 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
18
<PAGE>
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>
FISCAL YEAR ENDED MARCH 31, THREE MONTHS ENDED
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
JUNE 29, JUNE 28,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
Revenues............................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ----- -----
Costs and expenses:
Cost of product sales............................................. 62.5 62.9 74.0 85.6 70.0
Research and development.......................................... 18.2 20.2 19.6 43.2 9.3
Selling, general and administrative............................... 10.9 10.3 10.5 24.0 7.6
--------- --------- --------- ----- -----
Total costs and expenses........................................ 91.6 93.4 104.1 152.8 86.9
--------- --------- --------- ----- -----
Operating income (loss)......................................... 8.4 6.6 (4.1) (52.8) 13.1
Interest income (expense), net...................................... 0.6 1.2 (0.4) (0.8) --
Other income, net................................................... -- -- -- -- 3.3
--------- --------- --------- ----- -----
Income (loss) before income taxes................................. 9.0 7.8 (4.5) (53.6) 16.4
Income tax expense.................................................. 0.2 0.2 -- -- 2.4
--------- --------- --------- ----- -----
Net income (loss)............................................... 8.8% 7.6% (4.5)% (53.6 )% 14.0%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
Gross margin on product sales....................................... 33.4% 33.3% 24.6% 11.2% 29.1%
</TABLE>
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
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.
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
19
<PAGE>
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.
See "Business--American Microwave Technology, Inc."
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 (the "Code"), in the event of a change in ownership of the
Company as defined therein.
YEARS ENDED MARCH 31, 1997 AND 1996
REVENUES. The Company's revenues increased by 22.4% to $88.3 million in
fiscal 1997 from $72.1 million in fiscal 1996. The increase was due primarily to
increasing volume in sales of PCS products, reflecting the build-out of the U.S.
PCS network infrastructure, and continued strong GSM product sales. These
revenue increases were partially offset by a 61.0% decrease in NRE revenues, to
$1.6 million in fiscal 1997 from $4.1 million in fiscal 1996, due to continued
reductions in the number of customer-funded research and development projects.
The Company expects NRE revenue to further decline in future years in both
absolute dollars and as a percentage of revenue.
COST OF PRODUCT SALES. The Company's cost of product sales increased by
44.0% to $65.3 million in fiscal 1997 from $45.4 million in fiscal 1996. Gross
margin on product sales in fiscal 1997 declined to 24.6% from 33.3% in fiscal
1996. During fiscal 1997 the Company introduced 14 new products into
manufacturing
20
<PAGE>
to meet customer and market demands. The need to produce many of these products
in high volumes during their manufacturing infancy resulted in much higher costs
for the related material, labor and overhead. The heavy new product volume had a
detrimental effect on the Company's fiscal 1997 gross margins and profitability.
The Company anticipates a similar number of new products will be introduced in
fiscal 1998 but will be developed primarily from existing product platforms
thereby producing some economies of scale and reducing the inefficiencies
associated with steep learning curves. Trends that may offset some of these
anticipated cost improvements are the increasingly more complex amplifier
product performance expectations from the marketplace and customer pressures to
reduce pricing as shipment volumes grow.
RESEARCH AND DEVELOPMENT. The Company's R&D expenses increased 18.4% to
$17.2 million in fiscal 1997 from $14.5 million in fiscal 1996. As a percentage
of revenues, R&D expenses declined slightly to 19.6% in fiscal 1997 from 20.2%
in fiscal 1996. The increase in R&D expenses primarily reflected nine months of
development expenses for the Company's 4-inch wafer fabrication facility as
compared to only three months in fiscal 1996 as well as increased R&D hiring and
the associated recruiting and salary costs.
SELLING, GENERAL AND ADMINISTRATIVE. The Company's SG&A expenses increased
by 24.8% to $9.3 million in fiscal 1997 from $7.5 million in fiscal 1996. SG&A
expenses as a percentage of revenues increased slightly to 10.5% in fiscal 1997
from 10.3% in fiscal 1996. The increase in SG&A expenses from fiscal 1996 to
fiscal 1997 was primarily attributable to increases in sales and marketing
headcount and the related salaries and expense benefits, as well as outside
commissions expenses required to support the Company's expanding customer base
and product portfolio.
INTEREST INCOME (EXPENSE), NET. Net interest expense for fiscal 1997 was
$392,000, compared to net interest income of $889,000 in fiscal 1996. The change
between fiscal 1997 and fiscal 1996 primarily reflects decreased interest income
as a result of lower average cash balances in fiscal 1997 and the interest
expense incurred as a result of the Company utilizing various debt financing
instruments during fiscal 1997.
INCOME TAXES. The Company did not record a provision for income taxes in
fiscal 1997 because of net losses incurred. An income tax provision of $169,000
was recorded in fiscal 1996, an effective tax rate of 3% after use of NOLs.
YEARS ENDED MARCH 31, 1996 AND 1995
REVENUES. The Company's revenues increased 15.4% to $72.1 million in fiscal
1996 from $62.5 million in fiscal 1995. The increase was principally
attributable to increases in sales of existing cellular amplifier products and
increases in sales of new amplifier products for the PCS market.
COST OF PRODUCT SALES. The Company's cost of product sales increased 16.1%
to $45.4 million in fiscal 1996 from $39.1 million in fiscal 1995. Gross margin
on product sales was 33.3% in fiscal 1996 and 33.4% in fiscal 1995, as lower
average selling prices and manufacturing inefficiencies were largely offset by
lower cost of material.
RESEARCH AND DEVELOPMENT. The Company's R&D expenses increased 27.9% to
$14.5 million in fiscal 1996 from $11.4 million in fiscal 1995. The increase in
R&D expenses resulted primarily from increased headcount and the associated
salaries expense, cost of materials for prototypes and other expenses associated
with increasingly complex semiconductor and amplifier development activities.
R&D expenses as a percentage of revenues increased to 20.2% in fiscal 1996 from
18.2% in fiscal 1995, reflecting the Company's decision to grow R&D funding at a
faster rate than the growth rate in revenues.
SELLING, GENERAL AND ADMINISTRATIVE. The Company's SG&A expenses increased
9.8% to $7.5 million in fiscal 1996 from $6.8 million in fiscal 1995. This
increase in SG&A expenses was primarily attributable to increases in headcount
and associated salaries and administrative expenses as a result of overall
growth in the Company's operations.
21
<PAGE>
INTEREST INCOME, NET. The Company earned net interest income of $889,000 in
fiscal 1996 as compared to net interest income of $391,000 in fiscal 1995. The
change between fiscal 1995 and fiscal 1996 reflected the interest income earned
for a full year period on the proceeds from the Company's initial public
offering in August 1994.
INCOME TAXES. The Company recorded a provision for income taxes of $169,000
in fiscal 1996 as compared to $170,000 in fiscal 1995, both at an effective rate
of 3% after use of NOLs.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly results in dollar amounts
and as a percentage of total revenues for the last nine quarters. The
information has been prepared by the Company on a basis consistent with the
Company's audited financial statements and includes all adjustments, consisting
only of normal recurring adjustments, which management considers necessary for a
fair presentation of the information for the periods presented.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
---------------------------------------------- ---------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
---------------------------------------------- ---------------------------------
JULY 1, SEPT. 30, DEC. 30, MARCH 31, JUNE 29, SEPT. 28, DEC. 28,
1995 1995 1995 1996 1996 1996 1996
--------- ----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 20,461 $ 20,951 $ 12,272 $ 18,429 $ 9,923 $ 22,272 $ 24,485
Costs and expenses:
Cost of product sales................. 13,010 12,682 8,203 11,460 8,491 16,639 17,211
Research and development.............. 3,295 3,737 3,611 3,905 4,293 3,770 4,773
Selling, general and administrative... 2,058 2,094 1,460 1,838 2,379 1,948 2,293
--------- ----------- --------- ----------- --------- ----------- ---------
Total costs and expenses............ 18,363 18,513 13,274 17,203 15,163 22,357 24,277
--------- ----------- --------- ----------- --------- ----------- ---------
Operating income (loss)............. 2,098 2,438 (1,002) 1,226 (5,240) (85) 208
Interest income (expense), net.......... 367 229 201 92 (74) (251) (70)
Other income, net....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Income (loss) before income taxes... 2,465 2,667 (801) 1,318 (5,314) (336) 138
Income taxes............................ (201) (214) 65 181 -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Net income (loss)................... $ 2,264 $ 2,453 $ (736) $ 1,499 $ (5,314) $ (336) $ 138
--------- ----------- --------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- --------- ----------- ---------
Net income (loss) per share (1)......... $ 0.27 $ 0.29 $ (0.09) $ 0.18 $ (0.66) $ (0.04) $ 0.02
--------- ----------- --------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- --------- ----------- ---------
Shares used in computing per share
amounts (1)........................... 8,276 8,393 7,771 8,332 8,039 8,147 8,295
AS A PERCENTAGE OF REVENUES
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of product sales................. 63.6 60.6 66.8 62.2 85.5 74.7 70.3
Research and development.............. 16.0 17.8 29.4 21.2 43.3 16.9 19.5
Selling, general and administrative... 10.1 10.0 11.9 10.0 24.0 8.8 9.4
--------- ----------- --------- ----------- --------- ----------- ---------
Total costs and expenses............ 89.7 88.4 108.1 93.4 152.8 100.4 99.2
--------- ----------- --------- ----------- --------- ----------- ---------
Operating income (loss)............. 10.3 11.6 (8.1) 6.6 (52.8) (0.4) 0.8
Interest income (expense), net.......... 1.8 1.1 1.6 0.5 (0.8) (1.1) (0.2)
Other income, net....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Income (loss) before income taxes... 12.1 12.7 (6.5) 7.1 (53.6) (1.5) 0.6
Income taxes............................ (1.0) (1.0) 0.5 1.0 -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------
Net income (loss)................... 11.1% 11.7% (6.0%) 8.1% (53.6%) (1.5%) 0.6%
--------- ----------- --------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- --------- ----------- ---------
Gross margin on product sales........... 35.8% 34.9% 29.6% 31.0% 11.2% 24.4% 27.8%
<CAPTION>
FISCAL
1998
---------
THREE
MONTHS
ENDED
---------
MARCH 31, JUNE 28,
1997 1997
----------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 31,572 $ 45,766
Costs and expenses:
Cost of product sales................. 22,981 32,051
Research and development.............. 4,394 4,241
Selling, general and administrative... 2,679 3,461
----------- ---------
Total costs and expenses............ 30,054 39,753
----------- ---------
Operating income (loss)............. 1,518 6,013
Interest income (expense), net.......... 3 (19)
Other income, net....................... -- 1,530
----------- ---------
Income (loss) before income taxes... 1,521 7,524
Income taxes............................ -- (1,129)
----------- ---------
Net income (loss)................... $ 1,521 $ 6,395
----------- ---------
----------- ---------
Net income (loss) per share (1)......... $ 0.18 $ 0.72
----------- ---------
----------- ---------
Shares used in computing per share
amounts (1)........................... 8,422 8,917
AS A PERCENTAGE OF REVENUES
Revenues................................ 100.0% 100.0%
Costs and expenses:
Cost of product sales................. 72.8 70.0
Research and development.............. 13.9 9.3
Selling, general and administrative... 8.5 7.6
----------- ---------
Total costs and expenses............ 95.2 86.9
----------- ---------
Operating income (loss)............. 4.8 13.1
Interest income (expense), net.......... 0 0
Other income, net....................... -- 3.3
----------- ---------
Income (loss) before income taxes... 4.8 16.4
Income taxes............................ -- (2.4)
----------- ---------
Net income (loss)................... 4.8% 14.0%
----------- ---------
----------- ---------
Gross margin on product sales........... 26.5% 29.1%
</TABLE>
(1) See Note 4 of Notes to Condensed Consolidated Financial Statements
contained in the Company's quarterly report on Form 10-Q for the three
months ended June 28, 1997, incorporated herein by reference, for
information concerning the per share computations. Fully diluted per share
amounts were not required to be disclosed as these amounts were not
materially different from the primary per share amounts for all periods
presented except for the three months ended June 28, 1997, for which period
fully diluted net income per share was $0.68, and the number of shares used
in computing the fully diluted net income per share was 9,390,000.
23
<PAGE>
The Company's revenues have increased in each of the last four fiscal
quarters. These increases were primarily due to increasing volume in sales of
PCS products, reflecting the build out of the U.S. PCS network infrastructure,
continued strong GSM product sales and increasing demand for the Company's
existing and new single carrier power amplifiers. As a result of the Company's
limited customer base, the Company's revenues have fluctuated and will continue
to fluctuate from quarter to quarter. For example, reduced demand for wireless
infrastructure equipment in each of the three months ended December 30, 1995 and
particularly in the three months ended June 29, 1996, driven partly by delays in
the build out of PCS infrastructure, caused significant declines in the
Company's product sales during these periods.
The Company's gross margin on product sales has been depressed in recent
quarters primarily due to manufacturing inefficiencies, scrap and high materials
costs on new products transitioning into production, as well as warranty costs
associated with the Company's first generation multicarrier products. These
inefficiencies were exacerbated by the Company's reliance on its older 3-inch
wafer fabrication facility for production prior to December 1996.
Prior to the three months ended March 31, 1997, research and development
expenses included the engineering expenses associated with the design and
qualification of the Company's new 4-inch wafer fabrication facility. The
reduction in research and development expenses in the three months ended March
31, 1997 when compared to three months ended December 28, 1996 reflected the
completion of the design and qualification of the 4-inch wafer fabrication
facility. The decreased research and development expenses in the three months
ended September 28, 1996 reflected reductions in engineering administration
headcount and lower costs associated with NRE development projects.
Selling, general and administrative expenses remained relatively constant as
a percentage of revenues in the last four quarters, ranging from 7.6% of
revenues in the three months ended June 28, 1997 to 9.4% of revenues in the
three months ended December 28, 1996. Selling, general and administrative
expenses were higher in the three months ended June 29, 1996 when compared to
the three months ended March 31, 1996 and the three months ended September 28,
1996 as a result of increased expenditures for outside services for information
systems support and employee severance costs and expenses relating to the hiring
of a new Chief Executive Officer. The increase in selling, general and
administrative expenses in absolute dollars over the last three fiscal quarters
was attributable to outside commissions paid for South Korean sales and
increased marketing expenses.
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. There can be no assurance that the
Company will not experience such fluctuations in the future. See "Business--OEM
Customers, Sales and Marketing." 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
24
<PAGE>
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.
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 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.
25
<PAGE>
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.
26
<PAGE>
BUSINESS
Spectrian Corporation designs, manufactures and markets highly linear RF
power amplifiers that address the needs of wireless infrastructure OEMs and
their service provider customers. The Company's amplifiers have been deployed in
wireless networks in over 35 countries worldwide. Spectrian's amplifiers deliver
high linearity, are cost-effectively produced in volume, support multiple
transmission standards and demonstrate high field reliability. These attributes
enable service providers to improve spectrum efficiency resulting in reduced
cost per subscriber, to rapidly deploy new services and to offer enhanced
quality and reliability of service.
INDUSTRY BACKGROUND
The market for cellular, PCS and WLL (collectively, "wireless")
communications services has grown significantly during the past decade, fueled
by decreasing prices for wireless handsets, a more favorable regulatory
environment, increasing competition among service providers and a greater
availability of services and RF spectrum. In addition, several developing
countries are installing wireless telephone networks as an alternative to
installing, expanding or upgrading traditional wireline networks. Emerging bi-
directional wireless data applications have the potential to further expand the
market for wireless communications by allowing service providers to increase
revenue generating traffic on their networks. The Strategis Group estimates that
the number of cellular and PCS subscribers in the U.S. will increase from
approximately 44 million in 1996 to approximately 107 million by 2001.
Worldwide, the Strategis Group projects that the number of cellular and PCS
subscribers worldwide will grow from 144 million in 1996 to 456 million in 2001.
The growth in wireless communications has required, and will continue to
require, substantial investment by service providers in infrastructure
equipment. The Yankee Group estimates that spending by wireless service
providers on infrastructure equipment was approximately $25.6 billion in 1996
and will rise to approximately $41.7 billion in 2001. A typical wireless
communications system comprises a geographic region containing a number of
cells, each of which contains a cell site (or "base station"), which are
networked to form a service provider's coverage area. Each base station houses
the equipment that receives incoming telephone calls from the switching office
of the local wireline telephone company and broadcasts calls to the wireless
users within the cell. A base station contains a fixed number of RF channels; in
a single carrier system, each separate channel requires a separate transceiver,
single channel power amplifier and tunable cavity filter, along with an antenna
to transmit the outgoing signal to the wireless telephone user. Most existing
wireless systems use single carrier power amplifiers. The power amplifier
receives a relatively weak signal from the transceiver and significantly boosts
the power of that signal so that it can be broadcast throughout the cell, which
typically covers a geographic area up to five miles in radius. The RF power
levels necessary to transmit the signal over the required range must be achieved
without distorting the modulation characteristics of the signal.
Traditional cellular systems, which are based on analog technology, are
capable of carrying only one call per channel of spectrum. The continuing growth
of the wireless communications market has resulted in the crowding of
transmissions within the available RF spectrum. Because the radio frequencies
assigned to transmissions are fixed, service providers are seeking new methods
of more efficiently using the RF spectrum in order to increase capacity. Analog
systems are being supplanted by digital systems, which convert voice
transmissions into bits of electronic information and are thereby able to use
the RF spectrum allocated to wireless transmissions more efficiently. Digital
transmission allows three to eight times as many voice conversations to occupy
the same frequency bands as analog transmission, thereby significantly
increasing the call capacity of a given wireless network. In addition to digital
cellular networks, which operate within the 800 MHz and 900 MHz bandwidths,
service providers have also begun to construct PCS networks operating within the
1800 MHz and 2000 MHz bandwidths. PCS networks generally require two to three
times as many base stations (and power amplifiers) as cellular networks. Service
providers are in the initial stages of deploying PCS networks, the number of
which the Company believes will increase
27
<PAGE>
rapidly. The implementation of digital networks, in conjunction with the
continued growth in analog networks, has resulted in an increased demand for
network infrastructure equipment.
Wireless carriers are also increasing system capacity by implementing
dynamic channel allocation, which allows the service provider to automatically
move available unused channels from less active base stations to busier adjacent
base stations as the demand load moves, such as during commuter rush hours.
Systems with dynamic channel allocation require multicarrier power amplifiers,
which can simultaneously broadcast signals using multiple transmission standards
over a variable number of channels. The need to increase system capacity,
combined with the development of multicarrier power amplifiers, has also
encouraged wireless carriers to transition from "macrocell" base stations (which
typically have a five mile radius) to microcells. When the number of subscribers
within the macrocell exceeds the capacity of its equipment, the cell can be
split into several smaller microcells to avoid a degradation in service. The
geographic range of these microcells will be smaller, requiring lower power and
less expensive equipment at each base station, but more of these smaller base
stations will be required in order to increase the capacity of the overall
system.
Wireless carriers' ability to more effectively manage scarce spectrum
resources and accommodate a larger number of subscribers is dependent on their
ability to broadcast signals with high "linearity." Linearity is the degree to
which amplified signals remain within their prescribed band of spectrum with low
distortion or interference from adjacent channels. In current systems, the RF
power amplifier is generally the source of the greatest amount of signal
distortion. Consequently, obtaining RF power amplifiers with high linearity is
critical to a service provider's ability to reduce interference levels and
thereby increase system capacity. For example, higher linearity amplifiers are
required as the industry transitions from analog to digital technologies;
multiple conversations on a single channel would lead to unacceptable channel
interference without significant improvements in power amplifier linearity.
Consequently, high linearity is even more critical in digital networks than it
is in analog networks. Similarly, multicarrier power amplifiers, which are
critical to the use of dynamic channel allocation and microcells, require
leading edge linearity technology to function properly. Substantial investment
and technical expertise are required to design and manufacture RF power
amplifiers with high linearity.
Wireless service providers compete in dynamic markets characterized by
evolving and competing industry standards, technologies and applications, and
those wireless service providers that are able to increase the efficiency and
lower the cost of new and existing systems will compete most effectively.
Wireless service providers must anticipate evolving industry standards and
invest in infrastructure equipment that both maximizes efficiency in the
management of the limited spectrum licensed to them and is available in volume
for rapid deployment.
Service providers obtain their equipment from a concentrated group of large
OEMs. The Company believes that Lucent, Ericsson, Motorola, Northern Telecom and
Siemens supplied over 80% of the wireless infrastructure equipment installed
worldwide in 1996. Although most of these equipment manufacturers make their own
power amplifiers, in response to competition and as the performance requirements
of certain components of base stations increase, many of them rely on
independent sources for certain system components, such as power amplifiers,
that must meet unique technical requirements. To succeed in capturing orders
from these OEMs, power amplifier suppliers must rapidly bring to market products
that are highly linear can be cost-effectively produced in volume, support
multiple standards and are reliable in the field.
28
<PAGE>
THE SPECTRIAN SOLUTION
Spectrian Corporation designs, manufactures and markets highly linear RF
power amplifiers that address the needs of wireless infrastructure equipment
suppliers and their service provider customers. The Company's amplifiers provide
significant advantages to its customers, including:
HIGH LINEARITY. Spectrian has developed the multiple technology
competencies and disciplines required to achieve high linearity in its
amplifiers. These competencies and disciplines include RF semiconductor
technology, solid state device physics, thermal and mechanical packaging design,
advanced circuit design, amplifier linear correction technologies, advanced
signal processing techniques, control systems and computer aided design and
modeling. The Company believes that its combined strengths in these areas
provide it with an important competitive advantage in maintaining technological
leadership. The high degree of linearity of the Company's amplifiers enables
Spectrian's OEM customers to furnish wireless service providers with high
capacity base station equipment at low capital cost per subscriber.
RAPID TIME TO MARKET AND VOLUME MANUFACTURING. The vertical integration of
Spectrian's design and production processes is a key element of the Company's
ability to address wireless infrastructure equipment suppliers' quantity and
time to market requirements for power amplification products. The Company's
ability to design and manufacture its RF semiconductors in-house is critical to
rapidly and cost-effectively introducing new products that meet OEMs' evolving
needs. Spectrian also designs its amplifiers to be manufactured in high volumes
at low cost, which the Company believes has been a competitive advantage in
securing orders from its OEM customers because power amplifiers have
historically been difficult to manufacture in high volumes based upon the labor
intensive nature of the manufacturing process and the complexities of RF power
technology. Finally, the Company's use of automated testing reduces overall
manufacturing cycle times and enables the Company to deliver products in volume
more rapidly.
STANDARDS INDEPENDENCE. Spectrian's technologies support every major
wireless modulation standard, and its multicarrier power amplifiers support
several standards simultaneously. Certain of the Company's single carrier
products support both analog and digital standards in a dual mode format. The
Company believes that this breadth of product functionality is important to
wireless service providers as they upgrade their cellular infrastructure
equipment and implement digital systems in an environment characterized by
evolving industry standards and the proliferation of spectrum allocation.
HIGH QUALITY AND RELIABILITY. Spectrian designs its power amplifiers to be
highly reliable in the field. Spectrian's integrated design and manufacturing
processes are important factors contributing to its ability to develop and
produce highly reliable power amplifiers. In order to further address customer
requirements for amplifier quality and reliability and to ensure process quality
control, Spectrian has implemented a continuous process improvement program
throughout the Company and is ISO 9001 certified.
MULTICARRIER FUNCTIONALITY. Spectrian develops and supplies multicarrier
amplifiers that integrate the functions of multiple single carrier power
amplifiers into a single smaller unit while simultaneously eliminating the need
for cavity filters. The Company believes that the distortion reduction
performance of its multicarrier amplifiers will provide it with an important
competitive advantage. The ability of the Company's multicarrier products to
combine multiple digital and analog channel schemes enables carriers to maintain
backward compatibility as they add digital transmission and implement dynamic
channel allocation solutions. In addition, multicarrier units can potentially
reduce service providers' equipment and maintenance costs and space
requirements, thereby facilitating the implementation of microcells.
29
<PAGE>
SPECTRIAN STRATEGY
Spectrian's objective is to strengthen its position as the leading merchant
supplier of highly linear power amplifiers to wireless infrastructure equipment
manufacturers and service providers worldwide. The Company's strategy
incorporates the following key elements:
CAPITALIZE ON VERTICAL INTEGRATION IN DESIGN AND MANUFACTURING. The Company
has pursued a strategy of vertical integration of its design and manufacturing
processes, from design and development of the semiconductor die through assembly
and automated testing with proprietary software and systems that minimize
manufacturing cycle times. The Company's control over each of these steps
further contributes to improved amplifier linearity, shortens the Company's time
to market, reduces unit costs and increases quality and reliability. In
addition, operating a wafer fabrication facility improves the Company's access
to a supply of RF semiconductors even in periods of high industry demand for
semiconductors and intense competition for wafer fabrication capacity.
EXPAND RELATIONSHIPS WITH LEADING WORLDWIDE MANUFACTURERS OF WIRELESS
INFRASTRUCTURE EQUIPMENT. The Company has developed relationships with certain
large wireless OEMs, including Northern Telecom, Nortel Matra, LGIC and
QUALCOMM, as well as certain emerging manufacturers including Harris, Tellabs
and Watkins Johnson. The Company markets its products worldwide; as of June 28,
1997, its power amplifiers had been installed in over 35 countries. In fiscal
1997, Spectrian also began to establish direct relationships with certain
wireless service providers, allowing the Company to address previously
unavailable markets. The Company's strategy is to form lasting customer
relationships by working closely with OEM customers to develop insight into
their amplifier requirements and to design specific products that meet their
needs, by rapidly delivering product designs and volume production and by
maintaining the confidentiality of customer technology.
LEVERAGE PRODUCT PLATFORMS TO PROVIDE RAPID TIME TO MARKET. The Company
provides customized or "application specific" amplification products to address
the particular technical and time to market requirements of each of its
customers. The Company leverages its modular product architecture, configurable
core technologies and product platforms, as well as its ability to design
products for all RF modulation schemes, to rapidly and cost effectively develop
and deliver application specific solutions to its customers.
PURSUE STANDARDS AND SYSTEMS INDEPENDENCE. The Company's products are
compatible with wireless communications systems provided by various
infrastructure suppliers and operate under every major domestic and
international standard. By pursuing both standards and systems independence, the
Company believes that it will benefit from the continuing growth of both
existing and emerging wireless communications systems while reducing the risks
associated with relying on the success of one or a limited number of systems or
existing or emerging industry standards. In addition to supporting every major
cellular standard, the Company has developed, and is continuing to develop,
products that address the needs of the PCS and WLL markets.
STRENGTHEN LEADERSHIP POSITION IN AMPLIFICATION TECHNOLOGY. The Company
intends to maintain and expand its technological leadership position by
continuing to invest significant resources in research and development of
amplification technology. The Company believes that its RF amplifier research
and development team is among the largest and most skilled in the merchant high
power RF industry. To maintain a technological leadership position, the Company
believes that numerous integrated technical capabilities are required, including
semiconductor design and fabrication, unique packaging concepts and components,
customized linearization and correction technologies and expert RF circuit
design. The Company's strategy is to continue to invest significant resources to
support the Company's technology leadership in amplifier linearity, power and
efficiency.
30
<PAGE>
MARKETS
Wireless systems have historically employed analog transmission formats,
certain of which have been adopted as industry standards. The need to
accommodate a growing wireless customer base within a finite amount of spectrum
has, however, encouraged a worldwide transition from analog standards to various
digital technologies which are significantly more efficient. Current analog
standards include Advanced Mobile Phone Services ("AMPS") in the Americas and
Total Access Communications System ("TACS") and Nordic Mobile Telephone ("NMT")
in Europe, and current digital standards include Time Division Multiple Access
("TDMA") and Code Division Multiple Access ("CDMA") in the Americas, Personal
Digital Cellular ("PDC") and CDMA in Japan and South Korea, and Global System
for Mobile Communications ("GSM") in most other parts of the world. Digital
standards which are used in PCS systems include TDMA, CDMA and GSM.
The Company offers amplifiers that support the AMPS and TACS analog
standards and the TDMA, CDMA and GSM digital standards for cellular systems. The
Company has elected not to support the NMT analog standard in Europe, because it
believes that NMT has a lower potential for growth than the GSM digital
standard. To date, the Company has not invested significant development
resources to incorporate the PDC standard into its product offerings, because
such standard has not developed to any great degree outside of Japan. See "Risk
Factors--Rapid Technological Change; Evolving Industry Standards; Dependence on
New Products."
In addition to the analog and digital cellular systems discussed above, the
market for PCS systems is expanding rapidly. The FCC has reallocated spectrum in
the 1.85 to 1.99 gigahertz range for the provision of PCS and has conducted six
rounds of auctions for the PCS spectrum. The success of PCS as a wireless
service will depend in part on whether infrastructure manufacturers and service
providers can reduce system manufacturing and service costs and pricing
sufficiently to increase significantly the rate of market penetration of
potential subscribers.
The following chart illustrates these existing and developing standards for
wireless communications, and the shaded areas represent markets served and
standards supported by the Company's current product offerings.
<TABLE>
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
<CAPTION>
MAJOR WIRELESS STANDARDS BY REGION
<S> <C> <C> <C> <C>
<CAPTION>
AMERICAS EUROPE REST OF WORLD JAPAN
(MHZ) (MHZ) (MHZ) (MHZ)
<S> <C> <C> <C> <C>
------------------ ------------------------------------
ANALOG AMPS (800) NMT (450, 900) NMT (450, 900) NTT (800)
CELLULAR TACS (900) AMPS (800) JTACS (800)
AMPS (800) TACS (900)
------------------------------------------------------ ------------------
DIGITAL CDMA (800) GSM (900) CDMA (800, 900) PDC (1500)
CELLULAR TDMA (800) GSM (900) JDC (800)
TDMA (450, 800) CDMA (800)
------------------------------------------------------
PCS CDMA (1900) DCS-1800 (1800) CDMA (1900) PHS (1900)
TDMA (1900) DCS-1800 (1800)
GSM (1900) CDMA (1800)
</TABLE>
The Company believes that the potential for wireless communications in
countries without reliable or extensive wireline systems may be even greater
than in countries with developed telecommunications systems. The cost of
building and maintaining a wireless network is generally less than the cost of
building and maintaining a comparable wireline network. Thus, in many less
developed countries, wireless service may provide the primary service platform
for both mobile and fixed telecommunications. In addition, if
31
<PAGE>
technological advances and price decreases continue to occur, a market in the
United States and other developed countries for wireless service to be used in
conjunction with, or in place of, traditional wireline ("local loop") service
may emerge for a variety of applications. For example, WLL networks could
provide local loop service and direct access to the long distance carriers.
PRODUCTS
The Company designs highly linear amplifiers that address the specific
requirements of each of its OEM customers. The Company's product strategy is to
support multiple wireless systems and standards. Most existing wireless systems
use single carrier power amplifiers. The following table provides a list of
standards for which the Company provides single carrier amplifiers:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------
<CAPTION>
SPECTRIAN SINGLE CARRIER AMPLIFIER CONFIGURATIONS
<S> <C> <C>
<CAPTION>
FREQUENCY POWER
STANDARD (MHZ) (WATTS)
<S> <C> <C>
Analog Cellular:
AMPS, CDPD 869-894 65
TACS 917-950 65
Digital Cellular:
TDMA 485-495 50
TDMA 869-894 25, 50
CDMA 869-894 25
GSM 925-960 30
PCS:
DCS-1800 1805-1880 30
CDMA 1930-1990 20, 25
GSM 1900 1930-1990 30
CDMA 1805-1870 25
</TABLE>
The Company also offers multicarrier application specific amplification
products. Multicarrier power amplifiers require significantly higher linearity
than single carrier designs. The following table provides a list of the
standards for which the Company provides multicarrier amplifiers:
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------
SPECTRIAN MULTICARRIER AMPLIFIER CONFIGURATIONS
<CAPTION>
TYPICAL
FREQUENCY POWER LINEARITY
STANDARD (MHZ) (WATTS) (DBC)*
<S> <C> <C> <C>
AMPS, TDMA, CDMA, CDPD 869-894 30-175 -70
ETACS 917-950 25 -50
CDMA 1805-1870 25-100 -65
</TABLE>
- ---------
*Carrier to Intermodulation Distortion Ratio.
The Company's amplifiers can be configured as either modules or pallets,
separate plug-in amplifier units or integrated subsystems, and range in price
from approximately $500 to $30,000. A pallet represents the lowest level of
amplifier complexity and consists of RF semiconductors mounted on a printed
circuit board without a housing. A plug-in amplifier unit consists of a cast
housing, which provides for thermal management and low cost of production and
contains a RF amplifier pallet combined with a digital control interface module.
A power amplifier subsystem consists of multiple cast housings and adds signal
32
<PAGE>
processing to enhance linearity. The Company's products are integrated into
systems by its customers, and therefore must be engineered to be compatible with
industry standards and with certain customer specifications, such as frequency,
power and linearity.
OEM CUSTOMERS, SALES AND MARKETING
The Company sells power amplifiers to a limited number of OEM customers in
North America, Europe and Asia principally through its direct sales
organization. The Company's customers include many of the world's largest
manufacturers of wireless infrastructure equipment, including Northern Telecom,
Nortel Matra, LGIC and QUALCOMM. During fiscal 1996, Northern Telecom and Nortel
Matra accounted for approximately 58% and 17%, respectively, of revenues. During
fiscal 1997, Northern Telecom and Nortel Matra accounted for approximately 63%
and 12%, respectively, of revenues. During the three months ended June 28, 1997,
Northern Telecom, Nortel Matra and LGIC accounted for approximately 55%, 22% and
18% of revenues, respectively. While Northern Telecom continues to be the
Company's dominant customer due to Northern Telecom's growth and diversification
into new markets, the products the Company supplies to Northern Telecom and the
regions in which they are deployed have become more diverse. The Company expects
that sales of its products will continue to be concentrated among a limited
number of customers. 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. Therefore, the Company expects to incur increasing price
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. The Company's business, financial condition and results of operations
have been materially adversely affected in the past by the failure of
anticipated orders to materialize and by deferrals or cancellations of orders by
its customers. If the Company were to lose Northern Telecom or any other major
customer as a customer, or if orders by Northern Telecom or any other major OEM
customer were to otherwise decrease, the Company's business, financial condition
and results of operations would be materially adversely affected. See "Risk
Factors-- Customer Concentration; Dependence on Northern Telecom."
The Company employs a customer focused, team-based direct sales approach to
satisfy the power amplification needs of its customers. Sales to large OEM
customers require close account management by Company personnel and
relationships at multiple levels of its customers' organizations, including
management, engineering and purchasing personnel. In addition, the Company's
application specific amplification products require experienced sales personnel
to match the customer's amplification requirements to the Company's product
capabilities. The Company believes that close technical collaboration with the
customer during the design phase of new communications equipment is critical to
the integration of its amplification products into the new equipment. The
Company's integrated sales approach involves a team consisting of a senior
account manager, a program manager and members of the Company's engineering
department. This sales approach allows the Company's engineering personnel to
work closely with their counterparts at the OEM customer to assure compliance of
the product to the customer's specification. The Company's executive officers
are also involved in all aspects of the Company's relationships with its major
customers and work closely with their senior management. As of June 28, 1997,
the Company had a direct sales staff of six people. The Company warrants new
products against defects in design, materials and workmanship, typically for a
period of 12 to 18 months.
As part of the effort to diversify its product base, in fiscal 1998 the
Company began to sell multicarrier amplifier systems (including filters and
combiners) directly to service providers. To date, these sales have been to
providers in the United States and Israel. The Company recognizes that these
sales may be in conflict with potential or current OEM sales and is willing 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 that the Company's direct sales to service providers will not cause
its OEM equipment suppliers to reduce orders or terminate their relationship
with the Company. Any such reduction or
33
<PAGE>
termination could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Customer
Concentration; Dependence on Northern Telecom."
The Company markets its products overseas with the assistance of independent
sales representatives to customers in Europe, Japan, South Korea and Israel. The
Company has three sales representatives in Europe covering Austria, Finland,
France, Germany, Italy, Sweden and Switzerland, one sales representative
dedicated to each of Japan and Israel and a representative organization in South
Korea. The Company continuously evaluates whether to establish direct sales to a
particular region or customer depending upon available sales opportunities. The
Company's direct sales staff provides sales direction and support to the
international sales representatives. Sales outside of the United States
represented 72%, 73% and 88% of revenues in fiscal 1996, fiscal 1997 and the
three months ended June 28, 1997, respectively. Sales outside of the United
States are denominated in U.S. dollars in order to reduce the risks associated
with the fluctuations of foreign currency exchange rates. The Company expects
that international sales will continue to account for a significant portion of
its revenues. Sales outside of the United States involve a number of inherent
risks, including reduced protection for intellectual property rights in some
countries, the impact of recessionary environments in economies outside the
United States, generally longer receivables collection periods, unexpected
changes in regulatory requirements, tariffs and other trade barriers. There can
be no assurance that such factors will not have an adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations. See "Risk
Factors--Risks of International Sales."
MANUFACTURING
The Company assembles, tests, packages and ships amplifier products at its
manufacturing facilities located in Sunnyvale, California. The Company's
manufacturing facilities consist of a 4-inch wafer fabrication and semiconductor
assembly and test facility and an amplifier assembly and test facility. The
Company's manufacturing product engineering group, comprised of 49 engineers, is
devoted to improving product manufacturability by minimizing assembly and test
cycle times, improving product test yields and reducing overall manufacturing
costs.
WAFER FABRICATION. As part of its strategy of vertical integration, the
Company operates its own wafer fabrication facility for the production of the RF
semiconductor, the most important component utilized in the Company's
amplifiers. The Company has an 11-person semiconductor process engineering group
responsible for continuous improvement of semiconductor processes. The Company
believes that control of the semiconductor manufacturing process allows it to
reduce unit costs, control quality, improve time to market delivery and most
importantly increase the linearity of the RF semiconductors used in its
amplifiers. In addition, the Company utilizes a high volume, third party
supplier to supplement wafer capacity on a subcontract basis.
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
34
<PAGE>
material adverse effect on the Company's 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, operation of
the Company's own wafer fabrication facility subjects it 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 cessation
of operations. In addition, compliance with such regulations could require the
Company to acquire expensive remediation equipment or to incur substantial
expenses. See "Risk Factors--Risks Associated with Internal Wafer Fabrication."
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 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. See "Risk Factors--Product Quality, Performance and
Relability."
SEMICONDUCTOR ASSEMBLY AND TEST. Once a wafer is processed, it is tested
and diced into chips that are attached to a special ceramic package, wire bonded
and encapsulated. The packages are designed for optimal thermal and electrical
performance that are critical during high power RF operation. These processes
require precision for performance and volume manufacturing. The Company utilizes
patented packaging techniques to improve the performance and the automated
assembly of both semiconductors and amplifiers. In addition, the Company
utilizes a specialized surface mount packaging process to improve transistor
assembly while enhancing thermal performance, lowering costs and improving
reliability. See "Risk Factors--Government Regulation of Communications
Industry."
AMPLIFIER ASSEMBLY AND TEST. The Company's amplifier manufacturing
activities consist of purchasing components, assembling and testing components
and subassemblies, and integrating subassemblies into finished products. The
Company's amplifiers are comprised of a variety of subassemblies and components
35
<PAGE>
designed or specified by the Company, including housings, harnesses, cables,
packaged RF semiconductors, semiconductor integrated circuits and printed
circuit boards. Except for the RF semiconductors, these components and
subassemblies are manufactured by third parties and are shipped to the Company
for final assembly. The most critical step in the assembly process consists of
the integration of the Company's internally produced RF semiconductors with the
externally procured printed circuit boards. Each of the Company's products
receives extensive in-process and final quality inspections and tests.
The Company attempts to utilize standard parts and components that are
available from multiple vendors. However, certain components used in the
Company's products are currently available only from single sources, and other
components are available from only a limited number of sources. Despite the
risks associated with purchasing components from single sources or from a
limited number of sources, the Company has made the strategic decision to select
single source or limited source suppliers in order to obtain lower pricing,
receive more timely delivery and maintain quality control. If the Company were
unable to obtain sufficient quantities of components, delays or reductions in
product shipments could occur which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Sole or Limited Sources of Materials and Services."
The Company continues to initiate actions to reduce its manufacturing costs.
The Company has negotiated master purchase agreements with its vendors to have
substantially all of its parts bid on an annual basis rather than on a monthly
basis, which it believes has generated significant volume discounts. The Company
is also implementing standardized automated test processes and material handling
throughout the manufacturing area which is also designed to reduce costs. There
can be no assurance that these activities will reduce costs as quickly as
anticipated reductions in average selling prices of the Company's products. Any
failure to achieve continued manufacturing cost reductions could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors-- Fluctuations in Operating Results" and
"--Declining Average Sales Prices."
RESEARCH AND DEVELOPMENT
The mission of the Company's research and development organization is to
rapidly design low cost, highly manufacturable RF power amplifiers with industry
leading performance. The Company's research and development staff is organized
into a semiconductor group and an amplifier group. The semiconductor group
focuses on the rapid design of RF semiconductors that are low cost and high
efficiency to provide improved RF performance. The semiconductor group also
performs advanced research in device modeling and semiconductor process
development to support the amplifier engineering group's efforts. The amplifier
engineering group focuses on rapid development of new RF power amplifiers that
are manufacturable in volume, low cost and achieve industry leading performance.
This group creates new product platforms and leverages existing ones, reuses
existing circuit topologies and introduces into production new correction,
control and amplification concepts created by the advanced research group. The
Company uses an automated design environment to model RF semiconductors and
amplifiers. This design environment, together with the Company's modular product
architecture and configurable core technologies, allow it to rapidly define,
develop and deliver on a timely basis the new and enhanced products demanded by
its OEM customers.
The Company has historically devoted a significant portion of its resources
to research and development programs and expects to continue to do so. As of
June 28, 1997, the Company had 94 people engaged in research and development.
The Company's research and development expenses in fiscal 1996, fiscal 1997 and
the three months ended June 28, 1997 were $14.5 million, $17.2 million and $4.2
million, respectively, and represented 20%, 19% and 9%, respectively, of total
revenues. The Company in the past funded a significant portion of its research
and development from NRE revenues received from customers in connection with the
design and development of application specific products. NRE revenues have
declined in the past three years and the Company expects NRE revenue to further
decline in future years due to the competitive development climate. Costs
associated with customer funded research and
36
<PAGE>
development were $4.5 million, $2.1 million and $365,000 for fiscal 1996, fiscal
1997 and the three months ended June 28, 1997, respectively.
The markets in which the Company and its 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, among other things, its ability to develop new products in a timely manner
that compete effectively on the basis of price and performance and that
adequately address the needs of its OEM customers. No assurance can be given
that the Company's product development efforts will be successful, that its new
products will achieve customer acceptance or that its customers' products will
achieve customer acceptance. In addition, as is characteristic of the wireless
communications equipment industry, the average sales prices of the Company's
products have historically decreased over the products' lives and are expected
to continue to do so. To offset declining average sales prices, the Company
believes that in the near term it must develop new products that incorporate
advanced features and can be sold at higher average sales prices. 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. See "Risk Factors--Rapid Technological Change; Evolving
Industry Standards; Dependence on New Products" and "--Declining Average Sales
Prices."
PATENTS AND PROPRIETARY TECHNOLOGY
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. See "Risk
Factors--Uncertain Protection of Intellectual Property."
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 or a "design around" is not
37
<PAGE>
practicable, if at all. In the event that any third party makes a successful
claim against either the Company or its customers and a license is not made
available to the Company on commercially reasonable terms, 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. See "Risk Factors--Risk of
Third-Party Claims of Infringement."
COMPETITION
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 into the merchant market and compete directly with the
Company, and at least one OEM, NEC has already done so. Such increased
competition could materially adversely affect the Company's business, financial
condition and results of operations. See "Risk Factors--Market for the Company's
Products is Highly Competitive" and "--Internal Amplifier Design and Production
Capabilities of OEMs."
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. See "Risk Factors--Market for the Company's Products
is Highly Competitive."
BACKLOG
The Company does not believe that its backlog as of any particular date is
representative of actual sales for any succeeding period. As part of the
Company's close working relationships with its major
38
<PAGE>
customers, such customers expect the Company to respond quickly to changes in
the volume and delivery schedule of their amplifiers, and if necessary, to
inventory products at the Company's facilities for just-in-time delivery.
Therefore, although contracts with such customers typically specify aggregate
dollar volumes of products to be purchased over an extended time period, such
contracts also provide that scheduled shipment dates of particular volumes are
generally released to the Company only a few days or weeks prior to the actual
required delivery dates. In addition, the Company's customers may cancel or
defer orders without significant penalty.
AMERICAN MICROWAVE TECHNOLOGY, INC.
In April 1997, the Company sold its wholly owned subsidiary, AMT, to the
management group and employees of AMT for approximately $4.0 million in cash,
realizing a gain of approximately $1.5 million after disposition of AMT's net
assets. The Company decided to divest AMT, which designs, develops and
manufactures RF power amplifier systems for selected wireless, scientific and
application specific markets, after concluding that AMT's market focus had
become less synergistic with the Company's core business. In fiscal 1996 and
fiscal 1997, AMT accounted for approximately 7% and 10%, respectively, of the
Company's revenues.
EMPLOYEES
As of June 28, 1997, the Company had a total of 795 regular, temporary and
contract employees, including 641 in manufacturing, 94 in research and
development, 24 in sales and 36 in administration. The Company's future success
will depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical and management personnel. None of the Company's
employees is represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations with
its employees to be good.
PROPERTIES
The Company's principal administrative, engineering and manufacturing
facilities are located in two buildings of approximately 141,000 square feet in
Sunnyvale, California. In November 1996, the Company entered into several
agreements in connection with a transaction with respect to these properties.
Pursuant to these agreements, the Company sold these properties to SPEC (CA) QRS
12-20, Inc. ("SPEC"), and pursuant to the terms of a lease agreement, SPEC
agreed to lease these properties to the Company for a term of 15 years (with two
options to extend the lease for up to an additional ten years). This lease
agreement also provides that the Company shall have the right of first refusal
to purchase the properties from SPEC upon the occurrence of certain conditions.
In addition, in March 1997, through means of a limited liability company of
which the Company owns 91.5%, the Company purchased a third building of
approximately 39,000 square feet in Sunnyvale, California located between the
Company's two occupied buildings. The Company is currently subleasing this
building to third parties under month-to-month lease arrangements.
39
<PAGE>
MANAGEMENT
The executive officers and directors of the Company and certain information
about them as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- ---------------------------------------------------------------
<S> <C> <C>
Garrett A. Garrettson..................... 53 President, Chief Executive Officer and Director
Stephen B. Greenspan...................... 55 Executive Vice President of Operations and Chief Operating
Officer
Bruce R. Wright........................... 48 Executive Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Timothy Heyboer........................... 47 Vice President, Amplifier Engineering
David Piazza.............................. 33 Vice President, Semiconductor R&D
Joseph M. Veni............................ 45 Senior Vice President, Sales and Marketing
William Zucker............................ 39 Vice President, Marketing
James A. Cole(1).......................... 54 Director
Martin Cooper(2).......................... 68 Director
Robert C. Wilson(2)....................... 77 Director
Eric A. Young(1).......................... 41 Director
</TABLE>
- ---------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
GARRETT A. GARRETTSON joined the Company in April 1996 as President, Chief
Executive Officer and director. Between March 1993 and March 1996, he served as
President and Chief Executive Officer of Censtor Corporation ("Censtor"), which
designs and sells technology related to magnetic recording heads for the disk
drive industry. From 1986 to March 1993, he served as a Vice President of
Imprimis Technology Incorporated ("Imprimis"), a wholly-owned subsidiary of
Control Data Corporation, and subsequently as a Vice President of Seagate
Technology, Inc. ("Seagate") following its acquisition of Imprimis in 1989.
Prior to 1986, Mr. Garrettson held a variety of positions with Hewlett-Packard
Company and served in the United States Navy. Mr. Garrettson also serves as a
director of Censtor and Benton Oil and Gas Company. He received his B.S. and
M.S. in Engineering Physics and a Ph.D. in Mechanical Engineering from Stanford
University.
STEPHEN B. GREENSPAN joined the Company in May 1996 as Executive Vice
President of Operations and was named Chief Operating Officer in April 1997.
From November 1991 to February 1996, he served as Senior Vice President, Quality
and Customer Service at Seagate. Mr. Greenspan also held a variety of positions
at Seagate including Vice President of Process Development and Vice President of
Domestic and Far East Operations. From March 1986 to August 1987, Mr. Greenspan
served as Vice President of Operations at Tandon Corporation, a manufacturer of
personal computers. From 1967 to 1986, Mr. Greenspan held a variety of
management positions at IBM Corporation related to circuit technologies,
personal computer manufacturing and supplier management. He received his
B.S.E.E. degree from New Jersey Institute of Technology and a M.S.E.E. degree
from Syracuse University.
BRUCE R. WRIGHT joined the Company on May 1, 1997 as Executive Vice
President of Finance and Administration, Chief Financial Officer and Secretary.
Prior to joining the Company, he was Chief Financial Officer at Tencor
Instruments from December 1991 to April 1997. From January 1988 to July 1991, he
was Chief Financial Officer at Teknekron Corporation. Mr. Wright also served
with Atlantic Richfield Company and the U.S. Air Force. He has a B.A. in Physics
from Pomona College, a B.S. in Mechanical Engineering from California Institute
of Technology and a S.M. in Management from MIT.
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TIM HEYBOER joined the Company in 1986 as Director of Engineering. In August
1996, Mr. Heyboer was named Vice President of Amplifier Engineering of the
Company, and previously served in a variety of departments including product
line management and the now discontinued military division. Prior to joining
Spectrian, Mr. Heyboer was employed at Narda Western Operations, a passive
microwave components company, most recently as director of engineering. Mr.
Heyboer received a B.S.E.E. degree and a M.S.E.E. degree from University of
Michigan, Ann Arbor.
DAVID PIAZZA joined the Company in 1990 as a Project Engineer. In September
1996, Mr. Piazza was named Vice President, Semiconductor R&D for the Company. He
has served in various management positions at the Company, including Director of
Engineering, PCS Amplifier Products, Engineering Manager, Amplifier Products and
Project Engineer. Mr. Piazza received a B.S.E.E. degree from the University of
California at Davis.
JOSEPH M. VENI joined the Company in April 1992 as Vice President of Sales
and in June 1996 was named Senior Vice President, Sales and Marketing. From 1987
to April 1992, he was Vice President of Sales and Marketing at TTI-General
Signal. From 1985 to 1987, Mr. Veni worked at Cushman Electronics, Inc. Prior to
that time, Mr. Veni was employed by Halcyon Communications, Inc., ICS Group,
Inc. and Western Union Telegraph Co. in various marketing and sales positions.
Mr. Veni received an Associates Degree in Electronics Technology from Mt. San
Antonio College.
WILLIAM ZUCKER joined the Company in October 1995 as Vice President of
Engineering. In August 1996, Mr. Zucker became Vice President of Product Line
Management. In April 1997, he was named Vice President of Marketing. Prior to
joining the Company, Mr. Zucker held several positions at AT&T/AT&T Bell Labs,
including director of product management from July 1994 to October 1995 and
director of development from November 1991 to July 1994. Mr. Zucker received a
B.S.E.E. degree from Manhattan College and a S.M. in Electrical Engineering from
MIT.
JAMES A. COLE has been a director of the Company since June 1985. He has
been a general partner of Spectra Enterprise Associates, a venture capital firm,
and a partner with New Enterprise Associates, a venture capital firm, since
1986. Prior to 1986, Mr. Cole spent twenty years in various microwave integrated
circuit companies, including Amplica Inc., where he was a co-founder and served
as Chief Operating Officer. Amplica became a public company in 1981 and was
acquired by Comsat Corporation in 1982. He presently serves on the boards of
directors of Censtor, Vitesse Semiconductor Corp., a semiconductor manufacturer,
and Gigatronics Inc. ("Gigatronics"), a microwave instrument supplier.
MARTIN COOPER has been a director of the Company since January 1994. Mr.
Cooper has served as Chairman and Chief Executive Officer of ArrayComm,
Incorporated, a wireless technology manufacturer, since April 1992 and as
Chairman of Dyna, Incorporated, a consulting company, since 1986. From 1985 to
December 1992, he served as President of Cellular Pay Phone Incorporated, a
cellular pay telephone company. From 1982 to 1986, he was Chairman and Chief
Executive Officer of Cellular Business Systems, Inc., a management information
company he co-founded in 1982. From 1954 to 1983, Mr. Cooper served in a variety
of positions including Corporate Vice President, Division Manager and Corporate
Director of Research and Development of Motorola. Mr. Cooper currently serves on
the board of directors of Conductus, Inc., a superconducting products company.
He is a Fellow of the IEEE and of the Radio Club of America and a recipient of
the IEEE Centennial medal. He also serves on the Advisory Board of the
International National Electronics Consortium as well as on its Board of
Directors. He received a B.S.E.E. and a M.S.E.E. from the Illinois Institute of
Technology.
ROBERT C. WILSON has served as a director of the Company since October 1995.
Mr. Wilson has been Chairman of Wilson & Chambers, a venture capital and
consulting firm, since December 1982. Mr. Wilson served as President, Chief
Executive Officer and Chairman of the Board at Memorex Corporation from 1974
until 1980. From 1971 to 1974, Mr. Wilson served as President and Chief
Executive Officer of Collins Radio Company, a communications company. From 1969
to 1971, Mr. Wilson was employed by Rockwell International, a diversified
manufacturing company, first as President of Commercial Products and later as
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<PAGE>
Executive Vice President. He is currently Chairman of the Board of Carco
Electronics, a precision servo controlled systems manufacturing and is a member
of the boards of directors of Gigatronics and of Resound Corporation, a hearing
device manufacturing company. Mr. Wilson received a B.S. in Engineering from the
University of California at Berkeley.
ERIC A. YOUNG has been a director of the Company since January 1991. He is a
co-founder of Canaan Partners, a venture capital investment firm, and has served
as a general partner of Canaan Partners since its inception in 1987. Prior to
such time, Mr. Young held various management positions with GE Venture Capital,
a venture capital investment firm and a subsidiary of General Electric Co. He
presently serves on the boards of directors of Visigenic Software, Inc. and
Integrated Packaging Assembly Corporation. He received a B.S. in Mechanical
Engineering at Cornell University and received a M.M. in Finance from
Northwestern University.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.001 par value per share, and 5,000,000 shares of Preferred
Stock, $.001 par value per share. If the proposed reincorporation of the Company
as a Delaware corporation is not consummated, the Company will remain a
California corporation. As a consequence, the Company would continue to have the
same number of authorized shares of Common Stock and Preferred Stock as it would
if the Company reincorporated in Delaware, but the shares of the current
California corporation do not have par value. The Certificate of Incorporation
and the Bylaws of the Company contain certain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and which may have the effect of delaying, deferring or
preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Board of Directors.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, except that, upon giving the
legally required notice, stockholders may cumulate their votes in the election
of directors. Subject to preferences that may be applicable to any outstanding
shares of Preferred Stock, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior rights of shares of
Preferred Stock, if any, then outstanding. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and non-assessable. Pursuant to the Company's Shareholder Rights
Plan, each share of Common Stock currently outstanding and all shares of Common
Stock to be issued in connection with the offering of shares herein has received
or will receive, as the case may be, one Preferred Share Purchase Right per
share of Common Stock, which until such right becomes exercisable, trades with
the shares of the Company's Common Stock.
At June 28, 1997, 8,357,157 shares of Common Stock were outstanding and held
of record by 282 stockholders. At June 28, 1997, options to purchase an
aggregate of 1,780,470 shares of Common Stock were also outstanding.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
(less 20,000 shares which have been designated Series A Participating Preferred
Stock) in one or more series and to determine the powers, preferences and rights
and the qualifications, limitations or restrictions, any or all of which may be
greater than the rights of the Common Stock, granted to or imposed upon any
wholly unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. In connection with the
Company's Shareholder Rights Plan, 20,000 shares of such Preferred Stock have
been designated Series A Participating Preferred Stock. No shares of the Series
A Participating Preferred Stock have been issued or are issuable until the
occurrence of certain triggering events. See "--Shareholder Rights Plan." The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders, may adversely affect the voting and other rights of the holders of
Common Stock and may have the effect of decreasing the market price of the
Common Stock. At present, the Company has no plans to issue any shares of
Preferred Stock.
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SHAREHOLDER RIGHTS PLAN. In October 1996, the Board of Directors adopted
the Shareholder Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan,
the Company declared a dividend of one Preferred Share Purchase Right (a
"Right") for each outstanding share of Common Stock and each share of Common
Stock issued thereafter. Initially, each Right entitles the holder thereof to
purchase from the Company one share of Common Stock at an exercise price of
$126.00, subject to adjustment for stock splits, stock dividends and similar
events. The Rights are not exercisable until the occurrence of certain
triggering events.
The Rights will become exercisable only if a person or group acquires 15% or
more of the Company's Common Stock or announces a tender offer or exchange offer
that would result in its ownership of 15% or more of the Common Stock. At the
time the Board of Directors adopted the Rights Plan, a stockholder of the
Company, Kopp Investment Advisors and its affiliates ("Kopp"), held more than
15% of the Company's Common Stock. In order to avoid triggering the Rights Plan
by virtue of such pre-existing interest, the Company and Kopp entered into an
agreement and the Rights Plan was amended such that, in the case of Kopp, the
Rights will become exercisable upon Kopp acquiring or announcing a tender offer
or exercise offer that would result in its ownership of 25% or more of the
outstanding shares of the Company. Ten days after an acquisition or offer by a
person or group for 15% or more of the Company's Common Stock (or 25% in the
case of Kopp), each Right becomes exercisable at the Right's then current
exercise price, for shares of Common Stock of the Company (or, in certain
circumstances as determined by the Board of Directors, a combination of cash,
property, Common Stock or other securities) having a value of twice the Right's
exercise price. Alternatively, if the Company is involved in a merger or other
business combination transaction with another person ten or more days after such
acquisition or offer, each Right becomes exercisable, at the Right's then
current exercise price, for shares of common stock of such other person having a
value of twice the Right's exercise price. The Rights are redeemable up to ten
days following the announcement of such acquisition or offer, subject to
extension by the Board of Directors, at a price of $0.01 per Right. The Rights
Plan expires in October 2006 unless the Rights are earlier redeemed by the
Company.
Pursuant to the Rights Plan, 20,000 shares of Preferred Stock have been
designated Series A Participating Preferred, and reserved for issuance under the
Rights Plan. The Series A Participating Preferred purchasable upon exercise of
the Rights will be nonredeemable and junior to any other series of Preferred
Stock the Company may issue (unless otherwise provided in the terms of such
stock). Each share of Series A Participating Preferred will have a preferential
cumulative quarterly dividend in an amount equal to 1,000 times the dividend
declared on each share of Common Stock and, in the event of liquidation, the
holders of Series A Participating Preferred will receive a preferred liquidation
payment equal to $126,000 per share, plus accrued and unpaid dividends (the
"Series A Liquidation Preference"). Following payment of the Series A
Liquidation Preference, and after the holders of shares of Common Stock shall
have received an amount per share equal to the quotient obtained by dividing the
Series A Liquidation Preference by 1,000, the holders of Series A Participating
Preferred and holders of Common Stock shall share ratably and proportionately
the remaining assets to be distributed in liquidation. Each share of Series A
Participating Preferred Stock will have 1,000 votes, voting together with the
shares of Common Stock as a single class. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are exchanged
for or changed into other securities, cash and/or other property, each share of
Series A Participating Preferred will be entitled to receive 1,000 times the
amount and type of consideration received per share of Common Stock.
The Rights Plan is intended to protect the Company's stockholders in the
event of an unsolicited offer to acquire, or the acquisition of, 15% or more
(or, in the case of Kopp, 25% or more) of the Common Stock of the Company. The
Rights are not intended to prevent a takeover of the Company and will not
interfere with any tender offer or business combination approved by the Board of
Directors. The Rights encourage persons seeking control of the Company to
initiate such an acquisition or offer to acquire through arm's-length
negotiations with the Board of Directors.
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<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides for cumulative voting
for the election of directors. Section 141 of the Delaware General Corporation
Law provides that a director elected by cumulative voting may not be removed
without cause if the number of votes cast against removal would be sufficient to
elect such director under cumulative voting. The Company's Bylaws define "cause"
for the purpose of these provisions to mean (i) continued willful failure to
perform the obligations of a director, (ii) gross negligence by the director,
(iii) engaging in transactions that defraud the Company, (iv) fraud or
intentional misrepresentation including falsifying use of funds and intentional
misstatements made in financial statements, books, records or reports to
stockholders or governmental agencies, (v) material violation of any agreement
between the director and the Company, (vi) knowingly causing the Company to
commit violations of applicable law (including by failure to act), (vii) acts of
moral turpitude or (viii) conviction of a felony.
The Company's Bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board of
Directors. Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to the Company's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the Bylaws do not give the Board of Directors the power to
approve or disapprove stockholder nominations of candidates or proposals
regarding other business to be conducted at a special or annual meeting of the
stockholders, the Bylaws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law. In general, such provisions prohibit a publicly held Delaware corporation
from engaging in various "business combination" transactions with any
"interested stockholder" for a period of three years after the date of the
transaction which the person became an "interested stockholder," unless (i)
prior to such date, the Board of Directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a) persons
who are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Section 203
defines business combination to include: (i) any merger or consolidation
involving the corporation and the interested stockholder; (ii) any sale,
transfer, pledge or other disposition involving the interested stockholder of
10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general,
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Section 203 defines an interested stockholder as any entity or person who,
together with affiliates and associates, beneficially owns (or within three
years, did beneficially own) 15% or more of a corporation's voting stock. The
statute could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chase Mellon
Shareholder Services L.L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
10,357,157 shares of Common Stock, of which 10,344,731 shares will be freely
tradable without restriction. For a period of 90 days from the date of this
Prospectus, the executive officers and directors of the Company have agreed that
without the prior written consent of Morgan Stanley & Co. Incorporated they will
not (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, lend, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer, or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into a swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, other than (a) transactions by
any executive officer or director of the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the date of
the Prospectus or (b) the sale of up to 100,000 shares of Common Stock, in the
aggregate, currently held or hereinafter acquired upon the exercise of options
currently held by the executive officers or directors provided no individual
executive officer or director sells more than 30,000 of such shares of Common
Stock. Thereafter, such shares can be sold in the public market subject to
certain volume and other restrictions of Rule 144 under the Securities Act. In
addition, upon completion of the offering, there will be outstanding options to
purchase a total of approximately 1,780,470 shares of the Company's Common Stock
under the Option Plans. Sale of substantial amounts of such shares in the public
market or the prospect of such sales could adversely affect the market price of
the Company's Common Stock. The Company has agreed in the Underwriting Agreement
that, without the prior written consent of Morgan Stanley & Co. Incorporated, it
will not (other than the issuance by the Company of shares of Common Stock upon
the exercise of options sold or granted pursuant to the Company's Stock Plans or
pursuant to the Company's 1994 Employee Stock Purchase Plan and outstanding or
reserved for issuance on the date of the Prospectus.) issue, offer, sell, grant
options to purchase (unless such options are granted to employees or directors
of or consultants to the Company pursuant to the Company's Stock Plans) or
otherwise dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with the Company's Common Stock or
other equity securities for a period of 90 days after the first date that any
shares of Common Stock are released for sale in the offering. The lock-up
agreements may be released at any time as to all or any portion of the shares
subject to such agreements at the sole discretion of Morgan Stanley & Co.
Incorporated.
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<PAGE>
UNDERWRITERS
Under the terms and subject to conditions in an Underwriting Agreement dated
the date hereof (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters") for whom Morgan Stanley & Co. Incorporated, Lehman Brothers
Inc. and Oppenheimer & Co., Inc. are serving as Representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell to them, severally, the respective number of shares of Common
Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated................................................
Lehman Brothers Inc..............................................................
Oppenheimer & Co., Inc...........................................................
----------
Total.......................................................................... 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the public offering price set
forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share to other Underwriters or to
certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 300,000 shares of Common Stock at
the public offering price set forth on the cover page hereof, less estimated
underwriting discounts and commissions and estimated offering expenses. The
Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares of Common
Stock offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares of Common Stock offered hereby.
The Company, its executive officers and directors have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated, they will not
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, lend, purchase any option or contract to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
similar arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in the above clause (i) or (ii) is to be settled by delivery of such
Common Stock or such other securities, in cash or otherwise, for a period of 90
days after the date of this Prospectus, other than (a) the sale by the Company
to the Underwriters of the shares of Common Stock pursuant to the Underwriting
Agreement, (b) transactions by any executive officer or director of the Company
relating to shares of Common Stock or other securities acquired in open market
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transactions after the date of the Prospectus, (c) the sale of up to 100,000
shares of Common Stock, in the aggregate, currently held or hereinafter acquired
upon the exercise of options currently held by the executive officers or
directors provided no individual executive officer or director sells more than
30,000 of such shares of Common Stock or (d) the issuance by the Company of
shares of Common Stock upon exercise of options sold or granted pursuant to the
Company's Stock Plans or pursuant to the Company's 1994 Employee Stock Purchase
Plan and outstanding or reserved for issuance on the date of the Prospectus. See
"Description of Capital Stock--Shares Eligible for Future Sale."
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time. The Underwriters and dealers may engage
in passive market making transactions in the Common Stock in accordance with
Rule 103 of Regulation M promulgated by the Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two month period, or 200
shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may stabilize or maintain the market price of the
Common Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.
EXPERTS
The consolidated financial statements and schedule of the Company as of
March 31, 1997 and 1996, and for each of the years in the three-year period
ended March 31, 1997 have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent auditors, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which
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<PAGE>
are omitted in accordance with the Rules and Regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Company is subject to the
information requirements of the Exchange Act, and in accordance therewith, files
reports, proxy and information statements and other information with the
Commission. Such reports, statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at its
office at Room 1034, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. The address of the site is
http://www.sec.gov. The Company's Common Stock is quoted on the Nasdaq National
Market. Reports, proxy statements and other information concerning the Company
can also be inspected at the National Association of Securities Dealers, Inc.,
1735 K Street N.W., Washington, D.C. 20002.
49
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
estimated underwriting discount, payable by the Company in connection with the
sale of Common Stock being registered. All amounts are estimates except the SEC
registration fee, NASD filing fee and Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 31,538
NASD filing fee................................................................... 10,908
Nasdaq National Market listing fee................................................ 17,500
Printing expenses................................................................. 100,000
Legal fees and expenses........................................................... 150,000
Accounting fees and expenses...................................................... 100,000
Blue Sky fees and expenses........................................................ 10,000
Transfer agent fees............................................................... 2,500
Miscellaneous expenses............................................................ 77,554
----------
Total........................................................................... $ 500,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders, (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders, (vi) interested transactions between the
corporation and a director in which a director has a material financial
interest, and (vii) liability for improper distributions, loans or guarantees.
This provision does not eliminate the directors' duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act. The Registrant's Articles of Incorporation and Bylaws contain
provisions covering indemnification to the maximum extent permitted by the
California General Corporation Law of corporate directors, officers and other
agents against certain liabilities and expenses incurred as a result of
proceedings involving such persons in their capacities as directors, officers
employees or agents, including proceedings under the Securities Act or the
Exchange Act. The Company has entered into Indemnification Agreements with its
directors and executive officers.
II-1
<PAGE>
In connection with its reincorporation in Delaware, the Company will be
subject to Section 145 of the Delaware General Corporation Law which authorizes
a court to award or a corporation's Board of Directors to grant indemnification
to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Upon
shareholder approval of such reincorporation, Article VI, Section 1, of the
Registrant's Bylaws will provide for mandatory indemnification of its directors
and officers and permissible indemnification of employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. The
Registrant's Certificate of Incorporation will provide that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty as directors to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omission not in good faith or involving international
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors, a form of which was attached as Appendix D to the Company's
Definitive Proxy Statement on Schedule 14A filed with the Commission on June 26,
1997 and incorporated herein by reference. The Indemnification Agreements
provide the Registrant's officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is made to Section 8 of the Underwriting Agreement contained as Exhibit 1.1
hereto, indemnifying officers and directors of the Registrant against certain
liabilities.
In addition to the foregoing, the Underwriting Agreement provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the several Underwriters, against certain
liabilities, including liabilities arising under the Securities Act.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of KPMG Peat Marwick LLP, independent auditors (see page II-5).
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see II-4).
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 15 of
this Registration Statement, the Underwriting Agreement or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for
II-2
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(3) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the Prospectus, to each person to whom the Prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act;
and, where interim financial information required to be presented by Article
3 of Regulation S-X are not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
(4) For the purpose of determining liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California, on the 25th day of
July, 1997.
SPECTRIAN CORPORATION
By: /s/ GARRETT A. GARRETTSON
-----------------------------------------
Garrett A. Garrettson
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Garrett A.
Garrettson and Bruce R. Wright his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement on Form S-3 (including post-effective amendments), to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, thereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutions, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ---------------
President, Chief Executive
/s/ GARRETT A. GARRETTSON Officer and Director
- ------------------------------ (Principal Executive
Garrett A. Garrettson Officer) July 25, 1997
Executive Vice President,
Finance and
/s/ BRUCE R. WRIGHT Administration, Chief
- ------------------------------ Financial Officer and
Bruce R. Wright Secretary (Principal
Financial and Accounting
Officer) July 25, 1997
/s/ JAMES A. COLE
- ------------------------------ Director
James A. Cole July 25, 1997
- ------------------------------ Director
Robert C. Wilson , 1997
/s/ ERIC A. YOUNG
- ------------------------------ Director
Eric A. Young July 25, 1997
/s/ MARTIN COOPER
- ------------------------------ Director
Martin Cooper July 25, 1997
II-4
<PAGE>
EXHIBIT 23.1
The Board of Directors
Spectrian Corporation:
We consent to the use of our reports incorporated herein by reference and to
the references to our firm under the headings "Selected Consolidated Financial
Data" and "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
San Jose, California
July 25, 1997
II-5
<PAGE>
DRAFT OF 7-24-97
2,000,000 Shares
SPECTRIAN CORPORATION
COMMON STOCK ($.001 PAR VALUE)
UNDERWRITING AGREEMENT
July __, 1997
<PAGE>
July __, 1997
Morgan Stanley & Co. Incorporated
Lehman Brothers, Inc.
Oppenheimer & Co., Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Spectrian Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate of 2,000,000 shares of the Common Stock ($.001
par value) of the Company (the "Firm Shares"), all of which are to be issued
and sold by the Company.
The Company also proposes to issue and sell to the several Underwriters
not more than an additional 300,000 shares of its Common Stock ($.001 par
value) (the "Additional Shares") if and to the extent that you, as Managers
of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such Additional Shares granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares." The shares of
Common Stock ($.001 par value) of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock." The Company is hereinafter sometimes referred to as the
"Seller."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (Commission File No. 333-___),
including a prospectus, relating to the Shares. The registration statement,
as amended at the time it becomes effective, including the information
incorporated by reference therein and information (if any) deemed to be part
of the registration statement at the time of effectiveness pursuant to Rule
430A under the Securities Act of 1933, as amended (the "Securities Act"), is
hereinafter referred to as the "Registration Statement," the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as
the "Prospectus." If the Company has filed an abbreviated registration
statement to register additional shares of Common Stock pursuant to Rule
462(b) under the Securities Act (the "Rule 462 Registration Statement"), then
any reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and
no proceedings for such purpose are pending before or, to the Companys
knowledge, threatened by the Commission.
(b) Each document filed pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") complied in all material respects with
the Exchange Act and the applicable rules and regulations of the
Commission thereunder, (ii) each part of the Registration Statement,
when it became effective, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make
<PAGE>
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties set
forth in this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
Company. Other than Gibralter Court Associates, a [California] limited
liability company, the Company has no subsidiaries.
(d) The Company has good and marketable title to all real and personal
property owned by it, free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and any real property
and buildings held under lease by the Company are held by it under valid,
subsisting and enforceable leases, except with such exceptions as are not
material and do not interfere with the current and proposed use of such
property and buildings by the Company, except as described in or contemplated
by the Prospectus.
(e) This Agreement has been duly authorized, executed and delivered by the
Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The Common Stock outstanding prior to the issuance of the Shares to
be sold by the Company have been duly authorized and are validly issued,
fully paid and nonassessable. Except as set forth in the Prospectus and
other than options granted pursuant to the Company's 1992 Stock Plan, 1994
Director's Option Plan, 1994 Employee Stock Purchase Plan and 1996 Rights
Plan (collectively the "Stock Plans") or otherwise as described in the
Prospectus, the Company does not have outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. All outstanding shares of capital
stock and options and other rights to acquire capital stock have been issued
in compliance with the registration and qualification provisions of all
applicable securities laws and were not issued in violation of any preemptive
rights, rights of first refusal and other similar rights.
(h) The Shares to be sold by the Company have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, and the issuance of
such Shares will not be subject to any preemptive, rights of first refusal or
other similar rights.
(i) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or bylaws of
the Company or any agreement or other instrument binding upon the Company
that is material to the Company, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and
no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial
or otherwise, or in the earnings, business or operations of the Company, from
that set forth in the Prospectus.
2
<PAGE>
(k) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) the Company has not
incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of business;
(ii) the Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind on
its capital stock other than ordinary and customary dividends; and (iii)
there has not been any change in the capital stock, short-term debt or
long-term debt of the Company, except as described in or contemplated by the
Prospectus.
(l) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company is a party or to which
any of the properties of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described
or filed as required.
(m) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(o) There is no owner of any securities of the Company who has any
right, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares thereunder.
(p) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which it is engaged; the Company has
not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company, except as described in or contemplated by the Prospectus.
(q) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals would
not, singly or in the aggregate, have a material adverse effect on the
Company.
(r) The costs and liabilities, if any, associated with the effect of
Environmental Laws on the business, operations and properties of the Company
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) would not, singly
or in the aggregate, have a material adverse effect on the Company.
(s) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida) relating to doing
business with the Government of Cuba or with any person or affiliate
located in Cuba.
3
<PAGE>
(t) The Company owns or possesses adequate licenses or other rights to
use all patents, copyrights, trademarks, service marks, trade names,
technology and know-how necessary to conduct its business in the manner
described in the Prospectus and, except as disclosed in the Prospectus, the
Company has not received any notice of infringement or conflict with asserted
rights of others with respect to any patents, copyrights, trademarks, service
marks, trade names, technology or know-how that could result in any material
adverse effect upon the Company; and, except as described in the Prospectus,
the discoveries, inventions, products or processes of the Company referred to
in the Prospectus do not, to the best knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process that is the subject of a patent application
filed by any third party, known to the Company that could have a material
adverse effect on the Company.
(u) The Company possesses all consents, approvals, orders, certificates,
authorizations and permits issued by, and has made all declarations and
filings with, all appropriate federal, state or foreign governmental and
self-regulatory authorities and all courts and other tribunals necessary to
conduct its business and to own, lease, license and use its properties in the
manner described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company, and
the Company has not received any notice of proceedings related to the
revocation or modification of any such consent, approval, order, certificate,
authorization or permit that, singly or in the aggregate, if the subject of
any unfavorable decision, ruling or finding, or failure to obtain or file,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company, except
as described in the Prospectus.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principals of the
United States and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(w) No material labor dispute with employees of the Company exists or to
the knowledge of the Company, is imminent, and, without conducting any
independent investigation, the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, the
earnings, the business or operations of the Company.
(x) As of the date the Registration Statement became effective, the
Common Stock was authorized for quotation on The Nasdaq National Market upon
official notice of issuance.
(y) _____ outstanding shares of the Common Stock and securities
convertible into or exercisable or exchangeable for Common Stock, are
subject to valid, binding and enforceable agreements (the "Lock-ups")
that restrict the holders thereof from selling, making any short sale
of, granting any option for the purchase of, or otherwise transferring
or disposing of, any such shares of Common Stock, or any such
securities convertible or exercisable or exchangeable for Common
Stock, for a period of 90 days after the date of the final prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from Seller at $________ a share (the "Purchase Price") the number of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the number of Firm Shares to be
sold by Seller as the number of Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of Firm
Shares.
4
<PAGE>
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to
sell to the Underwriters the Additional Shares, and the Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 300,000
Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such option, you shall so notify the Company
in writing not later than 30 days after the date of this Agreement, which
notice shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such
date may be the same as the Closing Date (as defined below) but not earlier
than the Closing Date nor later than ten business days after the date of such
notice. Additional Shares may be purchased as provided in Section 4 hereof
solely for the purpose of covering over-allotments made in connection with
the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm
Shares set forth in Schedule I hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder or
(B) the issuance by the Company of shares of Common Stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the
date hereof and described in the Prospectus or (C) under the Company's 1992
Stock Plan or 1994 Director Option Plan or (D) any shares of Common Stock
received pursuant to the Company's Employee Stock Purchase Plan.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of the Shares as soon after
the Registration Statement and this Agreement have become effective as in
your judgment is advisable. Seller is further advised by you that the Shares
are to be offered to the public initially at $__________ a share (the "Public
Offering Price") and to certain dealers selected by you at a price that
represents a concession not in excess of $________ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $_________ a share, to any
Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by the
Company shall be made by certified or official bank check or checks payable
to the order of the Company in same day funds at the office of Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation at 10:00 a.m., New
York City time, on __________, 1997, or at such other time on the same or
such other date, not later than _________, 1997, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred
to as the "Closing Date."
Payment for any Additional Shares shall be made by certified or official
bank check or checks payable to the order of the Company in same day funds at
the office of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation at
10:00 a.m., New York City time, on the date specified in the notice described
in Section 2 or at such other time on the same or on such other date, in any
event not later than ________, 1997, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for
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the respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of
the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the
Company, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in clause (a)(i) above and to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the Company
has complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied hereunder on or before the Closing
Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion
of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, outside
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material
adverse effect on the Company;
(ii) other than Gilbralter Court Associates, to the knowledge of such
counsel, the Company does not own any equity or capital interest
in any corporation, partnership, joint venture, association or
other entity;
(iii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
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(iv) the shares of Common Stock outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized
and are validly issued, and nonassessable and, to such counsel's
knowledge, fully paid;
(v) the Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of
this Agreement, will be validly issued, fully paid and
nonassessable, and the issuance of such Shares will not be
subject to any preemptive rights as set forth in the Company's
Certificate of Incorporation or By laws or, to such counsel's
knowledge, rights of first refusal or other similar rights;
(vi) to the knowledge of such counsel, there is no legal or beneficial
owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the
filing of the Registration Statement;
(vii) the Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by the Company;
(viii) this Agreement has been duly authorized, executed and delivered
by the Company;
(ix) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of
incorporation or bylaws of the Company or, to the of such
counsel's knowledge, any agreement or other instrument binding
upon the Company that is material to the Company (where such
agreements and instruments being those set forth as exhibits to
the Registration Statement, including those incorporated by
reference therein) or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the
Shares;
(x) the Registration Statement has become effective under the
Securities Act, and, to such counsel's knowledge, no stop order
proceedings with respect thereto have been instituted or are
pending or threatened under the Securities Act, and (B) any
required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) under the Securities Act has been made in
the manner and within the time period required by such Rule
424(b);
(xi) the Shares to be sold under this Agreement to the Underwriters by
the Company are duly authorized for quotation on The Nasdaq
National Market;
(xii) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and "Underwriters" (as such
relates solely to a description of this Agreement), (B) the
description of the Company's Preferred Share Purchase Rights
contained in the Registration Statement on Form 8-A filed with
the Commission on January 17, 1997 and incorporated by reference
in the Registration Statement, (C) the descriptions of the
Company's 1992 Stock Plan, the Company's 1994 Director Option
Plan and the Company's Employee Stock Purchase Plan in the
Company's Definitive Proxy Statement on Schedule 14A and Notice
of Annual Meeting of Stockholders filed with the Commission on
June 26, 1997 and incorporated by reference in the Registration
Statement and (D) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries
of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect
to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein;
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(xiii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company is a party
or to which any of the properties of the Company is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not
described or filed as required;
(xiv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company"
as such term is defined in the Investment Company Act of 1940, as
amended;
(xv) the Company (A) is in compliance with any and all applicable
Environmental Laws, (B) has received all permits, licenses or
other approvals required of it under applicable Environmental
Laws to conduct its business and (C) is in compliance with all
terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure
to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have
a material adverse effect on the Company;
(xvi) the Agreement and Plan of Merger (the "Plan of Merger") by and
between the Company and Spectrian Corporation, a California
Corporation ("Spectrian"), has been duly authorized by all
necessary board of directors and stockholder and shareholder
action on the part of the Company and Specrian and has been duly
executed and delivered by each of the parties thereto;
(xvii) the execution and delivery of the Plan of Merger and the
consummation of the merger contemplated thereby does not
contravene any provision of applicable law or the certificate of
incorporation or bylaws of the Company or the articles of
incorporation or bylaws of Spectrian or any agreement or other
instrument binding upon the Company that is material to the
Company, (where such agreements and instruments being those as
including those incorporated by reference therein) or, to such
counsel's knowledge, any judgment or decree of any governmental
body, agency or court having jurisdiction over Spectian, and no
consent, approval, authorization or order of or qualification
with any governmental body or agency is required for the
performance by the Company and Spectrian of its obligations under
the Plan of Merger except such as have been obtained;
(xviii) the merger contemplated by the Plan of Merger is effective
under the laws of the State of California and the State of
Delaware; and
(xix) In addition, such counsel shall state that in addition to
rendering legal advice and assistance to the Company in the
course of the preparation of the Registration Statement and the
Prospectus, involving, among other things, discussions and
inquiries concerning various legal matters and the review of
certain corporate records, documents and proceedings (in addition
to those described in paragraphs (i) through (xviii) above), such
counsel also participated in conferences with certain officers
and other representatives of the Company, including its
independent certified public accountants and with the
Underwriters and their counsel, at which the contents of the
Registration Statement and the Prospectus and related matters
were discussed; provided, such counsel may state that they have
not independently verified the accuracy, completeness or fairness
of the information contained in the Registration Statement and
Prospectus. Such counsel shall also state that based upon its
participation as described in the preceding paragraph, (i) they
believe that the Registration Statement and the Prospectus
(except for financial statements and schedules and other
financial data derived therefrom as to which they need express no
belief) complied as to form in all material respects with the
requirements of the Act and the rules and regulations of the
Commission therunder and (ii) they confirm that they have no
reason to believe that (except for financial statements and
schedules and other financial data derived therefrom as to which
they need express no belief) the Registration Statement, as of
its effective date, contained any
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untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading or that (except for financial
statements and schedules and other financial dada derived
therefrom as to which they need express no belief) the
Prospectus, on a material fact or omits to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an opinion
of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
the Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (v), (viii), (xii) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters") and the
last of paragraph in Section (c) above.
With respect to the last paragraph in Section (c) above, Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation and Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
The opinions of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, described in paragraph (c) above, shall be rendered to the
Underwriters at the request of the Company, and shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from
KPMG Peat Marwick LLP, independent certified public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement and
the Prospectus; PROVIDED that the letter delivered on the Closing Date shall
use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements between you and certain stockholders,
officers and directors of the Company relating to sales and certain
other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in
full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, three (3) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next succeeding
the date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to
such Rule.
(c) If, during such period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist
as a result of which it is necessary to amend or
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<PAGE>
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with applicable
law, forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading
or so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and to
you as soon as practicable an earning statement covering the twelve-month
period ending September 30, 1998 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
7. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees
to pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove specified,
(ii) all costs and expenses related to the transfer and delivery of the
Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the Shares
under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities Dealers,
Inc., (v) all costs and expenses incident to listing the Shares on the Nasdaq
National Market (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing
of the offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the
road show, and (ix) all other costs and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 8 entitled "Indemnity and Contribution",
and the last paragraph of Section 10 below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
8. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein
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or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; PROVIDED, HOWEVER,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter, or any person
controlling such Underwriter, from whom the person asserting any such losses,
claims, damages or liabilities purchased Shares, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares
to such person, and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or liability.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a) or (b) of this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel relating
to such proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any,
who control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the fees and
expenses of more than one separate firm (in addition to any local counsel)
for the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for
the Underwriters and such control persons of any Underwriters, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated. In the
case of any such separate firm for the Company, and such directors, officers
and control persons of the Company, such firm shall be designated in writing
by the Company. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party
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of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a), (b)
or (c) of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other hand from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and of the indemnified party or parties on the other
hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in
the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one
hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Seller or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 8 are several in
proportion to the respective number of Shares they have purchased hereunder,
and not joint.
(e) Seller and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 8 were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) of this Section 8.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 8 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section
8 and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Shares.
9. TERMINATION. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any
of the New York Stock
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Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New
York shall have been declared by either Federal or New York State authorities
or (iv) there shall have occurred any outbreak or escalation of hostilities
or any change in financial markets or any calamity or crisis that, in your
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iv), such event, singly or together with
any other such event, makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number
of Firm Shares set forth opposite their respective names in Schedule I bears
to the aggregate number of Firm Shares set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed
to purchase pursuant to this Agreement be increased pursuant to this Section
10 by an amount in excess of one-ninth of such number of Shares without the
written consent of such Underwriter. If, on the Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and
the aggregate number of Firm Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Firm Shares to be
purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or
the Seller shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in
the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional
Shares and the aggregate number of Additional Shares with respect to which
such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that
such non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if
for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
13
<PAGE>
13. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
SPECTRIAN CORPORATION
By: ________________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Lehman Brothers, Inc.
Oppenheimer & Co., Inc.
Acting severally on behalf of themselves
and the several Underwriters named
herein.
By: Morgan Stanley & Co. Incorporated
By: ____________________________
Name:
Title:
14
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Full Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated
Lehman Brothers, Inc.
Oppenheimer & Co., Inc.
----------------
Total . . .
----------------
----------------
</TABLE>
S-1
<PAGE>
EXHIBIT 5.1
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California
Phone: (415) 493-9300 Fax: (415) 493-6811
July 25, 1997
Spectrian Corporation
350 W. Java Drive
Sunnyvale, CA 94089
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by you with
the Securities and Exchange Commission (the "Commission") on or about June 25,
1997 (as such may be further amended or supplemented, the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of up to 2,300,000 shares of your Common Stock and
the attached Preferred Share Purchase Rights, which prior to the occurrence of
certain events, will not be exercisable or evidenced separately from the Common
Stock (the "Shares"). The Shares, which include up to 300,000 shares of Common
Stock issuable pursuant to an over-allotment option granted to the underwriters
(the "Underwriters"), are to be sold to the Underwriters as described in such
Registration Statement for sale to the public. As your counsel in connection
with this transaction, we have examined the proceedings proposed to be taken by
you in connection with the issuance and sale of the Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof, as
such may be further amended or supplemented, or incorporated by reference in any
Registration Statement relating to the Prospectus filed pursuant to Rule 462(b)
of the Act.
Very truly yours,
/S/ WILSON SONSINI GOODRICH & ROSATI
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
