UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1997 or
|_| Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________
Commission file number: 0-24360
SPECTRIAN CORPORATION
(Exact name of registrant as specified in its charter)
California 77-0023003
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
350 West Java Drive, 94089
Sunnyvale, California (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (408) 745-5400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on June
5, 1997 as reported on the Nasdaq National Market, was approximately
$145,486,588. Shares of Common Stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of June 5, 1997, registrant had outstanding 8,307,161 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference to Parts
II, III and IV of this Annual Report on Form 10-K: (1) Proxy Statement for
registrant's 1997 Annual Meeting of Shareholders to be held July 31, 1997 and
(2) registrant's Annual Report to Shareholders for the fiscal year ended March
31, 1997.
<PAGE>
PART I
ITEM 1. BUSINESS
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including those set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Report or
incorporated by reference herein.
Spectrian Corporation (herein "Spectrian" or the "Company") 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 improve spectrum efficiency,
allow lower capital costs per subscriber, enhance the quality and reliability of
service and help service providers achieve rapid and large scale deployment of
wireless infrastructure equipment.
Industry Background
The market for wireless communications services has grown significantly
during the past decade as cellular, Personal Communications Services ("PCS"),
Wireless Local Loop ("WLL"), paging, specialized mobile radio and other new and
emerging applications have become accessible and affordable to growing numbers
of consumers, businesses and governments. Among the various types of wireless
services, the markets for cellular, PCS and WLL (collectively "wireless")
communications are currently the largest. According to the Cellular Telephone
Industry Association ("CTIA"), from 1984 to 1996 the number of cellular
subscribers in the United States has increased from under 100,000 to
approximately 42 million. In addition, based upon data compiled by the CTIA and
other industry publications, the Company estimates that the number of wireless
subscribers worldwide was approximately 125 million at the end of 1996.
Wireless market growth both in North America and Western Europe has
been fueled by decreasing prices for wireless phones, increasing competition
among service providers and a greater availability of services. In addition,
many developing countries are installing wireless telephone networks instead of
installing, expanding or upgrading traditional wireline networks. Moreover,
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. In connection with
wireless market growth, a number of radio frequency modulation standards, both
domestically and internationally, have evolved that govern the limited amount of
radio spectrum that is available to service providers.
The growth in wireless communications has required, and will continue
to require, substantial investment by service providers in infrastructure
equipment. A typical wireless communications system comprises a geographic
region containing a number of cells, each of which contains a cell site, which
are networked to form a service provider's coverage area. Each cell site or
"base station" houses the equipment that receives incoming telephone calls from
the switching office of the local wireline telephone
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company and broadcasts calls to the wireless users within the cell. Such
equipment includes an antenna and a series of transceivers, RF power amplifiers
and cavity filters. Typical cells cover a geographic area of up to five miles in
radius and are sometimes referred to as "macrocells," each of which typically
requires equipment costing between $600,000 and $1.5 million.
Wireless service providers compete in dynamic markets characterized by
evolving and competing industry standards, technologies and applications. Given
the large expenditures associated with infrastructure equipment, those wireless
service providers that are able to increase the efficiency and lower the cost of
new and existing systems, while improving reliability, will compete most
effectively. In addition, operators need to increase system capacity to
accommodate the growing number of subscribers. Consequently, wireless service
providers must anticipate evolving industry standards and invest in
infrastructure equipment that provides greater efficiency in the management of
the limited spectrum licensed to them. The ability to bring these improvements
to the market in a timely manner is also key to their success.
Wireless operators' 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 with 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 the service providers' ability to improve spectrum efficiency and
thereby increase system capacity. Substantial investment and technical expertise
are required to design and manufacture RF power amplifiers with high linearity.
Higher linearity amplifiers are required as the industry transitions
from analog to digital technologies. Traditional cellular systems, which are
based on analog technology, are capable of carrying only one call per channel of
spectrum. Such systems are being supplanted by digital systems, which allow a
given channel of spectrum to carry multiple calls simultaneously thereby
increasing system capacity. In addition, in order to maintain compatibility with
existing analog subscriber equipment while converting their systems to digital,
many wireless service providers in the United States are installing "dual mode"
systems that support both digital and analog technologies. Current analog
standards include AMPS in North America and TACS and NMT in Europe, and current
digital standards include TDMA and CDMA in North America, PDC in Japan and GSM
in most other parts of the world. CDMA has also become the Korean standard.
Digital standards which are expected to be utilized in emerging PCS systems
include TDMA, CDMA and GSM in North America, DCS-1800 in Europe and CDMA in
Korea.
The use of multicarrier amplifiers has many benefits and requires
leading edge linearity technology to function properly. Typically, each cell
site is assigned a fixed number of frequency channels which each require a
separate power amplifier and cavity filter. Consequently, a cell site reaches
capacity when it carries as many calls as it has channels, even though unused
channel capacity in adjacent cell sites may be available. Systems with dynamic
channel allocation capabilities are being implemented that allow channels to be
moved between cell sites to more fully utilize available capacity. These systems
require multicarrier power amplifiers, which can simultaneously broadcast
signals according to multiple
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transmission standards and over a variable number of channels, allowing more
efficient use of the radio frequency spectrum. Further, systems with high
subscriber densities are expected to utilize microcells which are smaller, less
expensive cell sites placed more closely together than the larger and more
costly macrocells.
Wireless service providers are requiring equipment that allows them to
provide higher quality and more reliable service. Since service provider revenue
is based on customer usage, equipment failure can cause an inability to process
calls, resulting in lost revenue. The Company believes that the RF power
amplifier in cell sites historically has been the most common single point of
equipment failure in wireless networks. Increasingly reliable power amplifiers
will, therefore, improve the level of service offered by wireless operators,
while reducing their operating costs and increasing their revenue. Further,
service providers are seeking solutions that allow them to reduce maintenance
costs, such as multicarrier amplifiers that do not require separate, high
maintenance cavity filters.
The market for wireless infrastructure equipment is primarily
concentrated among a few companies that supply equipment to wireless service
providers in North America and overseas. The Company believes that Lucent
Technologies, Inc. ("Lucent"), LM Ericsson Telephone Company ("Ericsson"),
Motorola Corporation ("Motorola"), Northern Telecom Limited ("Northern Telecom")
and Nokia Corporation supplied over 80% of the wireless infrastructure equipment
worldwide in 1996. These equipment manufacturers compete in high-growth, highly
competitive market segments in which technology changes rapidly and numerous
industry standards currently exist and are evolving. Although most of these
equipment manufacturers make their own amplifiers, in response to competition
and as the performance requirements of certain components of base stations
increase, many of these equipment manufacturers are focusing on their core
technologies and competencies and are relying 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 be capable of producing products that are highly linear, have
multicarrier functionality, support multiple standards, are highly reliable and
can be produced in high volumes.
The Spectrian Solution
Spectrian provides custom RF power amplifiers that represent attractive
alternatives to those of other merchant suppliers and those that could be
internally produced by many of the Company's customers. The differentiating
features of Spectrian's highly linear RF power amplifiers include:
Linearity. Spectrian has developed multiple competencies and
disciplines to achieve high linearity in its products. These technology
disciplines include RF power semiconductor technology, computer-aided design and
modeling, solid state device physics, thermal and mechanical packaging design,
advanced circuit design, amplifier linear correction technologies, advanced
signal processing techniques and digital control systems. The Company believes
that achieving high levels of linearity is critical to enabling Spectrian's
customers to provide wireless operators with higher capacity base station
equipment at lower capital cost per subscriber.
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Multicarrier Functionality. Spectrian is developing and supplying
multicarrier amplifiers that integrate the functions of multiple power
amplifiers and cavity filters into a single smaller unit. These integrated
multicarrier units can potentially reduce service providers' equipment and
maintenance costs and space requirements and enable them to implement dynamic
channel allocation solutions and microcells.
Standards Independence. Spectrian's technologies are compatible with
all wireless modulation standards. Spectrian currently provides single carrier
and multicarrier amplifiers that support multiple modulation standards. The
Company's multicarrier products support multiple analog and digital standards
simultaneously. Certain of the Company's single carrier products support both
analog and digital standards in a dual mode format. A single carrier dual mode
amplifier installed in a conventional analog cellular system does not need to be
replaced if the base station equipment is upgraded for digital transmission. The
Company believes that its ability to provide amplifiers for all modulation
formats as well as those which support multiple standards and have dual mode
capability is important to cellular service providers as they upgrade their
cellular infrastructure equipment and implement digital systems in an
environment characterized by evolving industry standards.
High Quality and Reliability. Spectrian provides power amplifiers
designed 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 implemented a total quality management
("TQM") program throughout the Company and is ISO 9001 certified. The Company
believes that designing products for high reliability in the field has been a
competitive advantage in securing orders from its customers.
Design for Manufacturability. Spectrian designs amplifiers to be
manufactured in high volumes at low cost. The integration of Spectrian's design
and production processes is a key element of the Company's ability to address
the cellular infrastructure equipment suppliers' quantity and time to market
requirements for power amplification products. The Company believes that
designing products for volume manufacturing 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 radio
frequency ("RF") power technology.
Strategy
Spectrian's objective is to be 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:
Develop Relationships with Leading Manufacturers of Wireless
Infrastructure Equipment. The Company has developed relationships with certain
large wireless equipment manufacturers, such as Northern Telecom, Nortel Matra
Cellular, in which Northern Telecom has an equity interest ("Nortel
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Matra"), LG Information & Communications ("LGIC") and QUALCOMM Incorporated
("QUALCOMM"), as well as certain emerging manufacturers such as Tellabs and
Watkins Johnson. Spectrian has also begun to establish some direct relationships
with 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. By establishing close relationships with
its customers, Spectrian hopes to secure additional business from these wireless
equipment manufacturers.
Provide Application Specific Products. The Company provides customized
or "application specific" amplification products to address the unique
requirements of the Company's customers. The Company relies upon its modular
product architecture and configurable core technologies in order to rapidly and
cost effectively develop application specific solutions for its customers. The
Company intends to use and promote its application specific design methodology
to provide its customers with industry leading high performance amplifiers
designed to meet the customers' requirements.
Pursue Standard and System Independence. The Company provides products
that are compatible with wireless communications systems provided by various
infrastructure suppliers and which operate under most major domestic and
international standards. By pursuing both standard and system independence, the
Company believes that it will benefit from the continuing growth of existing
wireless communications systems and other emerging wireless communications
markets while reducing the risks associated with relying on the success of one
or a limited number of existing or emerging industry standards. For cellular
systems, the Company currently supports the AMPS and TACS analog standards, and
the TDMA, GSM and CDMA digital standards. In addition, the Company has
developed, and is continuing to develop, products that address the needs of the
PCS and WLL markets.
Maintain a 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 high power RF
industry. In order to maintain a technological leadership position, the Company
believes that numerous integrated technical capabilities are required, including
proprietary semiconductor design and fabrication, unique packaging concepts and
components and expert circuit design. The Company's strategy is to continue to
invest significant resources to support the Company's technology leadership in
the linearity, power and efficiency of its product designs.
Employ Vertical Integration in Design and Manufacturing. The Company
has pursued a strategy of vertical integration of its design and manufacturing
processes. The Company believes that vertical integration enables the high
linearity of the Company's products, since the Company retains control of each
step in their development and manufacture, beginning with the design and
development of the semiconductor die and ending with the manufacture of the
final product. Each of these steps collectively contributes to the linearity of
a finished power amplifier. Vertical integration also improves the Company's
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time to market capabilities, reduces unit costs, improves quality control and
reliability, and improves the Company's ability to rapidly achieve volume
production.
Technology
The Company's linear power amplifiers are used primarily in connection
with wireless base station equipment. A typical wireless base station consists
of a series of wireless transceivers, power amplifiers and tunable cavity
filters and an antenna to transmit the signal to the wireless telephone user.
These wireless base stations typically contain between 6 and 100 radio frequency
channels, with each channel capable of supporting a single phone conversation,
and are typically configured with three sectors of 16 channels each for a total
of 48 channels. In a single carrier system, each separate radio frequency
channel requires a separate transceiver, power amplifier and tunable cavity
filter. The following chart depicts a typical signal transmission path for a
phone call from a wireline phone to a wireless phone:
[DIAGRAM]
[Edgar summary: Diagram depicting path of signal transmission from wireline
phone to telephone central office to mobile telephone switching office, across
fiber optic cable or microwave link, to wireless base station and, by antenna,
to wireless car phone].
The power amplifier within the base station receives a relatively weak
signal from the transceiver and significantly boosts the power of the outgoing
signal so that it can be broadcast throughout the cell. The radio frequency
power levels necessary to transmit the signal over the required range must be
achieved without distorting the modulation characteristics of the signal. The
signal must be amplified with linearity in order to remain in the assigned
frequency channel without distorting or interfering with adjacent channels.
Because the radio frequencies assigned to transmissions are fixed,
service providers are seeking new methods of more efficiently using frequencies
in order to increase capacity. One such method, dynamic channel allocation,
allows real-time changing of channel assignments across a metropolitan area to
follow user loading. Commuter density changes during rush hours and traffic jams
are examples of the dynamic nature of user loading. Dynamic channel allocation
allows the service provider to automatically move unused channels from less
active cell sites to busier adjacent cell sites as the load moves.
A key enabling technology for dynamic channel allocation is a
multicarrier amplifier, in which all channels are amplified together rather than
each channel using a separate power amplifier. The multicarrier power amplifier
makes possible instantaneous electronic channel allocation. A multicarrier power
amplifier functionally combines multiple single carrier power amplifiers,
typically 16, into a single unit, thus eliminating 16 single carrier power
amplifiers and the corresponding 16 tunable cavity filters. The following chart
depicts the increased functionality of a multicarrier power amplifier as
compared to a single carrier power amplifier:
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[DIAGRAM]
[Edgar summary: Diagram illustrating difference between the conversion of low
input power to high output power usage by single carrier amplifier and by
multicarrier amplifier, respectively]
Digital modulation schemes represent the most significant new
technology trend in the wireless industry. Service providers are transitioning
from traditional analog technologies to various digital technologies in order to
reduce service pricing and increase system capacity. With new competition from
PCS service providers there is increasing pressure on cellular operations to
complete this transition. Conversion to digital transmission is expected to
allow three to eight times as many voice conversations to occupy the same
frequency bands. Without significant improvements in power amplifier linearity,
however, multiple conversations on a single channel would lead to unacceptable
channel interference. The Company has developed ultralinear single carrier and
multicarrier amplifiers for all of the most significant new digital modulation
standards. The majority of all applications currently utilize single carrier
amplifiers.
A further trend in the development of base stations involves the
transition from macrocells to microcells. A multicarrier power amplifier
requires less space than multiple single carrier power amplifiers, allowing the
cell site to be physically smaller, an important consideration in urban
locations where the number of channels is more important than the absolute power
per channel. Conventional cell sites today are macrocells containing high power
amplifiers of 45 watts per channel which are designed to cover a geographic area
typically up to five miles in radius. With 48 channels in a typical base station
and one power amplifier per channel, a conventional analog macrocell's capacity
is typically 1,000 subscribers per cell, or approximately 20 subscribers per
analog channel. When the number of subscribers within the cell exceeds the
capacity of the macrocell's equipment, the cell must be split into several
smaller microcells to avoid a degradation in service to the subscribers. 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 are required in order to increase the capacity of the overall system.
Markets
Cellular systems have historically employed analog transmission
formats, certain of which have evolved into industry standards. The need to
accommodate a growing cellular customer base in a finite amount of spectrum has,
however, encouraged a worldwide transition from the traditional analog standards
to various digital technologies which are significantly more efficient. In the
North American cellular market, the established analog transmission format has
been the Advanced Mobile Phone Services ("AMPS") standard originally developed
by AT&T. Several large metropolitan markets have limited capacity to serve
increasing numbers of subscribers. The response to this need for additional
capacity has led to the emergence of digital technology standards in the North
American market including Time Division Multiple Access ("TDMA") and Code
Division Multiple Access ("CDMA").
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In the European cellular market the Nordic Mobile Telephone ("NMT")
standard and the Total Access Communication System ("TACS") have been used
throughout much of Europe as the industry standard analog transmission formats.
The European community and many other countries around the world have
implemented of a single digital standard, the Global System for Mobile
Communications ("GSM"). The implementation of GSM in Europe, where many
countries have traditionally had a single cellular operator, has been
accompanied in most cases by the addition of at least one competitive service
provider, which the Company believes has contributed to increased growth of such
systems.
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 Personal Digital Cellular ("PDC") standard into its
product offerings, because such standard has not developed to any great degree
outside of Japan.
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. PCS systems utilize
digital transmission standards, including TDMA, GSM and CDMA. The success of the
introduction of PCS as a new type of wireless service will depend in part on
whether infrastructure manufacturers and service providers can reduce system
manufacturing and service costs and pricing sufficiently to significantly
increase the rate of market penetration of potential subscribers.
The following chart illustrates these existing and developing standards
for wireless communications, and the markets served and standards supported by
the Company's current product offerings.
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<TABLE>
Major Wireless Standards By Region
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<CAPTION>
U.S.A.
Canada Europe Japan Rest of World
(MHz) (MHz) (MHz) (MHz)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Analog AMPS (800) NMT (450, 900) NTT (800) NMT (450, 900)
Cellular TACS (900) JTACS (800) AMPS (800)
AMPS (800) TACS (900)
- -------------------------------------------------------------------------------------------------
Digital CDMA (800) GSM (900) PDC (1500) CDMA (800, 900)
Cellular TDMA (800) JDC (800) GSM (900)
TDMA (450, 800)
- -------------------------------------------------------------------------------------------------
CDMA (1900) DCS 1800 (1800) PHS (1900) CDMA (1900)
PCS TDMA (1900) CDMA (1900) DCS-1800 (1800)
GSM (1900) CDMA (1800)
- -------------------------------------------------------------------------------------------------
WLL GSM (1900) NMT (450, 900) NMT (450, 900) PHS (1900)
CDMA (1900) TACS (900) TACS (900) CDMA (1900)
TDMA (1900) AMPS (800) AMPS (800)
CDMA (800) CDMA (800)
GSM (900) GSM (900)
DCS 1800 (1800) DCS 1800 (1800)
CDMA (2400)
- -------------------------------------------------------------------------------------------------
</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, cellular service may provide the primary service platform
for both mobile and fixed telecommunications. Due to political, social and
economic pressures to rapidly and efficiently provide reliable basic telephone
service in a cost-effective manner, many countries are beginning to view
wireless networks favorably because of the potential for dramatic reductions in
installation and maintenance costs and the ability to more rapidly deploy such
wireless systems.
If technological advances and price decreases continue to occur, a
market in the United States 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, wireless networks could provide local loop
service and direct access to the long distance carriers. Some local telephone
companies are conducting trials using fixed wireless terminals to provide basic
telephone service as a cost effective alternative to traditional wireline
service.
The wireless infrastructure equipment market is dominated by a small
number of large original equipment manufacturers ("OEMs"), including Lucent,
Ericsson, Motorola and Northern Telecom . The Company believes that a
substantial majority of the present worldwide production of power amplifiers is
captive within the manufacturing operations of these companies and offered for
sale as part of their
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wireless systems. Furthermore, the Company believes that it, along with its
competitors, have captured a significant share of the merchant market for power
amplifiers and, once captured, OEMs are reluctant to switch suppliers. As a
result, the Company's future success is dependent upon the extent to which these
OEMs elect to purchase from outside sources rather than design and build their
own amplifiers. Among the Company's current customers, Northern Telecom and LGIC
continuously evaluate whether to manufacture their own amplifiers. There can be
no assurance that the Company's customers will continue to rely, or expand their
reliance, on the Company for amplifiers, or that other OEMs will become
customers. If one or more of the Company's existing customers decided to build
their own amplifiers internally or if the trend to increasingly use outside
sources for amplifiers were to decline or reverse, the Company's business,
financial condition and results of operations would be materially adversely
affected.
Products
The Company designs application specific products that address the
unique requirements of its OEM customers in a timely and cost effective manner
by employing vertical integration in its manufacturing, and designing its
products in a modular fashion using configurable core technologies. 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:
- --------------------------------------------------------------------------------
Spectrian Single Carrier Amplifier Configurations
- --------------------------------------------------------------------------------
Frequency Power
Standard (MHz) (Watts)
- --------------------------------------------------------------------------------
Analog Cellular:
AMPS, CDPD 869-894 65
TACS 917-950 65
- --------------------------------------------------------------------------------
Digital Cellular:
TDMA 485-495 50
TDMA 869-894 50
CDMA 869-894 25
GSM 925-960 30
- --------------------------------------------------------------------------------
PCS:
DCS 1800 1805-1880 30
CDMA 1930-1990 20
GSM 1900 1930-1990 30
CDMA 1805-1870 30
- --------------------------------------------------------------------------------
The Company also offers multicarrier application specific amplification
products. Multicarrier power amplifiers require significantly higher linearity
compared to single carrier designs. The following table provides a list of the
standards for which the Company provides multicarrier amplifiers:
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- --------------------------------------------------------------------------------
Spectrian Multicarrier Amplifier Configurations
- --------------------------------------------------------------------------------
Frequency Power Typical
Standard (MHz) (Watts) Linearity (dBc)*
- --------------------------------------------------------------------------------
AMPS, TDMA, CDMA, CDPD 869-894 100-175 -70
TACS 917-950 25 -50
CDMA 1805-1870 100 -65
- --------------------------------------------------------------------------------
* 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 a radio frequency transistor 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 radio frequency amplifier pallet combined with a
digital control interface module. A power amplifier subsystem consists of
multiple cast housings and adds signal 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 and Europe 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, LGIC and
QUALCOMM. During fiscal 1997, Northern Telecom and Nortel Matra accounted for
63% and 12%, respectively, of revenues. During fiscal 1996, Northern Telecom and
Nortel Matra accounted for approximately 58% and 17%, respectively, of revenues.
During fiscal 1995, Northern Telecom, Nortel Matra and Ericsson accounted for
approximately 53%, 13% and 8%, respectively, of revenues. 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 has become more diverse. The Company expects that sales of its
products will continue to be concentrated among a limited number of customers.
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 a major customer, in particular Northern Telecom, or if
orders by a major customer were to otherwise decrease, the Company's business,
financial condition and results of operations would be materially adversely
affected.
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
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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 March 31, 1997, the Company had a direct sales
staff of eight people. The Company warrants new products against defects in
design, materials and workmanship, typically for a period of twelve to eighteen
months.
As part of the effort to diversify its product base, the Company has
begun 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 termination could have a materially adverse effect on the
Company's business, financial condition and results of operations.
The Company markets its products overseas with the assistance of
independent sales representatives to customers in Europe, Japan and South Korea.
The Company has four sales representatives in Europe covering Austria, Finland,
France, Germany, Italy, Sweden and Switzerland, one sales representative
dedicated to Japan and a representative organization in South Korea. In
addition, the Company is pursuing selected opportunities to sell its RF power
transistors and has three independent sales representatives and one sales
employee in the United States and Europe addressing this market. 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 73%, 72% and 71%
of revenues in fiscal 1997, 1996 and 1995, 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.
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Manufacturing
The Company assembles, tests, packages and ships amplifier products at
its manufacturing facilities located in Sunnyvale, California. The Company's
manufacturing facilities in Sunnyvale consist of a 4-inch wafer fabrication and
transistor assembly and test facility and an amplifier assembly and test
facility. The Company is winding down operations in its Mountain View 3-inch
fabrication facility and anticipates closure of that facility by the end of the
first quarter of fiscal 1998.
Wafer Fabrication. As part of its strategy of vertical integration, the
Company operates its own wafer fabrication facility for the production of the RF
power transistor, the most important component utilized in the Company's
amplifiers. 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 power transistors
used in its amplifiers. In December 1996, the Company completed construction and
facilitation of a more modern, higher capacity 4-inch wafer fabrication facility
to further increase production capacity. In addition, the Company utilizes a
high volume, third party supplier to supplement wafer capacity on a subcontract
basis.
The design and fabrication of RF power transistors is a unique, 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. There can be no assurance that the Company will
be able to maintain 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 4-inch facility or from the third party wafer supplier,
will have a material adverse effect on the Company's business, financial
condition and results of operations.
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. 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.
Transistor 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 maximum thermal and optimum
electrical performance which is critical during high power RF operation. These
processes require precision for performance and volume manufacturing. The
Company
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utilizes patented transistor packaging techniques to improve the performance and
the automated assembly of both transistors 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.
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 consist of a variety of subassemblies and components
designed or specified by the Company, including housings, harnesses, cables,
packaged RF power transistors, integrated circuits and printed circuit boards.
Except for the RF power transistors, 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 power transistors 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.
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.
Research and Development
The Company's research and development efforts are focused on the
design of new RF power transistors and power amplifiers, improvement of existing
product performance, cost reductions and improvements in the manufacturability
of existing products. The Company's research and development staff is organized
into a semiconductor group and an amplifier group. The Company uses an automated
design environment and employs advanced workstations to model RF power
transistors and amplifiers. This design environment, together with the Company's
modular product architecture and configurable
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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 March 31, 1997, the Company had 108 people engaged in research and
development. The Company's research and development expenses in fiscal 1997,
1996 and 1995 were $17.2 million, $14.5 million and $11.4 million, respectively,
and represented 19%, 20% and 18%, 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 development were $2.1 million, $4.5 million and
$5.8 million for fiscal 1997, 1996 and 1995, respectively. See Note 1 of Notes
to Consolidated Financial Statements.
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 on its ability to develop new products in a timely manner that compete
effectively on the basis of price and performance and that adequately address
OEM customer requirements. 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 could be materially adversely affected.
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 13 United States
patents which expire from 2008 to 2015. In addition, the Company has 14 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 four 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.
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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, CAD 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. As is typical in the
communications equipment industry, the Company may in the future be notified
that it is infringing certain patent and/or other intellectual property rights
of others. Although there are no such pending lawsuits against the Company or
unresolved notices that the Company is infringing intellectual property rights
of others, there can be no assurance that litigation or infringement claims will
not occur in the future. Such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations.
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 principal elements of competition in the
Company's market include product linearity and functionality, other technical
capabilities, the ability to design products for manufacturability and volume
production, time-to-market delivery capabilities, the ability to source low
cost, high performance RF transistors, standards compliance, product quality and
reliability and price. The Company believes that overall it competes favorably
with respect to the foregoing elements, and as a result, the Company's products
are generally priced higher than those offered by its competitors.
The ability of the Company to compete successfully and sustain
profitability depends in part upon the rate at which customers incorporate the
Company's products into their systems. The Company believes that a substantial
majority of the present worldwide production of power amplifiers is captive
within the manufacturing operations of a small number of wireless equipment OEMs
and offered for sale as part of their wireless systems. The Company's future
success is dependent upon the extent to which these major wireless equipment
OEMs elect to purchase from outside sources rather than manufacture their own
amplifiers. There can be no assurance that 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. The Company's major customers, including Northern Telecom and LGIC,
continuously evaluate whether to manufacture their own amplification products or
purchase them from outside sources. 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. Such increased
competition could materially adversely affect the Company's business, financial
condition and results of operations.
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<PAGE>
The Company's principal competitors in the market for wireless
amplification products provided by independent suppliers currently include
Powerwave Technologies, Hewlett-Packard Wireless Infrastructure Division,
M/A-COM (a subsidiary of AMP), Microwave Power Devices, Inc., AML Communications
and Amplidyne. 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. 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.
Backlog
The Company's backlog of orders as of March 31, 1997 and March 31, 1996
was $26.8 million and $27.5 million, respectively, of which, as of March 31,
1997, approximately 99% was scheduled to be shipped within the next 12 months.
In general, the Company includes in its backlog only those orders for which it
has accepted purchase orders. As part of the Company's close working
relationships with its major 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 days or a few
weeks prior to the actual required delivery dates. In addition, the Company's
customers may cancel or defer orders without significant penalty. The Company's
backlog at any particular date may not be representative of actual sales for any
succeeding period because of orders received for products to be shipped in the
same quarter in which such orders are received, potential changes in product
delivery schedules, cancellations of orders and potential manufacturing problems
or other delays in product shipments.
American Microwave Technology, Inc.
In April 1997, the Company sold its wholly-owned subsidiary, American
Microwave Technology, Inc. ("AMT"), to the management group and employees of AMT
for approximately $4.0 million, realizing a net gain of approximately $500,000
after disposition of AMT's assets. The Company decided to divest AMT, which
designs, develops and manufactures radio frequency power amplifier systems for
selected wireless, scientific and application specific markets, after concluding
AMT's market focus had become
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less synergistic with the Company's core business. In fiscal 1997 and 1996, AMT
accounted for approximately 7% and 10%, respectively, of the Company's revenue.
Employees
As of March 31, 1997, the Company had a total of 677 regular, temporary
and contract employees, including 505 in manufacturing, 108 in research and
development, 27 in sales and 37 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.
ITEM 2. 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 the agreements, the Company sold the Properties to SPEC (CA) QRS
12-20, Inc. ("SPEC"), and pursuant to the terms of a lease agreement, SPEC
agreed to lease the Properties to the Company for a term of 15 years (with two
options to extend the lease for up to an additional ten years). The 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, the Company entered into a 10-year lease for 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. The building is owned by a limited liability company of which the
Company owns 91.5%.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is party to various legal proceedings or
claims, either asserted or unasserted, which arise in the ordinary course of
business. Management has reviewed pending legal matters and believes that the
resolution of such matters will not have a significant adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers are
as follows:
Name Age Position
- ---- --- --------
Garrett A. Garrettson..... 53 President, Chief Executive Officer and Director
Bruce R. Wright........... 48 Executive Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Stephen B. Greenspan...... 55 Executive Vice President of Operations and
Chief Operating Officer
Joseph M. Veni............ 45 Senior Vice President, Sales and Marketing
William Zucker............ 39 Vice President, Marketing
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, which
designed and sold 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") when it acquired 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 Corporation 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.
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 has
experience 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 Cal Tech
and an S.M. in Management from MIT.
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 and February 1996, he served as Senior Vice President,
Quality at Seagate, a leading supplier of data storage devices, supporting
technologies and data management software. 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. degree in Electrical
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Engineering from New Jersey Institute of Technology and M.S. degree in
Electrical Engineering from Syracuse University.
Joseph M. Veni joined the Company in April 1992 as Vice President of
Sales and in June 1996 was named to Spectrian's executive staff as Senior Vice
President, Sales and Marketing. Prior to April 1992, he was Vice President of
Sales and Marketing at TTI-General Signal and prior to that he worked at Cushman
Electronics, Inc., 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 a director of product management from July 1994 to October 1995 and a
director of development from November 1991 to July 1994. Mr. Zucker received a
B.S. degree in Electrical Engineering from Manhattan College and an M.S. in
Electrical Engineering from MIT.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to
inside the back cover page of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1997, filed as Exhibit 13.1 hereto (the "Annual
Report to Shareholders").
Between November 11, 1996 and March 27, 1997, the Registrant issued
options to purchase an aggregate of 390,000 shares of Common Stock to three
employees at exercise prices of $9.50, $13.75 and $14.50 per share pursuant to
Non-Qualified Stock Option Agreements. On April 18, 1997, the Company filed a
Registration Statement on Form S-8 registering the 390,000 shares of Common
Stock to be issued pursuant to such Non-Qualified Stock Option Agreements.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance on Section 4(2) of the Securities Act, regulation D
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the
Securities Act, as transactions not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701. All recipients had adequate access, through their
relationship with the Company, to information about the Registrant.
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ITEM 6: SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to
page 14 of the Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to
pages 15-17 of the Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to
pages 18-28 of the Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference to the sections captioned "Election of
Directors" and "Compliance with Section 16(a) of the Exchange Act" contained in
the Company's Proxy Statement related to the 1997 Annual Meeting of Shareholders
to be held July 31, 1997, to be filed by the Company with the Securities and
Exchange Commission within 120 days of the end of the Company's fiscal year
pursuant to General Instruction G(3) of Form 10-K (the "Proxy Statement").
Certain information required by this item concerning executive officers is set
forth in Part I of this Report and certain other information required by this
item is incorporated by reference from the section captioned "Compliance with
Section 16(a) of the Exchange Act" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference to
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" contained in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements
The following financial statements are incorporated by
reference in Item 8 of this Report:
Report of KPMG Peat Marwick LLP, Independent Auditors
Balance Sheets, March 31, 1997 and 1996
Statements of Operations for the years ended March 31, 1997,
1996 and 1995
Statements of Shareholders' Equity for the years ended
March 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended March 31,
1997, 1996 and 1995
Notes to Financial Statements
(a)(2) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts and Reserves
(see page S-1)
Independent Auditors' Report (see page S-2)
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
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<PAGE>
(a)(3) Exhibits
3.1(4) Restated Articles of Incorporation of Registrant.
3.4(1) Bylaws of Registrant.
4.1(11) Amended and Restated Preferred Shares Rights
Agreement of January 15, 1997, between the Registrant
and ChaseMellon Shareholder Services, L.L.C., as
amended, including the form of Rights Certificate and
the Certificate of Determination, the Summary of
Rights attached thereto as Exhibits A, B and C,
respectively.
4.1.1(11) Letter Agreement to amend Preferred Shares Rights
Agreement dated as of January 15, 1997 between the
Registrant and Kopp Investment Advisors, Inc.
10.1(1) Form of Indemnification Agreement with directors and
officers.
10.2(8) 1992 Stock Plan, as amended.
10.3(8) 1994 Employee Stock Purchase Plan, as amended, and
form of agreement thereunder.
10.4(1) 1994 Director Option Plan and form of agreement
thereunder.
10.5(1) Amended and Restated Registration Rights Agreement
dated as of August 9, 1993 by and among Registrant
and certain individuals and entities named therein.
10.6.1(1) Lease between Registrant and Portola Land Company
dated March 28, 1984, as amended.
10.6.2(1) Lease between Registrant and 465 Mountain View
Properties Incorporated dated May 15, 1990, as
amended.
10.6.3(1) Standard Industrial Lease-Multiple-Tenant between
American Microwave Technology, Inc. and Enterprise
Business Center-Brea dated December 19, 1990.
10.7.1(1) Business Loan Agreement between Registrant and
Silicon Valley Bank dated May 21, 1992, as amended,
and ancillary documents thereto.
10.7.2(1) Amendment to Business Loan Agreement between
Registrant and Silicon Valley Bank dated June 27,
1994.
10.8(+1) Supply Agreement between Registrant and Northern
Telecom Canada Limited dated July 16, 1993.
10.9(+1) Agreement between Registrant and Matra Communication
dated March 24, 1993.
10.10.1(+1) Agreement among Registrant and Ericsson GE Mobile
Communications, Inc., Ericsson Radio Access AB,
Ericsson Mobile Communications AB and Ericsson Radio
Systems AB dated July 21, 1993 (collectively
"Ericsson").
10.10.2(+1) Addendum to Agreement among Registrant and Ericsson
dated June 29, 1994.
10.10.3(+1) Addendum to Agreement among Registrant and Ericsson
dated June 29, 1994.
10.11(+2) Hardware Development Agreement dated July 6, 1994
between Northern Telecom Limited and Registrant.
10.12(+3) Hardware Development Agreement dated October 18, 1994
between Northern Telecom Limited and Registrant.
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10.13(+4) Hardware Supply Agreement dated April 6, 1995 between
Northern Telecom Limited and Registrant
10.14(4) Employment Agreement dated January 6, 1992 between
Registrant and C. Woodrow Rea, Jr.
10.15(4) Employment Agreement dated January 6, 1992 between
Registrant and David S. Wisherd.
10.16(5) Purchase and Sale Agreement between Metropolitan Life
Insurance Company and Registrant.
10.17(+6) Development and Supply Agreement between QUALCOMM
Incorporated and Registrant.
10.18(+7) Purchasing Agreement between Airnet Communications
Corporation and Registrant.
10.19(8) Employment Agreement between Garrett A. Garrettson
and Registrant.
10.20(8) Employment Agreement between Stephen B. Greenspan and
Registrant.
10.21(9) Term Loan Agreement between Silicon Valley Bank and
Registrant
10.22(10) Lease Agreement dated November 19, 1996 between the
Registrant and SPEC (CA) QRS 12-20, Inc.
10.23(10) Bill of Sale dated November 19, 1996 by the
Registrant to SPEC (CA) QRS 12-20, Inc.
10.24 Employment Agreement dated March 11, 1997 between the
Registrant and Bruce R. Wright.
10.25 Letter Agreement dated November 6, 1996 between the
Company and Edward Supplee.
10.26(12) Stock Option Agreement dated November 26, 1997
between Registrant and Garrett A. Garrettson.
10.27(12) Stock Option Agreement dated November 26, 1997
between Registrant and Garrett A. Garrettson.
10.28(12) Stock Option Agreement dated March 24, 1997 between
Registrant and Bruce Wright.
10.29(12) Stock Option Agreement dated March 20, 1997 between
Registrant and Michael Morrione.
10.30 Stock Option Agreements dated April 17, 1996 and
August 7, 1996 between Registrant and Stephen B.
Greenspan.
11.1 Computation of net income (loss) per share.
13.1 Annual Report to Shareholders for the year ended
March 31, 1997.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on page 27).
27.1 Financial Data Schedule.
- ---------------------------
+ Confidential treatment has been requested or granted with respect to
certain portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange Commission.
1 Incorporated by reference to the Registration Statement on Form S-1
(File No. 33-79952) as declared effective by the Securities and
Exchange Commission August 2, 1994.
-25-
<PAGE>
2 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended October 1, 1994.
3 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994.
4 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1995.
5 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended July 1, 1995.
6 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
7 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995.
8 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1996.
9 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 29, 1996
10 Incorporated by reference to the Registrant's Form 8-K dated November
19, 1996.
11 Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form 8-A (File No. 000-24360) as filed with
the Securities and Exchange Commission on January 17, 1997.
12 Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form S-8 (File No. 333-25435) as filed with
the Securities and Exchange Commission on April 17, 1997.
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended March 31, 1997.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SPECTRIAN CORPORATION
By: /s/ Garrett A. Garrettson
-------------------------------------
Garrett A. Garrettson
President, Chief Executive Officer and
Director
Date: June 24, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Garrett A. Garrettson and Bruce R.
Wright, and each of them, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
-27-
<PAGE>
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ GARRETT A. GARRETTSON President, Chief Executive Officer and June 24, 1997
- -------------------------------------- Director (Principal Executive Officer)
Garrett A. Garrettson
/s/ BRUCE R. WRIGHT Executive Vice President, Finance and June 24, 1997
- -------------------------------------- Administration, Chief Financial Officer
Bruce R. Wright and Secretary (Principal Financial and
Accounting Officer)
/s/ JAMES A. COLE Director June 24, 1997
- --------------------------------------
James A. Cole
/s/ ROBERT C. WILSON Director June 24, 1997
- --------------------------------------
Robert C. Wilson
/s/ ERIC A. YOUNG Director June 24, 1997
- --------------------------------------
Eric A. Young
/s/ MARTIN COOPER Director June 24, 1997
- --------------------------------------
Martin Cooper
</TABLE>
-28-
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Balance at Additions
Allowance for Doubtful Beginning Charged to Balance at
Accounts and Sales Returns: of Period Income Deductions End of Period
--------------------------------------------------
1997 $ 339 $ 36 $ 10 $ 365
1996 $ 454 $ 14 $ 129 $ 339
1995 $ 377 $ 82 $ 5 $ 454
S-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Spectrian Corporation:
Under date of April 11, 1997, we reported on the consolidated balance sheets of
Spectrian Corporation and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1997, as
contained in the annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule as listed in the index appearing under
Item 14(a)(2) of the Form 10-K. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
San Jose, California
April 11, 1997
S-2
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibits Numbered Page
- -------- -------------
3.1(4) Restated Articles of Incorporation of Registrant.
3.4(1) Bylaws of Registrant.
4.1(11) Amended and Restated Preferred Shares Rights
Agreement of January 15, 1997, between the Registrant
and ChaseMellon Shareholder Services, L.L.C., as
amended, including the form of Rights Certificate and
the Certificate of Determination, the Summary of
Rights attached thereto as Exhibits A, B and C,
respectively.
4.1.1(11) Letter Agreement to amend Preferred Shares Rights
Agreement dated as of January 15, 1997 between the
Registrant and Kopp Investment Advisors, Inc.
10.1(1) Form of Indemnification Agreement with directors and
officers.
10.2(8) 1992 Stock Plan, as amended.
10.3(8) 1994 Employee Stock Purchase Plan, as amended, and
form of agreement thereunder.
10.4(1) 1994 Director Option Plan and form of agreement
thereunder.
10.5(1) Amended and Restated Registration Rights Agreement
dated as of August 9, 1993 by and among Registrant
and certain individuals and entities named therein.
10.6.1(1) Lease between Registrant and Portola Land Company
dated March 28, 1984, as amended.
10.6.2(1) Lease between Registrant and 465 Mountain View
Properties Incorporated dated May 15, 1990, as
amended.
10.6.3(1) Standard Industrial Lease-Multiple-Tenant between
American Microwave Technology, Inc. and Enterprise
Business Center-Brea dated December 19, 1990.
10.7.1(1) Business Loan Agreement between Registrant and
Silicon Valley Bank dated May 21, 1992, as amended,
and ancillary documents thereto.
10.7.2(1) Amendment to Business Loan Agreement between
Registrant and Silicon Valley Bank dated June 27,
1994.
10.8(+1) Supply Agreement between Registrant and Northern
Telecom Canada Limited dated July 16, 1993.
10.9(+1) Agreement between Registrant and Matra Communication
dated March 24, 1993.
10.10.1(+1) Agreement among Registrant and Ericsson GE Mobile
Communications, Inc., Ericsson Radio Access AB,
Ericsson Mobile Communications AB and Ericsson Radio
Systems AB dated July 21, 1993 (collectively
"Ericsson").
10.10.2(+1) Addendum to Agreement among Registrant and Ericsson
dated June 29, 1994.
<PAGE>
Sequentially
Exhibits Numbered Page
- -------- -------------
10.10.3(+1) Addendum to Agreement among Registrant and Ericsson
dated June 29, 1994.
10.11(+2) Hardware Development Agreement dated July 6, 1994
between Northern Telecom Limited and Registrant.
10.12(+3) Hardware Development Agreement dated October 18, 1994
between Northern Telecom Limited and Registrant.
10.13(+4) Hardware Supply Agreement dated April 6, 1995 between
Northern Telecom Limited and Registrant
10.14(4) Employment Agreement dated January 6, 1992 between
Registrant and C. Woodrow Rea, Jr.
10.15(4) Employment Agreement dated January 6, 1992 between
Registrant and David S. Wisherd.
10.16(5) Purchase and Sale Agreement between Metropolitan Life
Insurance Company and Registrant.
10.17(+6) Development and Supply Agreement between QUALCOMM
Incorporated and Registrant.
10.18(+7) Purchasing Agreement between Airnet Communications
Corporation and Registrant.
10.19(8) Employment Agreement between Garrett A. Garrettson
and Registrant.
10.20(8) Employment Agreement between Stephen B. Greenspan and
Registrant.
10.21(9) Term Loan Agreement between Silicon Valley Bank and
Registrant
10.22(10) Lease Agreement dated November 19, 1996 between the
Registrant and SPEC (CA) QRS 12-20, Inc.
10.23(10) Bill of Sale dated November 19, 1996 by the
Registrant to SPEC (CA) QRS 12-20, Inc.
10.24 Employment Agreement dated March 11, 1997 between the
Registrant and Bruce R. Wright.
10.25 Letter Agreement dated November 6, 1996 between the
Company and Edward Supplee.
10.26(12) Stock Option Agreement dated November 26, 1997
between Registrant and Garrett A. Garrettson.
10.27(12) Stock Option Agreement dated November 26, 1997
between Registrant and Garrett A. Garrettson.
10.28(12) Stock Option Agreement dated March 24, 1997 between
Registrant and Bruce Wright.
10.29(12) Stock Option Agreement dated March 20, 1997 between
Registrant and Michael Morrione.
-2-
<PAGE>
Sequentially
Exhibits Numbered Page
- -------- -------------
10.30 Stock Option Agreements dated April 17, 1996 and August 7, 1996
between Registrant and Stephen B. Greenspan.
11.1 Computation of net income (loss) per share.
13.1 Annual Report to Shareholders for the year ended
March 31, 1997.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on page 27).
27.1 Financial Data Schedule
- ---------------------------
+ Confidential treatment has been requested or granted with respect to
certain portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange Commission.
1 Incorporated by reference to the Registration Statement on Form S-1
(File No. 33-79952) as declared effective by the Securities and
Exchange Commission August 2, 1994.
2 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended October 1, 1994.
3 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994.
4 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1995.
5 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended July 1, 1995.
6 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
7 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995.
8 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1996.
9 Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 29, 1996
10 Incorporated by reference to the Registrant's Form 8-K dated November
19, 1996.
11 Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form 8-A (File No. 000-24360) as filed with
the Securities and Exchange Commission on January 17, 1997.
12 Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form S-8 (File No. 333-25435) as filed with
the Securities and Exchange Commission on April 17, 1997.
[Spectrian letterhead]
March 11, 1997
Bruce R. Wright
47 Red Birch Court
Danville, CA 94506
Dear Bruce:
Spectrian is pleased to offer you the position of Executive Vice President of
Finance and Administration and Chief Financial Officer reporting to me. As
compensation for your services, your annual base salary will be $200,000 paid
bi-weekly. You will be eligible for all benefits available to Spectrian
employees; these include medical, dental, vision, life, long-term disability,
401(k), paid time off, and the employee stock purchase plan. You will also be
eligible for quarterly Variable Compensation targeted at $100,000 per year in
accordance with the Executive Variable Compensation Plan.
I would like you to join us as a regular full time employee as soon as possible,
but preferably no later than May 1, 1997. I would like for you to work for me as
a part time consultant from the date of signing this offer letter until you
become a full time employee. In the event your current commitments make it
impossible for you to join us on or before May 1, 1997, I am open to extending
the part time consulting arrangement until June 1, 1997. Compensation for your
consulting work will be paid at the rate of $100 per hour. A consulting
agreement will be provided to you as a separate document in the event this offer
of employment is accepted by you. You will be responsible for invoicing us on a
monthly basis for your consulting time, and payment of consulting fees will be
remitted 45 days from the date of your invoice.
We will recommend to Spectrian's Board of Directors at the board meeting
following your hire date that you receive a non-qualified option to purchase
100,000 shares of the Company's stock. All shares are subject to a four year
vesting based on your date of hire and will be at the fair market value at the
time the option is granted. In the event there is a change of control of the
company in which substantially all of the company's assets are purchased by
another commercial entity subsequent to your becoming a full time employee, your
options will fully vest.
Spectrian reserves the right, at its discretion, to assign you to perform other
duties. Employment with Spectrian is for no specific period of time. As a
result, either you or Spectrian are free to terminate your employment
relationship at any time for any reason, with or without cause. This is the full
and complete agreement between us. Although your job duties, title, compensation
and benefits, as well as Spectrian's personnel policies and procedures, may
change periodically, the "at-will" nature of your
<PAGE>
employment may only be changed in an express writing signed by you and the
President of the Company.
You agree to devote your full time, ability, and attention to the business of
Spectrian after becoming a full time employee, and not, directly or indirectly,
render any services of a business, commercial or professional nature to any
person or entity, whether for compensation or otherwise, without the written
consent of Spectrian.
This offer is contingent upon your executing Spectrian's Proprietary Information
and Inventions Agreement and upon your providing us with the legally required
proof of your identity and authorization to work in the United States. If these
terms are acceptable please sign this original and return to Spectrian no later
than 12 p.m. on Thursday March 13, 1997.
Bruce, we believe your experience and skills complement nicely those of the rest
of the senior management team. I am looking forward to having you join me as a
business partner with an objective of growing Spectrian shareholder value.
Sincerely,
/s/ GARRETT A. GARRETTSON
Garrett A. Garrettson
President and Chief Executive Officer
Accepted: /s/ BRUCE R. WRIGHT
---------------------
Date: 12 MAR 97
---------------------
Start Date: 1 MAY 97
---------------------
[Spectrian letterhead]
7 November 1996
Dear Ed:
I would like to personally thank you for your commitment to Spectrian and to me
over the past six months. This has helped immeasurably during my transition and
initial learning period. While I would like to have you remain as CFO, the Board
of Directors and I understand that you aspire for a broader management
assignment. We are, however, still in the midst of a difficult transition. In
return for your commitment to stay through January 1997 in order to help
Spectrian, we are prepared to offer you the following benefits.
1. Medical and Life Insurance benefits through July 1997, or until
you are permanently employed elsewhere, which ever occurs first.
2. Accelerated vesting of 30,000 shares of stock option (1/4 of the
grant given in August), about 15,000 shares more than would
ordinarily vest in that period.
3. Period to exercise any vested options extended to January 31,
2000.
4. Diligent assistance from the Board of Directors to help you find
a suitable opportunity to run a company or major operation.
In return for these benefits, it is understood that you would agree to help the
company in the following ways:
1. Help recruit and train your replacement.
2. Complete the January 1997 five year plan.
3. Complete the Sale & Leaseback of the building.
4. If possible, complete the financing of owned equipment (if
favorable terms can be reached), or line up lease financing for
new capital equipment.
5. Help resolve whether we are selling AMT or keeping that
operation.
6. After Jan 31, if able, consult as required until permanently
employed elsewhere, @ the rate of $1000/day.
If you agree with these terms, please sign below and return a copy to me.
Thanks Ed for your help. I look forward to working with you this quarter on yet
another major transition in the Company's evolution.
Sincerely yours,
/s/ GARRETT A. GARRETTSON
Garrett A. Garrettson
President & CEO
Agreed to by /s/ ED SUPPLEE
-----------------
Ed Supplee
On (Date): 11/7/96
-----------------
<TABLE>
<CAPTION>
SEE REVERSE SIDE FOR STOCK OPTION AGREEMENT
GREENSPAN, STEPHEN B.
13935 Damon Lane
Saratoga, CA 95070
[GRAPHIC OMITTED]
SPECTRIAN CORPORATION
NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of Spectrian Corporation (the "Company") under the terms of the Spectrian
Corporation 1992 Stock Plan as follows:
<S> <C> <C> <C>
Grant Number 2608 Type of Option ISO and NQ
Date of Grant 4/17/96 Plan 96GG
Option Price Per Share $21.375 Term/Expiration Date 4/14/2006
Total Number of Shares Granted 80,000 Vesting Commencement Date 4/17/96
Vesting Schedule: This Option shall be exercisable cumulatively, to the extent of 1/48th of the total Number of Shares Granted for
each full calendar month of your Continuous Status as an Employee or Consultant since the Vesting Commencement Date; provided,
however, that this Option shall not be exercisable prior to one year from the Vesting Commencement Date. Termination Period: 3
months after termination of employment or consulting relationship (but in no event later than the Expiration Date).
SPECTRIAN CORPORATION
By: /s/ Garrett Garettson
-------------------------------
Title: CEO
----------------------------
This Notice of Grant does not represent a stock interest in the Company, which shall occur only upon the exercise of this stock
option pursuant to its terms.
</TABLE>
<PAGE>
SPECTRIAN CORPORATION
STOCK OPTION AGREEMENT
1. Grant of Option. The Plan Administrator of Spectrian Corporation, a
California corporation (the "Company"), hereby grants to the Optionee named in
the Notice of Grant (the "Optionee"), an option (the "Option") to purchase a
total number of shares of Common Stock (the "Shares") set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant (the
"Exercise Price") subject to the terms, definitions and provisions of the
Spectrian Corporation 1992 Stock Plan (the "Plan") adopted by the Company, which
is incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Option as defined in Section 422A of the Code.
2. Exercise of Option. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
notice (in the form available from the Company) which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form provided by the Company, and shall read the
applicable rules of the Commissioner of Corporations attached to such Investment
Representation Statement.
<PAGE>
4. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
either have been owned by the Optionee for more than six (6) months on the date
of surrender or were not acquired, directly or indirectly, from the Company and
(B) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised.
5. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Section 16 Restrictions. Options granted to persons who are subject to
Section 16 of the Exchange Act ("Insiders") may not be exercised for a period of
at least six months from the date of grant, except in the case of death or
disability.
7. Termination of Relationship. In the event Optionee's Continuous Status
as an Employee or consultant terminates, Optionee may, to the extent otherwise
so entitled at the date of such termination (the "Termination Date"), exercise
this Option during the Termination Period set out in the Notice of Grant. To the
extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if the Optionee does not exercise this Option within the
time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event Optionee's Continuous Status as an Employee or Consultant
terminates as a result of total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
date of termination of employment or consultancy (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
9. Death of Optionee. The Option may be exercised at any time within
twelve (12) months after the Optionee's death (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
by Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred or
assigned in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
<PAGE>
11. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will be
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax.
(ii) Exercise of Nonqualified Stock Option. If this Option does not
qualify as an ISO, there may be a regular federal income tax liability upon the
exercise of the Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after transfer of such Shares to the Optionee upon exercise of the ISO, the
Optionee shall immediately notify the Company in writing of such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to the
Optionee.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1992 STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
<PAGE>
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY,
NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information, related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions of the Plan. Optionee has reviewed the Plan and this Option
in their entirety, has had an opportunity to obtain the advice of counsel prior
to executing this Option and fully understands all provisions relating to this
Option. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan or this Option.
/s/ Stephen B. Greenspan
Dated: April 17, 1997 _______________________________
Optionee Signature
Dissolution, Merger or Assets Sale.
Notwithstanding the foregoing Vesting Schedule, in the event of a
Change of Control of the Company, the Optionee shall have the right to exercise
this Option as to all of the Shares, including Shares as to which it would not
otherwise be exercisable. "Change of Control" shall mean the occurrence of any
of the following events:
(i) Any "person" or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets (other than to a subsidiary or subsidiaries).
<PAGE>
<TABLE>
<CAPTION>
SEE REVERSE SIDE FOR STOCK OPTION AGREEMENT
GREENSPAN, STEPHEN B.
13935 Damon Lane
Saratoga, CA 95070
[GRAPHIC OMITTED]
SPECTRIAN CORPORATION
NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of Spectrian Corporation (the "Company") under the terms of the Spectrian
Corporation 1992 Stock Plan as follows:
<S> <C> <C> <C>
Grant Number 2774 Type of Option NQ
Date of Grant 8/7/96 Plan 96GG
Option Price Per Share $14.500 Term/Expiration Date 8/7/2006
Total Number of Shares Granted 20,000 Vesting Commencement Date 8/7/96
Vesting Schedule: This Option shall be exercisable cumulatively, to the extent of 1/48th of the total Number of Shares Granted for
each full calendar month of your Continuous Status as an Employee or Consultant since the Vesting Commencement Date; provided,
however, that this Option shall not be exercisable prior to one year from the Vesting Commencement Date. Termination Period: 3
months after termination of employment or consulting relationship (but in no event later than the Expiration Date).
SPECTRIAN CORPORATION
By: /s/ Garrett Garettson
-------------------------------
Title: CEO
----------------------------
This Notice of Grant does not represent a stock interest in the Company, which shall occur only upon the exercise of this stock
option pursuant to its terms.
</TABLE>
<PAGE>
SPECTRIAN CORPORATION
STOCK OPTION AGREEMENT
1. Grant of Option. The Plan Administrator of Spectrian Corporation, a
California corporation (the "Company"), hereby grants to the Optionee named in
the Notice of Grant (the "Optionee"), an option (the "Option") to purchase a
total number of shares of Common Stock (the "Shares") set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant (the
"Exercise Price") subject to the terms, definitions and provisions of the
Spectrian Corporation 1992 Stock Plan (the "Plan") adopted by the Company, which
is incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Option as defined in Section 422A of the Code.
2. Exercise of Option. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
notice (in the form available from the Company) which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form provided by the Company, and shall read the
applicable rules of the Commissioner of Corporations attached to such Investment
Representation Statement.
<PAGE>
4. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
either have been owned by the Optionee for more than six (6) months on the date
of surrender or were not acquired, directly or indirectly, from the Company and
(B) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised.
5. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Section 16 Restrictions. Options granted to persons who are subject to
Section 16 of the Exchange Act ("Insiders") may not be exercised for a period of
at least six months from the date of grant, except in the case of death or
disability.
7. Termination of Relationship. In the event Optionee's Continuous Status
as an Employee or consultant terminates, Optionee may, to the extent otherwise
so entitled at the date of such termination (the "Termination Date"), exercise
this Option during the Termination Period set out in the Notice of Grant. To the
extent that Optionee was not entitled to exercise this Option at the date of
such termination, or if the Optionee does not exercise this Option within the
time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event Optionee's Continuous Status as an Employee or Consultant
terminates as a result of total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
date of termination of employment or consultancy (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
9. Death of Optionee. The Option may be exercised at any time within
twelve (12) months after the Optionee's death (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
by Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred or
assigned in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
<PAGE>
11. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will be
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax.
(ii) Exercise of Nonqualified Stock Option. If this Option does not
qualify as an ISO, there may be a regular federal income tax liability upon the
exercise of the Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after transfer of such Shares to the Optionee upon exercise of the ISO, the
Optionee shall immediately notify the Company in writing of such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to the
Optionee.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1992 STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
<PAGE>
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY,
NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information, related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions of the Plan. Optionee has reviewed the Plan and this Option
in their entirety, has had an opportunity to obtain the advice of counsel prior
to executing this Option and fully understands all provisions relating to this
Option. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan or this Option.
/s/ Stephen B. Greenspan
Dated: August 7, 1996 _______________________________
Optionee Signature
Dissolution, Merger or Assets Sale.
Notwithstanding the foregoing Vesting Schedule, in the event of a
Change of Control of the Company, the Optionee shall have the right to exercise
this Option as to all of the Shares, including Shares as to which it would not
otherwise be exercisable. "Change of Control" shall mean the occurrence of any
of the following events:
(i) Any "person" or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets (other than to a subsidiary or subsidiaries).
<TABLE>
Exhibit 11.1
SPECTRIAN CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<CAPTION>
Years ended March 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income (loss) $(3,991) $ 5,480 $ 5,473
======= ======= =======
Weighted average number of shares outstanding
used in computation:
Common stock 8,152 7,702 4,679
Preferred stock -- -- 1,469
Common stock equivalents as a result of
stock options outstanding (1) -- 491 1,147
Staff Accounting Bulletin No. 83 - stock options -- -- 58
Staff Accounting Bulletin No. 83 - preferred shares -- -- 82
------- ------- -------
Shares use in computing per share amounts 8,152 8,193 7,435
======= ======= =======
Net income (loss) per share $ (0.49) $ 0.67 $ 0.74
<FN>
(1) The modified treasury stock method was used when shares obtainable exceeded
20% of the aggregate of Common and Preferred Stock outstanding at the end of the
period. The assumed reduced interest expense resulting from the application of
this method is immaterial.
</FN>
</TABLE>
<TABLE>
Selected Consolidated Financial Data
<CAPTION>
Year ended March 31,
(In thousands, except per share data) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Product sales $ 86,665 $ 68,014 $ 58,668 $ 33,175 $ 20,961
Non-recurring engineering revenues 1,587 4,099 3,810 4,684 3,497
-------- -------- -------- -------- --------
88,252 72,113 62,478 37,859 24,458
-------- -------- -------- -------- --------
Costs and expenses:
Cost of product sales 65,322 45,355 39,068 22,154 14,796
Research and development 17,230 14,548 11,374 10,058 3,461
Selling, general and administrative 9,299 7,450 6,784 5,529 3,939
-------- -------- -------- -------- --------
91,851 67,353 57,226 37,741 22,196
-------- -------- -------- -------- --------
Operating income (loss) (3,599) 4,760 5,252 118 2,262
Interest income (expense), net (392) 889 391 (667) (235)
-------- -------- -------- -------- --------
Income (loss) from continuing operations before income taxes (3,991) 5,649 5,643 (549) 2,027
Income tax expense -- 169 170 -- --
-------- -------- -------- -------- --------
Income (loss) from continuing operations (3,991) 5,480 5,473 (549) 2,027
Discontinued operation:
Income (loss) from discontinued military operation -- -- -- -- (767)
Provision for operating losses during phase-out period -- -- -- -- (1,144)
-------- -------- -------- -------- --------
Net income (loss) $ (3,991) $ 5,480 $ 5,473 $ (549) $ 116
======== ======== ======== ======= ========
Net income (loss) per share:
Income (loss) from continuing operations $ (0.49) $ 0.67 $ 0.74 $ (0.41) $ 0.42
======== ======== ======== ======= ========
Shares used in computing per share amounts 8,152 8,193 7,435 1,325 4,849
BALANCE SHEET DATA
Working capital 24,062 12,710 28,317 7,859 3,355
Total assets 66,633 55,922 45,070 20,965 17,115
Debt and capital lease obligations, net of current portion 7,057 -- -- 3,634 1,961
Total shareholders equity 42,466 44,838 37,056 9,765 5,953
</TABLE>
Certain statements in the following section 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 fourth paragraph of Overview concerning the volatility of
revenues and the expectation of declining average sales prices, the statements
in the last paragraph of Overview, 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 statement 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. Such
risks and uncertainties are included in the discussion under Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.
SPECTRIAN CORPORATION AND SUBSIDIARIES 14
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Spectrian designs, manufactures and markets highly linear single carrier
and multicarrier power amplifiers to wireless communications infrastructure
equipment manufacturers that support a broad range of worldwide analog and
digital transmission standards, including AMPS, TDMA, CDMA, TACS, and GSM.
Spectrian pursues a strategy of vertical integration of its manufacturing
process and expends significant resources for research and development in all
aspects of the design of power amplification products.
The Company generates the majority of its product sales revenue from the
sale of its power amplifiers. A minor amount of product sales revenue is derived
from amplifier repair and service. The Company also receives non-recurring
engineering (NRE) revenues, which represent funding from the Company's OEM
customers for specific development projects.
Over the last several years, the Company's revenues have increased
significantly, primarily as a result of increasing sales to a limited number of
wireless infrastructure original equipment manufacturers. The Company's
principal customers in fiscal 1997, Northern Telecom and Nortel Matra
Communications, in which Northern Telecom has an equity investment, accounted
for 63% and 12% of revenues, respectively. In fiscal 1996, sales to Northern
Telecom and Nortel Matra Communications represented 58% and 17% of revenues
respectively, and in fiscal 1995, these same two customers accounted for 53% and
13% of revenues, respectively. If the Company were to lose a major OEM customer,
in particular Northern Telecom, or if orders by a major OEM customer were to
otherwise decrease, the Company's business, financial condition and results of
operations would be materially adversely affected.
As a result of the Company's limited customer base, the Company's revenues
have been and will continue to be volatile. Softness in portions of the wireless
markets in late 1995 and early 1996, 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. In fiscal 1997 the Company made strides to
broaden its customer base and product portfolio by entering the Korean market
for PCS CDMA amplifiers, supporting the new US PCS system rollouts, continuing
to support the conversion from analog to digital systems and by rolling out its
second generation multicarrier product. However, should there be future delays
in the roll-out of PCS and other wireless systems the Company could experience
materially adverse effects on quarterly and annual revenues. The Company has
also experienced, and expects to continue to experience, declining average sales
prices for its power amplifiers.
The Company's cost of product sales consists primarily of raw materials, RF
transistor fabrication costs, amplifier assembly and test costs, overhead and
warranty cost. It does not include costs incurred in connection with NRE
revenues. Despite its focus on designing products for manufacturability, the
Company has experienced high material and manufacturing costs, including scrap,
material obsolescence, labor inefficiencies and an inability to recognize
economies of scale, due in part to rapid increases in production volume and the
introduction of multiple new products into manufacturing. The Company has also
experienced intermittent supply shortages of the semiconductor parts produced by
the Company among other material shortages. The Company's high manufacturing
costs have historically had a material adverse effect on gross margins. Although
the Company has initiated corrective actions, any failure to achieve
manufacturing cost reductions, or any interruption in the supply of materials,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's results of operations have in the past, and will in the
future, vary significantly due to a number of factors, including the timing,
cancellation or rescheduling of customer orders and shipments; the availability
of semiconductor RF transistors and other materials; variations in manufacturing
costs and efficiencies; the availability for sale of new products; changes in
the mix of products having differing gross margins; changes in average selling
prices; competitive factors; and variations in product development or other
operating expenses. The results of operations for any period are not indicative
of results for any subsequent period.
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.
Year ended March 31,
1997 1996 1995
---- ---- ----
Revenues:
Product sales 98% 94% 94%
Nonrecurring engineering revenues 2 6 6
---- ---- ----
100 100 100
---- ---- ----
Costs and expenses:
Cost of product sales 74 63 63
Research and development 19 20 18
Selling, general and administrative 11 10 11
104 93 92
---- ---- ----
Operating income (loss) (4) 7 8
Interest income (expense), net (1) 1 1
---- ---- ----
Income (loss) from operations
before income taxes (5) 8 9
==== ==== ====
Gross margin on product sales 24.6% 33.3% 33.4%
SPECTRIAN CORPORATION AND SUBSIDIARIES 15
<PAGE>
Years Ended March 31, 1997 and 1996
Revenues. The Company's revenues increased by 22% from $72.1 million in
fiscal 1996 to $88.3 million in fiscal 1997. 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% decrease in NRE revenues, from
$4.1 million in fiscal 1996 to $1.6 million in fiscal 1997, 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%
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 fourteen new products into
manufacturing 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 which
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 research and development (R&D)
expenses increased 18% to $17.2 million in fiscal 1997 from $14.5 million in
fiscal 1996. As a percentage of revenues, R&D expenses declined slightly from
20% in fiscal 1996 to 19% in fiscal 1997. 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 selling, general and
administrative expenses (SG&A) increased by 25% to $9.3 million in fiscal 1997
from $7.5 million in fiscal 1996. SG&A expenses as a percentage of revenues
increased slightly from 10% in fiscal 1996 to 11% in fiscal 1997. The increase
in SG&A expenses from fiscal 1996 to 1997 was primarily attributable to
increases in sales and marketing headcount, 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 net
operating loss carryforwards. As of March 31, 1997, the Company had a net
operating loss carryforward of approximately $29 million for federal income tax
purposes and $9 million for California income tax purposes. The Company's
ability to use its net operating loss carryforwards against taxable income may
be subject to restrictions and limitations under Section 382 of the Internal
Revenue Code of 1986, as amended, in the event of a change in ownership of the
Company.
Years Ended March 31, 1996 and 1995
Revenues. The Company's revenues increased 15% 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% to
$45.4 million in fiscal 1996 from $39.1 million in fiscal 1995. Gross margin on
product sales in fiscal 1996 and 1995 was 33.3% and 33.4%, respectively. The
very slight decline in fiscal 1996 gross margin was attributable primarily to
lower average selling prices and manufacturing inefficiencies, largely offset by
lower cost of material.
Research and Development. The Company's R&D expenses increased 28% 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% of revenues in fiscal
1996 from 18% in fiscal 1995, reflecting the Company's decision to grow R&D
funding at a faster rate than the current growth rate in revenues.
Selling, General and Administrative. The Company's SG&A expenses increased
10% to $7.5 million in fiscal 1996 from $6.8 million in fiscal 1995. This
increase in SG&A expenses was pri-
SPECTRIAN CORPORATION AND SUBSIDIARIES 16
<PAGE>
marily attributable to increases in headcount and associated salaries and
administrative expenses as a result of overall growth in the Company's
operations.
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.
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 net operating loss carryforwards.
Liquidity and Capital Resources
The Company has historically 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 used by operations in fiscal 1997 was $8.1 million as compared
to cash provided by operations of $9.6 million and $7.0 million in fiscal 1996
and 1995 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
the increased depreciation included in expenses, improved collections of
accounts receivable and management of accounts payable, partially offset by
increased inventory.
As of March 31, 1997, the Company had working capital of $24.1 million
including $6.2 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 July 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. Under the terms of the master
agreement governing both these credit instruments, the Company is required to
maintain certain minimum working capital, net worth, profitability and other
specific financial ratios. As of March 31, 1997, the Company was in compliance
with these financial covenants. The Company expects to renew the revolving line
of credit in July 1997. There were no borrowings outstanding against these lines
of credit as of March 31, 1997.
In January 1997, the Company borrowed $6.0 million under a term loan
secured by certain of the Company's capital equipment. The loan, which expires
in January 2002, requires the payment of monthly principal plus interest and is
subject to certain minimum net worth and other specific financial ratio
covenants. The Company was in compliance with these covenants as of March 31,
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 $16.3 million, $28.2 million and
$5.8 million in fiscal 1997, 1996 and 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, R&D 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, CA.
In November 1996, the Company completed a sale of its principal facilities in
Sunnyvale, California including its 4-inch wafer fabrication facility,
originally purchased during fiscal 1996. The proceeds from the sale of the
facilities were $16.3 million, net of fees, commissions and closing costs.
The Company anticipates spending approximately $16 million in fiscal 1998
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 the Company's rate of growth.
SPECTRIAN CORPORATION AND SUBSIDIARIES 17
<PAGE>
Consolidated Balance Sheets
Year Ended March 31,
(In thousands) 1997 1996
---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,240 $ 1,163
Short-term investments -- 3,002
Accounts receivable, less
allowance for doubtful accounts
of $365 and $339, respectively 15,825 11,980
Inventories 17,301 7,229
Prepaid expenses and other current assets 1,806 420
-------- --------
Total current assets 41,172 23,794
Property and equipment, net 25,461 32,128
-------- --------
$ 66,633 $ 55,922
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 8,101 $ 6,964
Accrued liabilities 7,421 4,120
Current portion of debt obligations 1,588 --
-------- --------
Total current liabilities 17,110 11,084
Debt obligations, net of current portion 7,057 --
-------- --------
Total liabilities 24,167 11,084
-------- --------
Shareholders equity:
Common stock, no par value; 20,000,000
shares authorized; 8,265,230 and
8,014,525 shares issued and
outstanding, respectively 53,395 51,956
Deferred compensation expense -- (182)
Unrealized gains on investments -- 2
Accumulated deficit (10,929) (6,938)
-------- --------
Total shareholders equity 42,466 44,838
-------- --------
$ 66,633 $ 55,922
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SPECTRIAN CORPORATION AND SUBSIDIARIES 18
<PAGE>
Consolidated Statements of Operations
Year Ended March 31,
(In thousands, except per share data) 1997 1996 1995
----------------------------
Revenues:
Product sales $ 86,665 $ 68,014 $ 58,668
Nonrecurring engineering revenues 1,587 4,099 3,810
-------- -------- --------
88,252 72,113 62,478
-------- -------- --------
Costs and expenses:
Cost of product sales 65,322 45,355 39,068
Research and development 17,230 14,548 11,374
Selling, general and administrative 9,299 7,450 6,784
-------- -------- --------
91,851 67,353 57,226
-------- -------- --------
Operating income (loss) (3,599) 4,760 5,252
Interest income (expense), net (392) 889 391
-------- -------- --------
Interest (loss) before
income taxes (3,991) 5,649 5,643
Income tax expense -- 169 170
-------- -------- --------
Net income (loss) $ (3,991) $ 5,480 $ 5,473
======== ======== ========
Net income (loss) per share $ (0.49) $ 0.67 $ 0.74
======== ======== ========
Shares used in computing per share amounts 8,152 8,193 7,435
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SPECTRIAN CORPORATION AND SUBSIDIARIES 19
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended March 31,
(In thousands) 1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,991) $ 5,480 $ 5,473
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,574 4,793 2,789
Stock option compensation 182 (49) 200
Tax benefit associated with stock options -- 138 60
Changes in operating assets and liabilities:
Accounts receivable (3,845) (1,360) (2,033)
Inventories (10,072) (2,444) (1,239)
Prepaid expenses and other assets (1,386) (26) (227)
Accounts payable 1,137 2,897 966
Accrued liabilities 3,301 173 1,011
-------- -------- --------
Net cash provided by (used for)
operating activities (8,100) 9,602 7,000
-------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments -- (16,123) (12,107)
Proceeds from sale of short-term investments 3000 25,230 --
Proceeds from sale of property 16,414 -- --
Purchase of property and equipment (16,321) (28,182) (5,800)
-------- -------- --------
Net cash provided by (used for)
investing activities 3,093 (19,075) (17,907)
Cash flows from financing activities:
Proceeds from sale and leaseback financing -- -- 584
Proceeds from real estate loan 2,917 -- --
Proceeds from debt and equipment financing 18,000 -- --
Repayments of debt and capital lease obligations (12,272) -- (5,935)
Proceeds from initial public offering -- -- 21,066
Proceeds from sales of common stock, net 1,439 2,216 487
-------- -------- --------
Net cash provided by financing activities 10,084 2,216 16,202
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 5,077 (7,257) 5,295
Cash and cash equivalents, beginning of year 1,163 8,420 3,125
-------- -------- --------
Cash and cash equivalents, end of year $ 6,240 $ 1,163 $ 8,420
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 660 $ 31 $ 291
======== ======== ========
Noncash investing and financing activities:
Conversion of preferred stock into common stock $ -- $ -- $ 27,166
======== ======== ========
Capital equipment acquired under capital lease obligations $ -- $ -- $ 188
======== ======== ========
Deferred stock option compensation $ -- $ (425) $ 308
======== ======== ========
<FN>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
SPECTRIAN CORPORATION AND SUBSIDIARIES 20
<PAGE>
<TABLE>
Consolidated Statements of Shareholders Equity
<CAPTION>
Deferred
Preferred stock Common Stock Compensation
Shares Amount Shares Amount Expense
-------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances as of March 31, 1994 4,155,912 $ 27,166 817,173 $ 940 $ (450)
Exercise of stock options -- -- 273,247 121 --
Employee stock purchase plan -- -- 34,469 366 --
Repurchase of common stock -- -- (1) -- --
initial public offering, net of
$2,372 expenses -- -- 1,875,000 21,066 --
Conversion of preferred stock
into common stock (4,155,912) (27,166) 4,155,912 27,166 --
Deferred stock option compensation -- -- -- 308 (308)
Stock option compensation -- -- -- -- 200
Tax benefit associated
with stock options -- -- -- 60 --
Unrealized gains on investments -- -- -- -- --
Net income -- -- -- -- --
---------- ------- --------- ------ ----------
Balances as of March 31, 1995 -- -- 7,155,800 50,027 (558)
Exercise of stock options -- -- 761,778 1,161 --
Employee stock purchase plan -- -- 96,947 1,055 --
Deferred stock option compensation -- -- -- (425) 425
Stock option compensation -- -- -- -- (49)
Tax benefit associated
with stock options -- -- -- 138 --
Unrealized losses on investments -- -- -- -- --
Net income -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balances as of March 31, 1996 -- -- 8,014,525 51,956 (182)
Exercise of stock options -- -- 114,671 276 --
Employee stock purchase plan -- -- 136,034 1,163 --
Stock option compensation -- -- -- -- 182
Unrealized losses on investments -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balances as of March 31, 1997 -- $ -- 8,265,230 $ 53,395 $ --
========== ======= ========= ========== ==========
</TABLE>
Unrealized Total
Gains (Losses) Accumulated Shareholders
on Investments Deficit Equity
-----------------------------------------
(In thousands)
Balances as of March 31, 1994 -- $ (17,891) $ 9,765
Exercise of stock options -- -- 121
Employee stock purchase plan -- -- 366
Repurchase of common stock -- --
initial public offering, net of
$2,372 expenses -- -- 21,066
Conversion of preferred stock
into common stock -- -- --
Deferred stock option compensation -- -- --
Stock option compensation -- -- 200
Tax benefit associated
with stock options -- -- 60
Unrealized gains on investments $ 5 -- 5
Net income -- 5,473 5,473
--------- --------- -----------
Balances as of March 31, 1995 5 (12,418) 37,056
Exercise of stock options -- -- 1,161
Employee stock purchase plan -- -- 1,055
Deferred stock option compensation -- -- --
Stock option compensation -- -- (49)
Tax benefit associated
with stock options -- -- 138
Unrealized losses on investments (3) -- (3)
Net income -- 5,480 5,480
--------- ----------- -----------
Balances as of March 31, 1996 2 (6,938) 44,838
Exercise of stock options -- -- 276
Employee stock purchase plan -- -- 1,163
Stock option compensation -- -- 182
Unrealized losses on investments -- (2) (2)
Net loss -- (3,991) (3,991)
--------- ----------- -----------
Balances as of March 31, 1997 $ -- $ (10,929) $ 42,466
========= ========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SPECTRIAN CORPORATION AND SUBSIDIARIES 21
<PAGE>
1. Summary of Significant Accounting
Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiary, American Microwave Technology, Inc.,
and a limited liability company, Gibraltar Court Associates, of which the
Company is a majority owner. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes product sales upon shipment and concurrently accrues
for expected warranty expenses. Repair and service revenues are recognized when
the service is performed.
Non-recurring engineering (NRE) revenues relate to customer funded
development projects and are deferred and recognized upon completion of project
milestones. The Company is under no obligation to repay funds once related
milestones are achieved. Costs associated with such NRE revenue of $ 2,142,000,
$4,472,000 and $5,835,000 for the years ended March 31, 1997, 1996 and 1995,
respectively, are included in research and development expense in the
accompanying consolidated financial statements.
Concentration of Credit Risk and Fair Value of Financial Instruments
The Company performs ongoing credit evaluations of its customers financial
condition and generally does not require collateral on accounts receivable. When
required, the Company maintains allowances for credit losses and such losses
have been within Management's expectations.
The recorded amounts of financial instruments approximate their fair market
values.
Cash Equivalents and Short-Term Investments
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. The cash equivalents consist of
repurchase agreements and money market accounts as of March 31, 1997.
The Company has classified its investments in certain debt and equity
securities as "available-for-sale", and records such investments at fair market
value, with unrealized gains and losses reported as a separate component of
shareholder's equity. Interest income is recorded using an effective interest
rate, with the associated premium or discount amortized to interest income. At
March 31, 1997 and 1996, the fair value of the Company's investments
approximated cost.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the respective assets, generally three to five years. Assets recorded under
capital leases and leasehold improvements are amortized on a straight-line basis
over the shorter of the lease terms or the estimated useful lives of the
respective assets.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded against deferred tax assets
where their realization is subject to uncertainty.
Per Share Computations
Net income (loss) per share has been computed using the weighted average
number of outstanding shares of Common Stock and common equivalent shares from
stock options outstanding (when dilutive using the treasury stock method). The
modified treasury stock method was used when shares obtainable from options
exceeded 20% of the aggregate of Common and Preferred Stock outstanding at the
end of the period. Pursuant to certain Securities and Exchange Commission Staff
Accounting Bulletins, Common and Preferred Stock issued for consideration below
the initial public offering (IPO) price of $12.50 per share and stock options
granted with exercise prices below the $12.50 per share price during the
12-month period preceding the date of the initial filing of the registration
statement in connection with the IPO, even when antidilutive, have been included
in the calculation of common equivalent shares, using the treasury stock method
and the $12.50 per share price, as if they were outstanding for all pre-IPO
periods presented.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No.128
requires presentation of basic earnings per share (EPS) and, for companies with
complex capital structures, diluted EPS. SFAS
SPECTRIAN CORPORATION AND SUBSIDIARIES 22
<PAGE>
Notes to Consolidated Financial Statements (continued)
No. 128 is effective for annual and interim periods ending after December 31,
1997. The Company expects that basic EPS will be higher than primary earnings
per share as presented in the accompanying consolidated financial statements and
that diluted EPS will not differ materially from primary earnings per share.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. The most significant of these relate
to allowances for inventory obsolescence, allowances for doubtful accounts and
the warranty accrual. Actual results could differ from those estimates.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans using the intrinsic value
method set forth in Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock issued to Employees, and related interpretations. On April 1, 1996,
the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, and
has provided the pro forma disclosure provisions of SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on
April 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
2. Investments
Available-for-sale securities consisted of the following (in thousands):
March 31,
1997 1996
-----------------------
U.S. government securities $ -- $3,002
Repurchase agreements 4,830 893
Corporate debt securities 128 38
-----------------------
$4,958 $3,933
=======================
As of March 31, 1997 and 1996 the estimated fair value of each investment
approximated the amortized cost and, therefore, there were no significant
unrealized gains or losses. At March 31, 1997 and 1996 all securities held were
due in less than one year and were classified as follows (in thousands):
March 31,
1997 1996
-----------------------
Cash equivalents $4,958 $ 931
Short-term investments -- 3,002
-----------------------
$4,958 $3,933
=======================
3. Balance Sheet Components
Balance sheet components are as follows (in thousands):
March 31,
1997 1996
-----------------------
Inventories:
Raw materials $ 9,315 $ 1,512
Work in progress 6,699 4,842
Finished goods 1,287 875
-----------------------
$17,301 $ 7,229
=======================
Property and equipment:
Machinery and equipment $ 37,181 $26,053
Land, building and improvements 2,822 15,682
Furniture and fixtures 1,376 1,342
Leasehold improvements 867 927
-----------------------
42,246 44,004
Less accumulated depreciation
and amortization 16,785 11,876
-----------------------
$25,461 $32,128
=======================
Accrued liabilities:
Employee compensation and benefits $ 3,772 $ 2,673
Warranty 1,940 699
Other 1,709 748
-----------------------
$ 7,421 $ 4,120
=======================
4. Debt and Lease Commitments
Lines of Credit
The Company maintains a revolving line of credit under a master credit
agreement with a bank. The master credit agreement contains certain financial
covenants and certain restrictions on other indebtedness and payment of
dividends. The line of credit, secured by a majority of the Company's assets,
expires on July 31, 1997, bears interest at the banks prime rate, and provides
for borrowings and letters of credit aggregating up to $6,000,000 based on a
specified percentage of eligible accounts receivable. As of March 31, 1997, the
Company was
SPECTRIAN CORPORATION AND SUBSIDIARIES 23
<PAGE>
in compliance with its financial covenants and had $6,000,000 available under
this line of credit with no borrowings outstanding. The Company also entered
into a $4,000,000 term loan agreement with the same bank in February 1997 which
provides for advances of funds secured by capital equipment purchases with
interest payments equal to the banks prime rate plus 0.75% until November 1997.
This term loan is subject to the same financial covenants as the Company's
revolving line of credit. The Company has until October 31, 1997 to draw down
some portion or all of the loan amount, and will be required to make equal
monthly payments for thirty-six months commencing November 1997 plus interest
equal to the banks prime rate plus 0.75%. As of March 31, 1997, $4,000,000 was
available under this equipment term loan and no borrowings were outstanding.
Equipment and Real Estate Loans
In January 1997, the Company borrowed $6,000,000 secured by certain capital
equipment. Under the terms of the agreement, the Company is required to make a
series of uneven monthly principal payments through January 2002 ranging from
$42,000 to $136,000, plus interest at a rate equal to the Treasury Rate plus
2.75%, and must maintain certain minimum working capital, net worth,
profitability, and other specific ratios for which the Company was in compliance
as of March 31, 1997.
In March 1997, through means of a limited liability company in which the
Company is a majority owner, the Company purchased a 39,000 square foot building
and secured a real estate loan with an institutional lender in the amount of
$3,200,000 of which $2,917,000 was received by the Company in fiscal 1997. The
loan has an initial maturity date of April 2002 with an option to be extended to
April 2007. The Company makes monthly payments of principal and interest in
equal amounts which are amortized over two hundred forty months with the
remaining principal balance due on the maturity date. The interest rate is a
variable interest rate set at the LIBOR rate plus 3.25%.
During fiscal 1997, the Company borrowed $12,000,000 through various
equipment term loan arrangements and repaid the outstanding balances prior to
fiscal year end.
Future minimum debt principal payments under these loans as of March 31,
1997 aggregated $8,645,000 including $1,588,000, $1,598,000, $1,062,000,
$813,000, and $1,396,000 for the fiscal years 1998, 1999, 2000, 2001 and 2002,
respectively, and $2,188,000, thereafter.
Lease Commitments
During fiscal 1997, the Company sold its principal facilities in Sunnyvale
for $16,414,000, and leased the facilities back under a lease that has been
classified as an operating lease. The lease expires in November 2011 and the
quarterly rent payments are subject to Consumer Price Index adjustments on a
tri-annual basis beginning in November 1999.
The Company leases these facilities and certain equipment under
noncancelable operating leases. Future minimum lease payments under these
noncancelable operating leases as of March 31, 1997 aggregated $26,790,000
including $2,015,000, $1,977,000, $1,977,000, $1,977,000 and $1,971,000 for the
fiscal years 1998, 1999, 2000, 2001 and 2002, respectively and $16,872,000,
thereafter. Rent expense was approximately $819,000, $778,000 and $802,000 for
the years ended March 31, 1997, 1996 and 1995, respectively.
5. Shareholders Equity
Authorized Shares
All outstanding shares of Preferred Stock automatically converted into
shares of Common Stock on a one-for-one basis upon completion of the Company's
initial public offering in August 1994. At that time, the Board of Directors
authorized 5,000,000 shares of Preferred Stock and 20,000,000 shares of Common
Stock.
Stock Option Plans
The Company has adopted stock option plans, (the "Plans"), pursuant to
which the Company's Board of Directors may grant stock options to selected
employees, directors, officers and consultants of the Company. Stock options are
generally granted with an exercise price equal to the fair market value of the
Company's stock at the date of grant. The options generally have 10-year terms
and vest 25% after one year from the grant date with the remaining options
vesting pro rata over the following 36 months.
Under the 1992 Stock Plan, certain options were granted at prices that were
below fair market value and, accordingly, the Company had accrued deferred
compensation of $182,000 as of March 31, 1996, which was fully amortized to
expense as of March 1997. A total of 286,449 shares of Common Stock have been
reserved for issuance under the 1992 Stock Plan as of March 31, 1997.
During the year ended March 31, 1997, under the Director Option Plan,
10,000 shares were granted, none were issued, and no remaining shares of Common
Stock were reserved for issuance as of March 31, 1997.
Outside of the 1992 Stock Plan and the 1994 Director Option Plan, two
officers and one employee of the Company were granted a combined total of
390,000 options during fiscal 1997, at exercise prices ranging from $9.50 to
$14.50, which are subject to the same vesting schedule as that of the Company's
1992 Stock Plan.
SPECTRIAN CORPORATION AND SUBSIDIARIES 24
<PAGE>
Notes to Consolidated Financial Statements (continued)
The per share weighted average fair market value of stock options
granted during fiscal 1997 and fiscal 1996 were $9.41 and $17.69, respectively,
on the date of grant using the Black-Scholes Option-Pricing Model with the
following assumptions for both fiscal 1997 and fiscal 1996: stock price
volatility of 80%, no expected dividends, an average risk-free interest rate of
6% and an average expected option term of 4.3 years.
The following table summarizes option activity under the Plans:
Weighted
Available Average
for Options Exercise
Grant Outstanding Price
-------------------------------------
Outstanding as of March 31, 1994 1,629,974 1,532,596 $ 0.60
Granted (419,811) 419,811 15.48
Exercised -- (272,900) 0.54
Canceled 53,565 (53,565) 4.05
-------------------------------------
Outstanding as of March 31, 1995 1,263,728 1,625,942 4.34
Granted (444,743) 444,743 23.98
Exercised -- (761,791) 1.52
Canceled 372,306 (372,306) 4.13
-------------------------------------
Outstanding as of March 31, 1996 1,191,291 936,588 16.03
Granted at fair market value (1,760,346) 1,760,346 14.98
Granted in excess of
fair market value (250,000) 250,000 14.50
Exercised -- (114,671) 2.50
Canceled 1,105,510 (1,105,510) 19.83
-------------------------------------
Outstanding as of March 31, 1997 286,455 1,726,753 $ 13.20
The following table summarizes information about stock options outstanding
at March 31, 1997:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price Price Price
- ---------------------------------------------------------------------------
$ 0.20-9.50 490,348 8.8 $ 7.75 107,987 $ 2.65
10.00-13.75 107,833 9.8 13.48 4,333 10.00
14.50 964,042 8.6 14.50 34,219 14.50
16.25-38.50 164,530 8.6 21.66 62,786 21.06
$ 0.20-38.50 1,726,753 8.7 $ 13.20 209,325 $ 10.26
Employee Stock Purchase Plan
In May 1994, the Board of Directors approved the 1994 Employee Stock
Purchase Plan (the "Purchase Plan") which permits eligible employees to purchase
the Company's Common Stock through payroll deductions. The Purchase Plan is
implemented by consecutive and overlapping 24-month offering periods, each
divided into four 6-month purchase periods. The purchase price of the shares is
85% of the lower of the fair market value of the Common Stock at the beginning
of the offering period or the end of each purchase period. The Company reserved
a total of 275,000 shares of common stock for issuance under this plan, of which
7,550 shares of Common Stock were still available for issuance as of March 31,
1997. During the year ended March 31, 1997, there were 136,034 shares acquired
under the Purchase Plan at per share prices ranging from $6.59 to $12.11.
Under SFAS No. 123, proforma compensation cost is calculated for the fair
market value of the employees' purchase rights. The per share weighted average
fair market value of those purchase rights granted in fiscal 1997 and fiscal
1996, respectively, was $5.14 and $6.54, using the Black-Scholes Option-Pricing
Model with the following assumptions: for fiscal 1997, a stock price volatility
of 80%, no expected dividends, risk free interest rate of 6% and an expected
term of 0.9 years; for fiscal 1996, a stock price volatility of 80%, no expected
dividends, a risk free interest rate of 6% and an expected term of 0.8 years.
Pro Forma Fair Value Information
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, compensation cost has been recognized for its stock options using
the intrinsic value method in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income (loss) would have
been reduced to the pro forma amounts indicated below:
1997 1996
------------ ----------
Net income (loss) As reported $(3,991,000) $5,480,000
Pro forma $(8,018,000) $2,339,000
Earnings (loss) per share As reported $ (0.49) $ 0.67
Pro forma $ (0.98) $ 0.29
Pro forma net income (loss) reflects only the options granted in fiscal
1997 and 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost is reflected over the
options vesting period of four years and compensation cost for options granted
prior to April 1, 1995 is not considered.
SPECTRIAN CORPORATION AND SUBSIDIARIES 25
<PAGE>
6. Income Taxes
Income tax expense for the years ended March 31, 1997, 1996 and 1995
differs from the amount computed by applying the federal income tax rate of 34%
to pretax income (loss) from operations as a result of the following (in
thousands):
Year ended March 31,
1997 1996 1995
-------------------------------
"Expected" income tax expense (benefit) $(1,357) $ 1,921 $ 1,918
Utilization of net operating loss
carryforwards -- (1,921) (1,918)
Unutilized net operating losses 1,337
Alternative minimum tax -- 169 170
Other 20 -- --
-------------------------------
Income tax expense $ -- $ 169 $ 170
===============================
The Company is entitled to a deduction for federal and state tax purposes
with respect to employees' early disposition of stock acquired through employee
stock options. The net reduction in taxes otherwise payable arising from that
deduction has been credited to Common Stock.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below (in
thousands):
March 31,
1997 1996
-----------------------
Deferred tax assets:
Various accruals and reserves 2,921 1,887
Deferred research and development expenses 66
Net operating loss carryforwards 10,266 9,067
Credit carryforwards 4,721 3,359
-----------------------
Total gross deferred tax assets 17,908 14,379
Less valuation allowance (17,313) (13,011)
-----------------------
Net deferred tax assets $ 595 $ 1,368
=======================
Deferred tax liabilities:
Property and equipment depreciation differences $ (595) $ (1,368)
Total gross deferred liabilities (595) (1,368)
-----------------------
Net deferred tax assets $ -- $ --
=======================
As of March 31, 1997, the Company has a net operating loss carryforward of
$29 million for federal income tax purposes and $9 million for California income
tax purposes. The Company has research credit carryforwards of approximately
$1.6 million and $1.5 million for federal and California income tax purposes,
respectively. If not utilized, these carryforwards will expire in various
amounts from 1999 through 2012. The Company also has an investment tax credit
carryforward of approximately $1.6 million for California income tax purposes
which, if not utilized, will expire in 2004 through 2005. Included in the
deferred tax assets is approximately $8.9 million of assets relating to the
stock option compensation, which will be credited to equity when realized.
7. Major Customers
The following table summarizes the annual percentage contribution to
revenues by customers when sales to such customers exceeded 10% of such revenues
in fiscal 1997, 1996 and 1995, and the amounts due from these customers as a
percentage of total accounts receivable as of March 31, 1997 and 1996, follows:
Revenues Percentage of Total Accounts
Year ended March 31, Receivable as of March 31,
1997 1996 1995 1997 1996
--------------------------------------------------
Customer A 63% 58% 53% 51% 69%
Customer B 12% 17% 13% 27% 10%
Customers A and B are major companies in the wireless infrastructure
equipment industry. Company A has an equity investment in Company B.
Export sales as a percentage of revenues were as follows:
Year ended March 31,
1997 1996 1995
--------------------
Canada 57% 51% 55%
Europe 13 20 15
Other 3 1 1
--------------------
Total exports 73% 72% 71%
====================
8. Subsequent Event
In April 1997, the Company sold its wholly-owned subsidiary, American
Microwave Technology (AMT) to the management group and employees of AMT for
approximately $4.0 million, realizing a net gain of approximately $500,000 after
disposition of AMT's assets. The Company decided to divest AMT, which designs,
develops and manufactures radio frequency power amplifier systems for selected
wireless, scientific and application specific markets, after concluding AMT's
market focus had become less synergistic with the Company's core business. For
fiscal years 1997, 1996 and 1995, AMT reported revenues of approximately $6.0,
$7.5 and $7.5 million respectively, and pretax income (loss) of $(0.8), $0.3 and
$0.3 million, respectively.
SPECTRIAN CORPORATION AND SUBSIDIARIES 26
<PAGE>
Report of KPMG Peat Marwick LLP,
Independent Auditors
The Board of Directors and Shareholders of Spectrian Corporation:
We have audited the accompanying consolidated balance sheets of Spectrian
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spectrian
Corporation and subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
San Jose, California
April 11, 1997
SPECTRIAN CORPORATION AND SUBSIDIARIES 27
<PAGE>
<TABLE>
Selected Unaudited Quarterly Financial Data
<CAPTION>
Year Ended March 31, 1997 Year Ended March 31, 1996
(In thousands, except per share data) FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ------- -------- -------- -------- -------
STATEMENT OF OPERATIONS DATA
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales $ 9,560 $ 22,005 $ 23,839 $31,261 $ 20,262 $ 19,490 $ 11,644 $16,618
Nonrecurring engineering revenues 363 267 646 311 199 1,461 628 1,811
-------- -------- -------- ------- -------- -------- -------- -------
9,923 22,272 24,485 31,572 20,461 20,951 12,272 18,429
-------- -------- -------- ------- -------- -------- -------- -------
Costs and expenses:
Cost of product sales 8,491 16,639 17,211 22,981 13,010 12,682 8,203 11,460
Research and development 4,293 3,770 4,773 4,394 3,295 3,737 3,611 3,905
Selling, general and administrative 2,379 1,948 2,293 2,679 2,058 2,094 1,460 1,838
-------- -------- -------- ------- -------- -------- -------- -------
15,163 22,357 24,277 30,054 18,363 18,513 13,274 17,203
-------- -------- -------- ------- -------- -------- -------- -------
Operating income (loss) (5,240) (85) 208 1,518 2,098 2,438 (1,002) 1,226
Interest income (expense), net (74) (251) (70) 3 367 229 201 92
-------- -------- -------- ------- -------- -------- -------- -------
Income (loss) from operations
before income taxes (5,314) (336) 138 1,521 2,465 2,667 (801) 1,318
Income taxes -- -- -- -- (201) (214) 65 181
-------- -------- -------- ------- -------- -------- -------- -------
Net income (loss) $ (5,314) $ (336) $ 138 $ 1,521 $ 2,264 $ 2,453 $ (736) $ 1,499
-------- -------- -------- ------- -------- -------- -------- -------
Net income (loss) per share $ (0.66) $ (0.04) $ 0.02 $ 0.18 $ 0.27 $ 0.29 $ (0.09) $ 0.18
-------- -------- -------- ------- -------- -------- -------- -------
Shares used in computing
per share amounts 8,039 8,147 8,295 8,422 8,276 8,393 7,771 8,332
AS A PERCENTAGE OF REVENUES
Revenues:
Product sales 96% 99% 97% 99% 99% 93% 95% 90%
Nonrecurring engineering revenues 4 1 3 1 1 7 5 10
-------- -------- -------- ------- -------- -------- -------- -------
100 100 100 100 100 100 100 100
Costs and expenses:
Cost of product sales 86 75 70 73 64 60 67 62
Research and development 43 17 19 14 16 18 29 21
Selling, general and administrative 24 9 9 8 10 10 12 10
-------- -------- -------- ------- -------- -------- -------- -------
153 100 99 95 90 88 108 93
-------- -------- -------- ------- -------- -------- -------- -------
Operating income (loss) (53) (0) 1 5 10 12 (8) 7
Interest income (expense), net (1) (1) 0 0 2 1 1 0
-------- -------- -------- ------- -------- -------- -------- -------
Income (loss) from operations
before income taxes (54%) (2%) 1% 5% 12% 13% (7%) 7%
-------- -------- -------- ------- -------- -------- -------- -------
Gross margin on product sales 11% 24% 28% 26% 36% 35% 30% 31%
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1995
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
STATEMENT OF OPERATIONS DATA
Revenues:
<S> <C> <C> <C> <C>
Product sales $ 13,867 $ 14,104 $ 13,757 $ 16,940
Nonrecurring engineering revenues 841 1,202 1,252 515
-------- -------- -------- --------
14,708 15,306 15,009 17,455
-------- -------- -------- --------
Costs and expenses: 9,330 9,417 9,251 11,070
Cost of product sales 2,636 3,067 2,859 2,812
Research and development 1,586 1,507 1,716 1,975
-------- -------- -------- --------
Selling, general and administrative 13,552 13,991 13,826 15,857
-------- -------- -------- --------
1,156 1,315 1,183 1,598
Operating income (loss) (142) 5 242 286
-------- -------- -------- --------
Interest income (expense), net
Income (loss) from operations
before income taxes 1,014 1,320 1,425 1,884
Income taxes (30) (40) (43) (57)
-------- -------- -------- --------
Net income (loss) $ 984 $ 1,280 $ 1,382 $ 1,827
-------- -------- -------- --------
Net income (loss) per share $ 0.17 $ 0.17 $ 0.17 $ 0.22
-------- -------- -------- --------
Shares used in computing
per share amounts 5,903 7,454 8,162 8,220
AS A PERCENTAGE OF REVENUES
Revenues:
Product sales 94% 92% 92% 97%
Nonrecurring engineering revenues 6 8 8 3
-------- -------- -------- --------
100 100 100 100
Costs and expenses:
Cost of product sales 63 61 62 64
Research and development 18 20 19 16
Selling, general and administrative 11 10 11 11
-------- -------- -------- --------
92 91 92 91
-------- -------- -------- --------
Operating income (loss) 8 9 8 9
Interest income (expense), net (1) 0 1 2
-------- -------- -------- --------
Income (loss) from operations
before income taxes 7% 9% 9% 11%
-------- -------- -------- --------
Gross margin on product sales 33% 33% 33% 35%
</TABLE>
SPECTRIAN CORPORATION AND SUBSIDIARIES 28
Consent of Independent Auditors
The Board of Directors
Spectrian Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-83832 and 33-31046) on Form S-8 of Spectrian Corporation of our reports dated
April 11, 1997, relating to the consolidated balance sheets of Spectrian
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1997, and the related
schedule, which reports appear in or are incorporated by reference in the March
31, 1997, annual report on Form 10-K of Spectrian Corporation.
San Jose, California
June 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925054
<NAME> Spectrian Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,240
<SECURITIES> 0
<RECEIVABLES> 16,190
<ALLOWANCES> 365
<INVENTORY> 17,301
<CURRENT-ASSETS> 1,806
<PP&E> 42,246
<DEPRECIATION> 16,785
<TOTAL-ASSETS> 66,633
<CURRENT-LIABILITIES> 17,110
<BONDS> 7,057
0
0
<COMMON> 53,395
<OTHER-SE> (10,929)
<TOTAL-LIABILITY-AND-EQUITY> 66,633
<SALES> 88,252
<TOTAL-REVENUES> 88,252
<CGS> 65,322
<TOTAL-COSTS> 65,322
<OTHER-EXPENSES> 26,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> (3,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,991)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
