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, 1998 or
[ ] Transition report pursuant to Section 13 or 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)
Delaware 77-0023003
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
350 West Java Drive, Sunnyvale, California 94089
(Address of principal executive office) (Zip Code)
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, $.001 par value
Series A Participating Preferred Stock, $.001 par value
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 May 18,
1998 as reported on the Nasdaq National Market, was approximately $124,769,768.
Shares of Common Stock held by each 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 May 18, 1998, registrant had outstanding 10,907,605 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference into Part III of this Annual
Report on Form 10-K portions of its Proxy Statement for the 1998 Annual Meeting
of Stockholders to be held June 26, 1998.
<PAGE>
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K, the exhibits hereto and the information
incorporated by reference herein contain "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such forward looking statements involve risks
and uncertainties. When used in this Report, the words "expects," "anticipates,"
and "estimates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include those discussed below and those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" or
documents incorporated by reference herein. Spectrian Corporation undertakes no
obligation to publicly release any revisions to these forward looking statements
to reflect events or circumstances after the date this Report is filed with the
Securities and Exchange Commission or to reflect the occurrence of unanticipated
events.
Spectrian Corporation (the "Company" or "Spectrian") designs, manufactures
and markets highly linear radio frequency ("RF") power amplifiers that address
the needs of wireless infrastructure original equipment manufacturers ("OEMs")
and their service provider customers. The Company's amplifiers have been
deployed in wireless networks in over 35 countries worldwide. Spectrian's
amplifiers deliver high linearity, are cost-effectively produced in volume,
support multiple transmission standards and demonstrate high field reliability.
These attributes enable service providers to improve spectrum efficiency
resulting in reduced cost per subscriber, to rapidly deploy new services and to
offer enhanced quality and reliability of service.
Industry Background
The market for cellular, personal communications services ("PCS") and
wireless local loop ("WLL") communications services (collectively known as
"wireless" services) has grown significantly during the past decade, fueled by
decreasing prices for wireless handsets, a more favorable regulatory
environment, increasing competition among service providers and a greater
availability of services and RF spectrum. In addition, several developing
countries are installing wireless telephone networks as an alternative to
installing, expanding or upgrading traditional wireline networks. Emerging
bidirectional wireless data applications have the potential to further expand
the market for wireless communications by allowing service providers to increase
revenue generating traffic on their networks. The Strategis Group estimates that
the number of wireless subscribers worldwide will grow from 205 million in 1997
to 675 million in 2002.
The growth in wireless communications has required, and will continue to
require, substantial investment by service providers in infrastructure
equipment. The Yankee Group estimates that spending by wireless service
providers on infrastructure equipment was approximately $32 billion in 1997 and
will rise to approximately $93 billion in 2002. A typical wireless
communications system comprises a geographic region containing a number of
cells, each of which contains a cell site (or "base station"), which are
networked to form a service provider's coverage area. Each base station houses
the equipment that receives incoming telephone calls from the switching office
of the local wireline telephone company and broadcasts calls to the wireless
users within the cell. A base station contains a fixed number of RF channels; in
a single carrier system, each separate channel requires a separate transceiver,
single channel power amplifier and tunable cavity filter, along with an antenna
to transmit the outgoing signal to the wireless telephone user. Most existing
wireless systems use single channel power amplifiers. The power amplifier
receives a relatively weak signal from the transceiver and significantly boosts
the power of that signal so that it can be broadcast throughout the cell, which
typically covers a geographic area up to five miles in radius. The RF power
levels necessary to transmit the signal over the required range must be achieved
without distorting the modulation characteristics of the signal.
Traditional cellular systems are capable of carrying only one call per
channel of spectrum and are based on analog technology. This limitation combined
with the continuing growth of the wireless communications market has resulted in
the crowding of transmissions within the available RF spectrum.
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Because the radio frequencies assigned to transmissions are fixed, service
providers are seeking new methods to use the RF spectrum more efficiently to
increase capacity. Analog systems are being supplanted by digital systems, which
convert voice transmissions into bits of electronic information and thereby use
the finite RF spectrum allocated to wireless transmissions to serve growing
demand. Three dominant digital transmission modulation formats have emerged for
cellular and PCS networks that are known as Time Division Multiple Access
("TDMA"), Code Division Multiple Access ("CDMA") and Global System for Mobile
Communication ("GSM"). These transmission modulation formats allow a digital
network to have a call capacity of three to eight times the number of voice
conversations as an analog network. Existing analog cellular networks are in the
process of upgrading to digital formats that operate at frequencies between 800
MHZ and 1000 MHZ, and new digital cellular networks are being constructed around
the world as new licenses are being awarded. In addition to the growth in
digital cellular networks, 1997 was a year of significant growth for new digital
PCS networks that may be more desirable to wireless service providers, because
such networks also allow a higher volume of calls in a given RF spectrum than
analog cellular networks. PCS networks operate in the 1800 MHZ to 2000 MHZ
frequency range but typically have a smaller coverage area per base station than
their cellular counterparts. Thus PCS networks need two to three times as many
base stations (and power amplifiers) as digital cellular networks. Service
providers are upgrading their cellular networks to digital and deploying new PCS
networks, trends which the Company believes will increase rapidly. The
implementation of digital and PCS networks, in conjunction with the continued
growth in analog networks, has resulted in an increased demand for network
infrastructure equipment.
Wireless carriers are also increasing system capacity by implementing
dynamic channel allocation, which allows the service provider to automatically
move available unused channels from less active base stations to busier adjacent
base stations as the demand load moves, such as during commuter rush hours.
Systems with dynamic channel allocation are more easily implemented with
multicarrier power amplifiers, which can simultaneously broadcast signals using
multiple transmission standards over a variable number of channels. The need to
increase system capacity, combined with the development of multicarrier power
amplifiers, has also encouraged wireless carriers to transition from "macrocell"
base stations (which typically have a five mile radius) to microcells. When the
number of subscribers within the macrocell exceeds the capacity of its
equipment, the cell can be split into several smaller microcells to avoid a
degradation in service. The geographic range of these microcells is smaller and
requires equipment that consumes less power and is less expensive at each base
station, but more microcells are required in order to increase the capacity of
the overall system.
Wireless carriers' ability to more effectively manage scarce spectrum
resources and accommodate a larger number of subscribers is dependent on their
ability to broadcast signals with high "linearity." Linearity is the degree to
which amplified signals remain within their prescribed band of the spectrum with
low distortion or interference from adjacent channels. In current systems, the
RF power amplifier is generally the source of the greatest amount of signal
distortion. Consequently, obtaining RF power amplifiers with high linearity is
critical to a service provider's ability to reduce interference levels and
thereby increase system capacity. For example, higher linearity amplifiers are
required as the industry transitions from analog to digital technologies without
significant improvements in power amplifier linearity relative to that required
for analog networks. Multiple conversations on a single channel would lead to
unacceptable channel interference. Consequently, high linearity is even more
critical in digital networks than in analog networks. Multicarrier power
amplifiers, which are critical to the use of dynamic channel allocation and
microcells, require leading edge linearity technology to function properly.
Substantial investment and technical expertise are required to design and
manufacture RF power amplifiers with high linearity.
Wireless service providers compete in dynamic markets characterized by
evolving and competing industry standards, technologies and applications, and
those wireless service providers that are able to increase the efficiency and
lower the cost of new and existing systems will compete most effectively.
Wireless service providers must anticipate evolving industry standards and
invest in infrastructure equipment that both maximizes efficiency in the
management of the limited spectrum licensed to them and is available in volume
for rapid deployment.
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Service providers obtain their equipment from a concentrated group of large
OEMs. The Company believes that Lucent Technologies, Inc. ("Lucent"), Ericsson
Telephone Company ("Ericsson"), Motorola Corporation ("Motorola"), Northern
Telecom Limited ("Northern Telecom"), Nortel Matra Communications ("Nortel
Matra"), in which Northern Telecom has an equity interest, and Nokia OY
("Nokia") supplied over 80% of the wireless infrastructure equipment installed
worldwide in 1997. Most of these OEMs manufacture base station components
internally. However, in response to competition and as the performance
requirements of certain components increase, many of these OEMs have begun to
rely on independent sources for certain system components, such as power
amplifiers, that must meet unique technical requirements. To succeed in
capturing orders from these OEMs, power amplifier suppliers must rapidly bring
to market products that are highly linear, can be produced in volume
cost-effectively, support multiple standards and are reliable in the field.
The Spectrian Solution
Spectrian Corporation designs, manufactures and markets highly linear RF
power amplifiers that address the needs of wireless infrastructure OEMs and
their service provider customers. The Company's amplifiers provide significant
advantages to its customers, including:
High Linearity. Spectrian has developed the multiple technological
competencies and disciplines required to achieve high linearity in its
amplifiers. These competencies and disciplines include RF semiconductor
technology, solid state device physics, thermal and mechanical packaging design,
advanced circuit design, amplifier linear correction technologies, advanced
signal processing techniques, control systems and computer aided design and
modeling. The Company believes that its combined strengths in these areas
provide it with an important competitive advantage in maintaining technological
leadership. The high degree of linearity of the Company's amplifiers enables
Spectrian's OEM customers to furnish wireless service providers with high
capacity base station equipment at low capital cost per subscriber.
Rapid Time to Market and Volume Manufacturing. The vertical integration of
Spectrian's design and production processes is a key element of the Company's
ability to address wireless infrastructure equipment suppliers' quantity and
time to market requirements for power amplification products. The Company's
ability to design and manufacture its RF semiconductors in-house is critical to
rapidly and cost-effectively introducing new products that meet OEMs' evolving
needs. Spectrian also designs its amplifiers to be manufactured in high volumes
at low cost, which the Company believes has been a competitive advantage in
securing orders from its OEM customers because power amplifiers have
historically been difficult to manufacture in high volumes based upon the labor
intensive nature of the manufacturing process and the complexities of RF power
technology. Finally, the Company's use of automated testing reduces overall
manufacturing cycle times and enables the Company to deliver products in volume
more rapidly.
Standards Independence. Spectrian's technologies support every major
wireless modulation standard, and its multicarrier power amplifiers support
several standards simultaneously. Certain of the Company's single carrier
products support both analog and digital standards in a dual mode format. The
Company believes that this breadth of product functionality is important to
wireless service providers as they upgrade their cellular infrastructure
equipment and implement digital systems in an environment characterized by
evolving industry standards and the proliferation of spectrum allocation.
High Quality and Reliability. Spectrian designs its power amplifiers to be
highly reliable in the field. Spectrian's integrated design and manufacturing
processes are important factors contributing to its ability to develop and
produce highly reliable power amplifiers. In order to further address customer
requirements for amplifier quality and reliability and to ensure process quality
control, Spectrian has implemented a continuous process improvement program
throughout the Company and is ISO 9001 certified.
Multicarrier Functionality. Spectrian develops and supplies multicarrier
amplifiers that integrate the functions of multiple single carrier power
amplifiers into a single smaller unit while simultaneously eliminating the need
for cavity filters. The Company believes that the distortion reduction
performance of its multicarrier amplifiers will provide it with an important
competitive advantage. The ability of the Company's multicarrier products to
combine multiple digital and analog channel schemes enables carriers
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to maintain backward compatibility as they add digital transmission and
implement dynamic channel allocation solutions. In addition, multicarrier units
can potentially reduce service providers' equipment and maintenance costs and
space requirements, thereby facilitating the implementation of microcells.
Spectrian Strategy
Spectrian's objective is to strengthen its position as the leading merchant
supplier of highly linear power amplifiers to wireless infrastructure equipment
manufacturers and service providers worldwide. The Company's strategy
incorporates the following key elements:
Capitalize on Vertical Integration in Design and Manufacturing. The Company
has historically pursued a strategy of vertical integration of its design and
manufacturing processes, from design and development of the semiconductor die
through assembly and automated testing with proprietary software and systems
that minimize manufacturing cycle times. During fiscal 1998, the Company began
outsourcing some of its printed circuit board assemblies but continues to exert
control over each of the design and manufacturing steps which further
contributes to improved amplifier linearity, shortens the Company's time to
market, reduces unit costs and increases quality and reliability. In addition,
operating a wafer fabrication facility improves the Company's access to a supply
of RF semiconductors even in periods of high industry demand for semiconductors
and intense competition for wafer fabrication capacity.
Expand Relationships with Leading Worldwide Manufacturers of Wireless
Infrastructure Equipment. The Company has developed relationships with certain
large wireless OEMs, including Northern Telecom, Nortel Matra, LG Information
and Communications Limited ("LGIC") and QUALCOMM Incorporated ("QUALCOMM"), as
well as certain emerging manufacturers including Harris, Tellabs and Watkins
Johnson. The Company markets its products worldwide, and as of March 31, 1998,
its power amplifiers had been installed in over 35 countries. In fiscal 1997,
Spectrian also began to establish direct relationships with certain wireless
service providers, allowing the Company to address previously unavailable
markets. The Company's strategy is to form lasting customer relationships by
working closely with OEM customers to develop insight into their amplifier
requirements and to design specific products that meet their needs, by rapidly
delivering product designs and volume production and by maintaining the
confidentiality of customer technology.
Leverage Product Platforms to Provide Rapid Time to Market. The Company
provides customized or "application specific" amplification products to address
the particular technical and time to market requirements of each of its
customers. The Company leverages its modular product architecture, configurable
core technologies and product platforms, as well as its ability to design
products for all RF modulation schemes, to rapidly and cost effectively develop
and deliver application specific solutions to its customers.
Pursue Standards and Systems Independence. The Company's products are
compatible with wireless communications systems provided by various
infrastructure suppliers and operate under every major domestic and
international standard. By pursuing both standards and systems independence, the
Company believes that it will benefit from the continuing growth of both
existing and emerging wireless communications systems while reducing the risks
associated with relying on the success of one or a limited number of systems or
existing or emerging industry standards. In addition to supporting every major
cellular standard, the Company has developed, and is continuing to develop,
products that address the needs of the PCS and WLL markets.
Strengthen Leadership Position in Amplification Technology. The Company
intends to maintain and expand its technological leadership position by
continuing to invest significant resources in research and development of
amplification technology. The Company believes that its RF amplifier research
and development team is among the largest and most skilled in the merchant RF
power amplifier industry. To maintain a technological leadership position, the
Company believes that numerous integrated technical capabilities are required,
including semiconductor design and fabrication, unique packaging concepts and
components, customized linearization and correction technologies and expert RF
circuit design. The Company's strategy is to continue to invest significant
resources to support the Company's technology leadership in amplifier linearity,
power and efficiency.
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Markets
Wireless systems have historically employed analog transmission formats,
certain of which have been adopted as industry standards. The need to
accommodate a growing wireless customer base within a finite amount of spectrum
has, however, encouraged a worldwide transition from analog standards to various
digital technologies which are significantly more efficient. Current analog
standards include Advanced Mobile Phone Services ("AMPS") in the Americas and
Total Access Communications System ("TACS") and Nordic Mobile Telephone ("NMT")
in Europe. Current digital standards include TDMA, CDMA, Personal Digital
Cellular ("PDC") in Japan and GSM.
The Company offers amplifiers that support the AMPS and TACS analog
standards and the TDMA, CDMA and GSM digital standards for cellular systems. The
Company has elected not to support the NMT analog standard in Europe, because it
believes that NMT has a lower potential for growth than the GSM digital
standard. To date, the Company has not invested significant development
resources to incorporate the PDC standard into its product offerings, because
such standard has not developed to any great degree outside of Japan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results--Rapid Technological
Change; Evolving Industry Standards; Dependence on New Products."
In addition to the analog and digital cellular systems discussed above, the
market for PCS systems is expanding rapidly. The FCC has reallocated spectrum in
the 1.85 to 1.99 gigahertz range for the provision of PCS and has conducted six
rounds of auctions for the PCS spectrum. The success of PCS as a wireless
service will depend in part on whether infrastructure manufacturers and service
providers can reduce system manufacturing and service costs and prices
sufficiently to increase significantly the rate of market penetration of
potential subscribers.
The following chart illustrates these existing and developing standards for
wireless communications, and the shaded areas represent markets served and
standards supported by the Company's current product offerings.
- --------------------------------------------------------------------------------
Major Wireless Standards by Region
- --------------------------------------------------------------------------------
Americas Europe Asia Pacific Japan
(MHZ) (MHZ) (MHZ) (MHZ)
-------------------------------------------------------------------
Analog AMPS (800) NMT (450, 900) NMT (450, 900) NTT (800)
Cellular TACS (900) AMPS (800) JTACS (800)
AMPS (800) TACS (900)
- --------------------------------------------------------------------------------
Digital CDMA (800) GSM (900) CDMA (800, 900) PDC (1500)
Cellular TDMA (800) GSM (900) JDC (800)
TDMA (450, 800) CDMA (800)
- --------------------------------------------------------------------------------
PCS CDMA (1900) GSM (1800) CDMA (1900) PHS (1900)
TDMA (1900) GSM (1800)
GSM (1900) CDMA (1800)
- --------------------------------------------------------------------------------
The Company believes that the potential for wireless communications in
countries without reliable or extensive wireline systems may be even greater
than in countries with developed telecommunications systems. The cost of
building and maintaining a wireless network is generally less than the cost of
building and maintaining a comparable wireline network. Thus, in many less
developed countries, wireless service may provide the primary service platform
for both mobile and fixed telecommunications. In addition, if technological
advances and price decreases continue to occur, a market in the United States
and other developed countries for wireless service to be used in conjunction
with, or in place of, traditional wireline ("local loop") service may emerge for
a variety of applications. For example, WLL networks could provide local loop
service and direct access to the long distance carriers.
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Products
The Company designs highly linear amplifiers that address the specific
requirements of each of its OEM customers. The Company's product strategy is to
support multiple wireless systems and standards. Most existing wireless systems
use single carrier power amplifiers. The following table provides a list of
standards for which the Company develops single carrier amplifiers:
---------------------------------------------------
Spectrian Single Carrier Amplifier Configurations
---------------------------------------------------
Frequency Power
Standard (MHZ) (Watts)
---------------------------------------------------
Analog Cellular:
AMPS, CDPD 869-894 45,65
TACS 917-950 65
---------------------------------------------------
Digital Cellular:
TDMA 485-495 50
TDMA 869-894 25,50
CDMA 869-894 25
GSM 925-960 30
---------------------------------------------------
PCS:
GSM 1800 1805-1880 30
CDMA 1930-1990 20,25
GSM 1900 1930-1990 30
CDMA 1805-1870 25
---------------------------------------------------
WLL:
Wideband CDMA 2370-2400 10,20,40
---------------------------------------------------
The Company also offers multicarrier application specific amplification
products. Multicarrier power amplifiers require significantly higher linearity
than single carrier designs. The following table provides a list of the
standards for which the Company develops multicarrier amplifiers:
---------------------------------------------------------------------
Spectrian Multicarrier Amplifier Configurations
---------------------------------------------------------------------
Typical
Frequency Power Linearity
Standard (MHZ) (Watts) (dBc)*
-------------------------------- ----------- --------- ----------
AMPS, TDMA, CDMA, CDPD 869-894 30-175 -70
ETACS 917-950 25 -50
CDMA 1805-1870 25-100 -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 RF semiconductors mounted on a printed
circuit board without a housing. A plug-in amplifier unit consists of a cast
housing, which provides for thermal management and low cost of production, and
contains a RF amplifier pallet combined with a digital control interface module.
A power amplifier subsystem consists of multiple cast housings and adds signal
processing to enhance linearity. The Company's products are integrated into base
station systems designed and/or manufactured by its OEM customers, and therefore
must be engineered to be com-patible with industry standards, as well as certain
customer specifications including frequency, power and linearity.
OEM Customers, Sales and Marketing
The Company sells power amplifiers to a limited number of OEMs in North
America, Europe and Asia principally through its direct sales organization. The
Company's customers include many of the
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world's largest manufacturers of wireless infrastructure equipment, including
Northern Telecom, Nortel Matra, LGIC and QUALCOMM. During fiscal 1998, Northern
Telecom, Nortel Matra and LGIC accounted for approximately 57%, 22% and 14% of
revenues, respectively. During fiscal 1997, Northern Telecom and Nortel Matra
accounted for approximately 63% and 12% of revenues, respectively. During fiscal
1996, Northern Telecom and Nortel Matra accounted for approximately 58% and 17%
of revenues, respectively. While Northern Telecom continues to be the Company's
dominant customer due to Northern Telecom's growth and diversification into new
markets, the products the Company supplies to Northern Telecom and the regions
in which they are deployed have become more diverse. The Company expects that
sales of its products will continue to be concentrated among a limited number of
customers. In addition, the recent financial market turmoil and economic
downturn in Korea may have a material adverse effect on the Company's sales of
its products to LGIC, an OEM based in Korea, because a majority of the Company's
products ordered by LGIC to date relate to the build-out of the Korean PCS
system. In addition, because the Company's products are priced in U.S. dollars,
the currency instability in the Korean and other Asian financial markets may
have the effect of making the Company's products more expensive to LGIC than
those of other manufacturers whose products are priced in one of the affected
Asian currencies, and, therefore, LGIC may reduce future purchases of the
Company's products. In addition, wireless infrastructure OEMs have come under
increasing price pressure from wireless service providers, which in turn has
resulted in downward pricing pressure on the Company's products. Therefore, the
Company expects to incur increasing price pressures from Northern Telecom and
its other major OEM customers in future periods which could result in declining
average sales prices for the Company's products. The Company's business,
financial condition and results of operations have been materially adversely
affected in the past by the failure of anticipated orders to materialize and by
deferrals or cancellations of orders by its customers. If the Company were to
lose Northern Telecom or any other major customer as a customer, or if orders by
Northern Telecom or any other major OEM customer were to otherwise decrease, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results--Customer Concentration; Dependence on Northern Telecom."
The Company employs a customer focused, team based direct sales approach to
satisfy the power amplification needs of its customers. Sales to large OEM
customers require close account management by Company personnel and
relationships at multiple levels of its customers' organizations, including
management, engineering and purchasing personnel. In addition, the Company's
application specific amplification products require experienced sales personnel
to match the customer's amplification requirements to the Company's product
capabilities. The Company believes that close technical collaboration with the
customer during the design phase of new communications equipment is critical to
the integration of its amplification products into the new equipment. The
Company's integrated sales approach involves a team consisting of a senior
account manager, a program manager and members of the Company's engineering
department. This sales approach allows the Company's engineering personnel to
work closely with their counterparts at the OEM customer to assure compliance of
the product to the customer's specification. The Company's executive officers
are also involved in all aspects of the Company's relationships with its major
customers and work closely with their senior management. As of March 31, 1998,
the Company had a direct sales staff of six people. The Company warrants its new
products against defects in design, materials and workmanship, typically for a
period of 12 to 18 months.
As part of the effort to diversify its product base, in fiscal 1997 the
Company began to sell multicarrier amplifier systems (including filters and
combiners) directly to service providers. To date, these sales have been to
providers in the United States and Israel. The Company recognizes that these
sales may be in conflict with potential or current OEM sales and is willing to
work with its OEM equipment suppliers so that the service provider receives a
Spectrian power amplifier system directly or through the OEM. There can be no
assurance that the Company's direct sales to service providers will not cause
its OEM equipment suppliers to reduce orders or terminate their relationship
with the Company. Any such reduction or termination could have a material
adverse effect on the Company's business, financial condition and
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results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Customer Concentration; Dependence on Northern Telecom."
The Company markets its products overseas with the assistance of
independent sales representatives in various parts of the world. The Company has
one independent sales representative in the United States, three sales
representatives in Europe covering Austria, Finland, France, Germany, Italy,
Sweden and Switzerland, one sales representative dedicated to each of Japan and
Israel and a representative organization in South Korea. The Company
continuously evaluates whether to establish direct sales forces or to utilize
independent representatives in a particular region or for a given potential
customer depending upon the scope of potential sales opportunities. The
Company's direct sales staff provides sales direction and support to its
international sales representatives. Sales outside of the United States
represented 95%, 73% and 72% of revenues in fiscal 1998, fiscal 1997 and fiscal
1996, 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. In addition, because
substantially all of the Company's foreign sales are denominated in U.S.
dollars, increases in the value of the dollar relative to the local currency
would increase the price of the Company's products in foreign markets and make
the Company's products relatively more expensive and less price competitive than
competitors' products that are priced in local currencies. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations. The Company anticipates
that the recent turmoil in Asian financial markets and the recent deterioration
of the underlying economic conditions in certain Asian countries may have an
impact on its sales to customers located in or whose projects are based in those
countries due to the impact of currency fluctuations on the relative price of
the Company's products and restrictions on government spending imposed by the
International Monetary Fund (the "IMF") on those countries receiving the IMF's
assistance. In addition, customers in those countries may face reduced access to
working capital to fund component purchases, such as the Company's products, due
to higher interest rates, reduced bank lending due to contractions in the money
supply or the deterioration in the customer's or its bank's financial condition
or the inability to access local equity financing. A substantial majority of the
Company's products are sold to OEMs who incorporate the Company's products into
systems sold and installed to end-user customers. These OEMs are not required by
contract and do not typically provide the Company with information regarding the
location and identity of their end-user customers, and, therefore, the Company
is not able to determine what portion of its product sales have been or future
orders will be incorporated into OEM sales to end-users in those Asian countries
currently experiencing financial market turmoil and/or deterioration of economic
conditions. Furthermore, a large portion of the Company's existing customers and
potential new customers are servicing new markets in developing countries that
the Company's customers expect will deploy wireless communication networks as an
alternative to the construction of a wireline infrastructure. If such countries
decline to construct wireless communication systems, or construction of such
systems is delayed for any reason, including business and economic conditions
and changes in economic stability due to factors such as increased inflation and
political turmoil, such delays could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results--Risks of International
Sales."
Manufacturing
The Company assembles, tests, packages and ships amplifier products at its
manufacturing facilities located in Sunnyvale, California. The Company's
manufacturing facilities consist of a 4 inch wafer fabrication and semiconductor
assembly and test facility and an amplifier assembly and test facility. The
8
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Company's manufacturing product engineering group, comprised of 37 engineers, is
devoted to improving product manufacturability by minimizing assembly and test
cycle times, improving product test yields and reducing overall manufacturing
costs.
Wafer Fabrication. As part of its strategy of vertical integration, the
Company operates its own wafer fabrication facility for the production of the RF
semiconductor, the most important component utilized in the Company's
amplifiers. The Company has an eight person semiconductor process engineering
group responsible for continuous improvement of semiconductor processes. The
Company believes that control of the semiconductor manufacturing process allows
it to reduce unit costs, control quality, improve time to market delivery and
most importantly increase the linearity of the RF semiconductors used in its
amplifiers.
The Company's operation of its manufacturing facilities entails a number of
risks, including a high level of fixed and variable costs, the management of
complex processes, dependence on a single source of supply and a strict
regulatory environment. Fixed costs consist primarily of occupancy costs,
investment in manufacturing equipment, repair, maintenance and depreciation
costs related to equipment and fixed labor costs related to manufacturing and
process engineering. During periods of low demand, high fixed wafer fabrication
costs are likely to have a material adverse effect on the Company's results of
operations.
The Company's strategy of frequently introducing and rapidly expanding the
manufacture of new products to meet evolving OEM customer and service provider
needs has caused the Company to experience high materials and manufacturing
costs, including high scrap and material waste, significant material
obsolescence, labor inefficiencies and overtime expenses, inefficient material
procurement and an inability to realize economies of scale. These high
manufacturing costs and production interruptions have had an adverse effect on
the Company's results of operations. In addition, the Company has made and
expects to continue to make pricing commitments to OEM customers in anticipation
of achieving such manufacturing cost reductions. Any failure to achieve such
manufacturing cost reductions could have a material adverse effect on the
Company's business, financial condition and results of operations.
The design and fabrication of RF semiconductors is a complex and precise
process. Such manufacturing is sensitive to a wide variety of factors, including
variations and impurities in the raw materials, difficulties in the fabrication
process, performance of the manufacturing equipment, defects in the masks used
to print circuits on a wafer and the level of contaminants in the manufacturing
environment. As a result of these and other factors, semiconductor manufacturing
yields from time to time in the past have suffered, and there can be no
assurance that the Company will be able to achieve acceptable production yields
in the future. In addition, the Company's wafer fabrication facility represents
a single point of failure in its manufacturing process that would be costly and
time-consuming to replace if its operation were interrupted. The interruption of
wafer fabrication operations or the loss of employees dedicated to the wafer
fabrication facility could have a material adverse effect on the Company's
business, financial condition and results of operations. Any failure to maintain
acceptable wafer production levels, either from the Company's facility or from a
third party wafer supplier, will have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's operation of its wafer fabrication facility subjects the
Company to a variety of local, state and federal governmental regulations
relating to the storage, discharge, handling, emission, generation, manufacture
and disposal of toxic or other hazardous substances used to manufacture the
Com-pany's products. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. However, the failure to
comply with current or future regulations could result in the imposition of
substantial fines on the Company, suspension of production, alteration of its
manufacturing processes or cessation of operations. In addition, compliance with
such regulations could require the Company to acquire expensive remediation
equipment or to incur substantial expenses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results--Risks Associated with Internal Wafer Fabrication."
The Company expects that its customers will continue to establish demanding
specifications for quality, performance and reliability that must be met by the
Company's products. RF semiconductors as
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<PAGE>
complex as those offered by the Company often encounter development delays and
may contain undetected defects or failures when first introduced or after
commencement of commercial shipments. The Company has from time to time in the
past experienced product quality, performance or reliability problems, although
no such problems have had a material adverse effect on the Company's business,
financial condition and results of operations. In addition, multicarrier power
amplifiers have a higher probability of malfunction because of their greater
complexity. There can be no assurance that defects or failures will not occur in
the future relating to the Company's product quality, performance and
reliability that may have a material adverse effect on the Company's business,
financial condition and results of operations. If such defects or failures
occur, the Company could experience lost revenue, increased costs (including
warranty expense, costs associated with customer support and other product
liability related costs), delays in or cancellations or rescheduling of orders
or shipments and product returns or discounts, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Product Quality, Performance and Reliability."
Semiconductor Assembly and Test. Once a wafer is processed, it is tested
and diced into chips that are attached to a special ceramic package, wire bonded
and encapsulated. The packages are designed for optimal thermal and electrical
performance that are critical during high power RF operation. These processes
require precision for performance of the semiconductor to meet the Company's
strict standards but must also be suited to manufacturing in large volumes. The
Company utilizes patented packaging techniques to improve the performance of its
semiconductors and amplifiers as well as the automated assembly techniques for
semiconductors. In addition, the Company utilizes a specialized surface mount
packaging process to improve transistor assembly volume that also enhances
thermal performance, lowers costs and improves reliability. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results."
Amplifier Assembly and Test. The Company's amplifier manufacturing
activities consist of purchasing components, assembling and testing components
and subassemblies, and integrating subassemblies into finished products. The
Company's amplifiers are comprised of a variety of subassemblies and components
designed or specified by the Company, including housings, harnesses, cables,
packaged RF semiconductors, semiconductor integrated circuits and printed
circuit boards. Except for the RF semiconductors, these components and
subassemblies are manufactured by third parties and are shipped to the Company
for final assembly. During the third quarter of fiscal 1998, the Company began
outsourcing some of the assembly of its higher volume components consisting of
the integration of printed circuit boards and the RF semiconductors manufactured
by the Company on a turnkey basis. Regardless of whether the Company assembles a
component in house or relies on a turnkey contractor, each of the Company's
products receives extensive in process and final quality inspections and tests.
The Company attempts to utilize standard parts and components that are
available from multiple vendors. However, certain components used in the
Company's products are currently available only from single sources, and other
components are available from only a limited number of sources. Despite the
risks associated with purchasing components from single sources or from a
limited number of sources, the Company has made the strategic decision to select
single source or limited source suppliers in order to obtain lower pricing,
receive more timely delivery and maintain quality control. If the Company were
unable to obtain sufficient quantities of components, delays or reductions in
product shipments could occur which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results--Sole or Limited Sources
of Materials and Services."
The Company continues to initiate actions to reduce its manufacturing
costs. The Company has negotiated master purchase agreements with its vendors to
have substantially all of its parts bid on an annual basis rather than on a
monthly basis, which it believes has generated significant volume discounts. The
Company is also implementing standardized automated test processes and material
handling
10
<PAGE>
throughout the manufacturing area which is also designed to reduce costs. In the
third quarter fiscal 1998, the Company also began utilizing the services of a
turnkey contractor to assemble certain of its high volume printed circuit board
components. There can be no assurance that these activities will reduce costs as
quickly as anticipated reductions in average selling prices of the Company's
products. Any failure to achieve continued manufacturing cost reductions could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results-- Fluctuations in Operating Results" and "--Declining Average
Sales Prices."
Research and Development
The mission of the Company's research and development organization is to
rapidly design low cost, highly manufacturable RF power amplifiers with industry
leading performance. The Company's research and development staff is organized
into a semiconductor group and an amplifier group. The semiconductor group
focuses on the rapid design of RF semiconductors that are low cost and highly
efficient to provide improved RF performance. The semiconductor group also
performs advanced research in device modeling and semiconductor process
development to support the amplifier engineering group's efforts. The amplifier
engineering group focuses on rapid development of new RF power amplifiers that
are manufacturable in high volumes at low cost and achieve industry leading
performance. This group creates new product platforms and leverages existing
ones, reuses existing circuit topologies and introduces into production new
correction, control and amplification concepts created by the group. The Company
uses an automated design environment to model RF semiconductors and amplifiers.
This design environment, together with the Company's modular product
architecture and configurable core technologies, allow it to rapidly define,
develop and deliver on a timely basis the new and enhanced products demanded by
its OEM customers.
The Company has historically devoted a significant portion of its resources
to research and development programs and expects to continue to do so. As of
March 31, 1998, the Company had 119 people engaged in research and development.
The Company's research and development expenses in fiscal 1998, fiscal 1997 and
fiscal 1996 were $18.6 million, $17.2 million and $14.5 million, respectively,
and represented 11%, 19% and 20%, respectively, of total revenues in those
periods.
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. The Company's future success
depends upon, among other things, its ability to develop new products in a
timely manner that compete effectively on the basis of price and performance and
that adequately address the needs of its OEM customers. No assurance can be
given that the Company's product development efforts will be successful, that
its new products will achieve customer acceptance or that such OEMs' products
will achieve customer acceptance. In addition, as is characteristic of the
wireless communications equipment industry, the average sales prices of the
Company's products have historically decreased over the products' lives and are
expected to continue to do so. To offset declining average sales prices, the
Company believes that in the near term it must develop new products that
incorporate advanced features and can be sold at higher average sales prices. To
the extent that new products are not developed in a timely manner, do not
achieve customer acceptance or do not generate higher sales prices and margins,
the Company's business, financial condition and results of operations would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results--Rapid Technological Change; Evolving Industry Standards;
Dependence on New Products" and "--Declining Average Sales Prices."
Patents and Proprietary Technology
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
a policy of seeking patents on inventions resulting from its ongoing research
and development activities. The Company has been awarded 16 United States
patents, and has 22 United States patent applications pending, including five
that have been allowed but not yet formally issued. The
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Company also has been awarded four foreign patents and has ten foreign patent
applications pending. There can be no assurance that the Company's pending
patent applications will be allowed or that the issued or pending patents will
not be challenged or circumvented by competitors. Notwithstanding the Company's
active pursuit of patent protection, the Company believes that the success of
its business depends more on the collective value of its patents,
specifications, computer aided design and modeling tools, technical processes
and employee expertise. The Company generally enters into confidentiality and
nondisclosure agreements with its employees, suppliers, OEM customers, and
potential customers and limits access to and distribution of its proprietary
technology. However, there can be no assurance that such measures will provide
adequate protection for the Company's trade secrets or other proprietary
information, or that the Company's trade secrets or proprietary technology will
not otherwise become known or be independently developed by competitors. The
failure of the Company to protect its proprietary technology could have a
material adverse effect on its business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Operating Results--Uncertain
Protection of Intellectual Property."
The communications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights or positions, which have
resulted in significant and often protracted and expensive litigation. Although
there is currently no pending intellectual property litigation against the
Company, the Company or its suppliers may from time to time be notified of
claims that the Company may be infringing patents or other intellectual property
rights owned by third parties. If it is necessary or desirable, the Company may
seek licenses under such patents or other intellectual property rights. However,
there can be no assurance that licenses will be offered or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain a
license from a third party for technology used by the Company or otherwise
secure rights to use such technology could cause the Company to incur
substantial liabilities, to suspend the manufacture of products or expend
significant resources to develop noninfringing technology. There can be no
assurance that the Company would be successful in such development or that such
licenses would be available on reasonable terms or a "design around" is not
practicable, if at all. In the event that any third party makes a successful
claim against either the Company or its customers and a license is not made
available to the Company on commercially reasonable terms, the Company's
business, financial condition and results of operations would be materially
adversely affected. Furthermore, the Company may initiate claims or litigation
against third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation by or
against the Company could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel, whether
or not such litigation results in a favorable determination for the Company. In
the event of an adverse result in any such litigation, the Company could be
required to pay substantial damages, indemnify its customers, cease the
manufacture, use and sale of infringing products, expend significant resources
to develop noninfringing technology, discontinue the use of certain processes or
obtain licenses to the infringing technology. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results--Risk of Third Party Claims of Infringement."
Competition
The wireless communications equipment industry is extremely competitive and
is characterized by rapid technological change, new product development and
product obsolescence, evolving industry standards and significant price erosion
over the life of a product. The ability of the Company to compete successfully
and sustain profitability depends in part upon the rates at which wireless
equipment OEMs incorporate the Company's products into their systems and the
Company captures market share from other merchant suppliers. The Company's major
OEM customers, including Northern Telecom, Nortel Matra, LGIC and QUALCOMM,
continuously evaluate whether to manufacture their own amplification products or
purchase them from outside sources such as the Company. There can be no
assurance that these OEM customers will incorporate the Company's products into
their systems or that in general they will continue to rely, or expand their
reliance, on external sources of supply for their power amplifiers. These
customers and other large manufacturers of wireless communications equipment
could also elect
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to enter into the merchant market and compete directly with the Company, and at
least one OEM, NEC Corporation ("NEC") has already done so. Such increased
competition could materially adversely affect the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Factors Affecting Future
Operating Results--Internal Amplifier Design and Production Capabilities of
OEMs" and "--Market for the Company's Products is Highly Competitive."
The Company's principal competitors in the market for wireless
amplification products provided by merchant suppliers currently include AML
Communications, Amplidyne, Hewlett-Packard Wireless Infrastructure Division,
M/A-COM (a subsidiary of AMP), Microwave Power Devices, NEC and Powerwave
Technologies. Certain of these competitors have, and potential future
competitors could have, substantially greater technical, financial, marketing,
distribution and other resources than the Company and have, or could have,
greater name recognition and market acceptance of their products and
technologies. No assurance can be given that the Company's competitors will not
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features compared to the
Company's products. To the extent that OEMs increase their reliance on external
sources for their power amplification needs, more competitors could be attracted
to the market. The Company expects its competitors to offer new and existing
products at prices necessary to gain or retain market share. The Company has
experienced significant price competition, which has in the past affected gross
margins. Certain of the Company's competitors have substantial financial
resources which may enable them to withstand sustained price competition or
downturns in the power amplification market. There can be no assurance that the
Company will not be subject to increased price competition or that the Company
will be able to compete successfully in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results--Market for the Company's Products is Highly
Competitive."
Backlog
The Company does not believe that its backlog as of any particular date is
representative of actual sales for any succeeding period. As part of the
Company's close working relationships with its major customers, such customers
expect the Company to respond quickly to changes in the volume and delivery
schedule of their amplifiers, and if necessary, to inventory products at the
Company's facilities for just in time delivery. Therefore, although contracts
with such customers typically specify aggregate dollar volumes of products to be
purchased over an extended time period, such contracts also provide that
scheduled shipment dates of particular volumes are generally released to the
Company only a few days or weeks prior to the actual required delivery dates. In
addition, the Company's customers may cancel or defer orders without significant
penalty.
American Microwave Technology, Inc.
In April 1997, the Company sold its wholly owned subsidiary, AMT, to the
management group and employees of AMT for approximately $4.0 million in cash,
realizing a gain of approximately $1.5 million after disposition of AMT's net
assets. The Company decided to divest AMT, which designs, develops and
manufactures RF power amplifier systems for selected wireless, scientific and
application specific markets, after concluding that AMT's market focus had
become less synergistic with the Company's core business. In fiscal 1997 and
fiscal 1996, AMT accounted for approximately 10% and 7%, respectively, of the
Company's revenues.
Employees
As of March 31, 1998, the Company had a total of 688 regular, temporary and
contract employees, including 502 in manufacturing, 119 in research and
development, 26 in sales and 41 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.
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Year 2000 Compliance
Many installed computer programs were written using a two digit date field
rather than four digit fields to define the applicable year. Such computer
programs utilizing a two digit date fields may recognize a date using "00" as
the year 1900 rather than the year 2000 (the "Year 2000 Issue"). The Year 2000
Issue could potentially result in a system failure or in miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other similar normal
business activities. The Company has identified Year 2000 Issues in certain of
its internal operating systems and is in the process of installing a new
computer software system which will increase operational and financial
efficiencies and information analysis. The new enterprise system recognizes
dates beyond December 31, 1999 and addresses the substantial portion of the Year
2000 Issue that may impact the Company. The cost of this project, as it relates
to the Year 2000 Issue, is not expected to have a material effect on the
operations of the Company and will be funded through operating cash flows. The
Company has not completed an audit of its remaining internal systems or products
with respect to Year 2000 Issues.
Management
The executive officers of the Company and certain information about them as
of March 31, 1998 are as follows:
Name Age Position
- ----------------------- ----- ----------------------------------------------
Garrett A. Garrettson 54 President, Chief Executive Officer and Director
Stephen B. Greenspan 56 Executive Vice President of Operations and
Chief Operating Officer
Bruce R. Wright 49 Executive Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
Timothy Heyboer 48 Vice President, Amplifier Engineering
David Piazza 34 Vice President, Semiconductor R&D
Joseph M. Veni 46 Senior Vice President, Sales and Marketing
William Zucker 40 Vice President, Marketing
Garrett A. Garrettson joined the Company in April 1996 as President, Chief
Executive Officer and a Director. Between March 1993 and March 1996, he served
as President and Chief Executive Officer of Censtor Corporation ("Censtor"),
which designs and sells technology related to magnetic recording heads for the
disk drive industry. From 1986 to March 1993, he served as a Vice President of
Imprimis Technology Incorporated ("Imprimis"), a wholly owned subsidiary of
Control Data Corporation, and subsequently as a Vice President of Seagate
Technology, Inc. ("Seagate") following its acquisition of Imprimis in 1989.
Prior to 1986, Mr. Garrettson held a variety of positions with Hewlett-Packard
Company and served in the United States Navy. Mr. Garrettson also serves on the
Boards of Directors of RedLake Imaging and Benton Oil and Gas Company. He
received his B.S. and M.S. in Engineering Physics and his Ph.D. in Mechanical
Engineering from Stanford University.
Stephen B. Greenspan joined the Company in May 1996 as Executive Vice
President of Operations and was named Chief Operating Officer in April 1997.
From November 1991 to February 1996, he served as Senior Vice President, Quality
and Customer Service at Seagate. Mr. Greenspan also held a variety of positions
at Seagate including Vice President of Process Development and Vice President of
Domestic and Far East Operations. From March 1986 to August 1987, Mr. Greenspan
served as Vice President of Operations at Tandon Corporation, a manufacturer of
personal computers. From 1967 to 1986, Mr. Greenspan held a variety of
management positions at IBM Corporation related to semiconductor and circuit
technologies, personal computer manufacturing and supplier management. He
received his B.S.E.E. degree from New Jersey Institute of Technology and his
M.S.E.E. degree from Syracuse University.
Bruce R. Wright joined the Company on May 1, 1997 as Executive Vice
President of Finance and Administration, Chief Financial Officer and Secretary.
Prior to joining the Company, he was Chief
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Financial Officer at Tencor Instruments from December 1991 to April 1997. From
January 1988 to July 1991, he was Chief Financial Officer at Teknekron
Corporation. Mr. Wright also served with Atlantic Richfield Company and the U.S.
Air Force. He received his B.A. in Physics from Pomona College, his B.S. in
Mechanical Engineering from California Institute of Technology and his S.M. in
Management from the Massachusetts Institute of Technology ("MIT").
Tim Heyboer joined the Company in 1986 as Director of Engineering and
served in a variety of departments including product line management and the now
discontinued military division. In August 1996, Mr. Heyboer was named Vice
President of Amplifier Engineering of the Company. Prior to joining Spectrian,
Mr. Heyboer was employed at Narda Western Operations, a passive microwave
components company, most recently as director of engineering. Mr. Heyboer
received his B.S.E.E. degree and his M.S.E.E. degree from University of
Michigan, Ann Arbor.
David Piazza joined the Company in 1990 as a Project Engineer. In September
1996, Mr. Piazza was named Vice President, Semiconductor R&D for the Company. He
has served in various management positions at the Company, including Director of
Engineering, PCS Amplifier Products, Engineering Manager, Amplifier Products and
Project Engineer. Mr. Piazza received his B.S.E.E. degree from the University of
California at Davis.
Joseph M. Veni joined the Company in April 1992 as Vice President of Sales
and in June 1996 was named Senior Vice President, Sales and Marketing. From 1987
to April 1992, he was Vice President of Sales and Marketing at TTI-General
Signal. From 1985 to 1987, Mr. Veni worked at Cushman Electronics, Inc. Prior to
that time, Mr. Veni was employed by Halcyon Communications, Inc., ICS Group,
Inc. and Western Union Telegraph Co. in various marketing and sales positions.
Mr. Veni received his Associates Degree in Electronics Technology from Mt. San
Antonio College.
William Zucker joined the Company in October 1995 as Vice President of
Engineering. In August 1996, Mr. Zucker became Vice President of Product Line
Management. In April 1997, he was named Vice President of Marketing. Prior to
joining the Company, Mr. Zucker held several positions at AT&T/AT&T Bell Labs,
including director of product management from July 1994 to October 1995 and
director of development from November 1991 to July 1994. Mr. Zucker received his
B.S.E.E. degree from Manhattan College and his S.M. in Electrical Engineering
from MIT.
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 these agreements, the Company sold these properties to SPEC (CA) QRS
12-20, Inc. ("SPEC"), and pursuant to the terms of a lease agreement, SPEC
agreed to lease these properties to the Company for a term of 15 years (with two
options to extend the lease for up to an additional ten years). This lease
agreement also provides that the Company shall have the right of first refusal
to purchase the properties from SPEC upon the occurrence of certain conditions.
During the first quarter of fiscal 1999, the Company entered into operating
leases for an ancillary 40,000 square foot manufacturing facility in Rocklin,
California and a 7,750 square foot engineering design center in Quincy,
Illinois. The Rocklin facility has a sixty-two month term and expires in July
2003, and the Quincy facility has a twelve month term and expires in March 1998.
In March 1997, through means of a limited liability company of which the Company
owns 91.5%, the Company purchased a building of approximately 39,000 square feet
in Sunnyvale, California located between the Company's two occupied buildings.
The Company is currently sharing occupancy of this building with a third party
to whom it subleases space under month to month lease arrangements.
ITEM 3. LEGAL PROCEEDINGS
Since December 23, 1997, a number of complaints have been filed against the
Company and certain of its officers in the Federal Court for the Northern
District of California that allege violations of the federal securities laws.
Similar complaints have been filed in California state court that allege
violations
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of California state securities laws and California common law. The complaints
have been consolidated in the federal and state courts, respectively. The
plaintiffs in both the federal and state lawsuits purport to represent a class
of persons who purchased the Company's securities during the period of July 17,
1997 through October 23, 1997. The complaints allege that the Company and
certain of its officers misled the investing public regarding the financial
prospects of the Company. The Company believes that the allegations are
completely without merit and will vigorously defend itself.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF SPECTRIAN COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SPCT" since August 4, 1994. The following table sets forth for
the period indicated the high and low sale prices for the Common Stock, as
reported by the Nasdaq National Market.
High Low
----------- ----------
Fiscal Year Ended March 31, 1997
First Quarter $25 1/2 $13
Second Quarter 15 1/4 7
Third Quarter 13 7 3/8
Fourth Quarter 14 3/8 7 5/8
Fiscal Year Ended March 31, 1998
First Quarter 37 3/4 10 3/4
Second Quarter 64 1/4 36 1/4
Third Quarter 66 3/8 16 3/4
Fourth Quarter 20 1/2 14 5/8
On May 18, 1998, the last reported sale price of the Company's Common Stock
on the Nasdaq National Market was $16.125 per share. As of May 18, 1998 there
were approximately 305 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company has
entered into a bank line of credit and the Company's agreement with such lender
prohibits the payment of cash dividends without the prior written consent of the
lender.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The selected consolidated financial data set forth below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five-year period ended March 31, 1998, are derived
from the consolidated financial statements of Spectrian Corporation and its
subsidiaries, which financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. The results for the fiscal year ended March 31, 1998
are not necessarily indicative of the results for any future period. The
selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements as of March 31, 1998 and
March 31, 1997 and for each of the years in the three year period ended March
31, 1998 and notes thereto set forth on Pages F-1 to F-15 and "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
<CAPTION>
Fiscal Year Ended March 31
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ....................................... $168,798 $ 88,252 $ 72,113 $ 62,478 $ 37,859
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales ................................. 132,684 65,322 45,355 39,068 22,154
Research and development ...................... 18,644 17,230 14,548 11,374 10,058
Selling, general and administrative ........... 13,014 9,299 7,450 6,784 5,529
-------- -------- -------- -------- --------
Total costs and expenses .................... 164,342 91,851 67,353 57,226 37,741
-------- -------- -------- -------- --------
Operating income (loss) ..................... 4,456 (3,599) 4,760 5,252 118
Interest income (expense), net ................. 3,335 (392) 889 391 (667)
Other income, net .............................. 1,530 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes ............. 9,321 (3,991) 5,649 5,643 (549)
Income tax expense ............................. 399 -- 169 170 --
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 8,922 $ (3,991) $ 5,480 $ 5,473 $ (549)
======== ======== ======== ======== ========
Net income (loss) per share:(1)
Basic ......................................... $ 0.91 $ (0.49) $ 0.71 $ 0.87 $ (0.39)
Diluted ....................................... $ 0.83 $ (0.49) $ 0.66 $ 0.70 $ (0.39)
Shares used in computing per share
amounts:(1)
Basic ......................................... 9,881 8,150 7,684 6,300 1,399
Diluted ....................................... 10,701 8,150 8,363 7,764 1,399
</TABLE>
<TABLE>
<CAPTION>
March 31
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital .................................. $117,478 $ 24,062 $ 12,710 $ 28,317 $ 7,859
Total assets ..................................... 175,051 66,633 55,922 45,070 20,965
Debt and capital lease obligations, net of
current portion(2) .............................. 5,912 7,057 -- -- 3,634
Total stockholders' equity ....................... 144,342 42,466 44,838 37,056 9,765
<FN>
- ------------
(1) See Note 1 of Notes to Consolidated Financial Statements contained on pages
F-1 to F-15 of this Annual Report on Form 10-K for the fiscal year ended
March 31, 1998 for information concerning the per share computations.
(2) See Note 4 of Notes to Consolidated Financial Statements herein for a
description of the Company's debt and lease obligations.
</FN>
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward looking statements.
These forward looking statements include, but are not limited to: the statements
in the first paragraph of "Overview" regarding future revenues; second paragraph
of "Overview" regarding the impact on the Company of a loss of a major OEM
customer; the statements in the analysis of "--Years ended March 31, 1998 and
1997" under "--Cost of Sales" regarding anticipated product introductions,
related cost improvements and trends offsetting such cost improvements; the
statements in the second paragraph of "--Liquidity and Capital Resources"
concerning renewal of the revolving line of credit to this the statements in the
last paragraph under "--Liquidity and Capital Resources" regarding the
anticipated spending for capital additions in fiscal 1999 and the sufficiency of
the Company's available resources to meet working capital and capital
expenditure requirements; and the statements in "Factors Affecting Future
Operating Results." 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 these expressed in such forward looking
statements.
Overview
The Company designs, manufactures and markets highly linear single carrier
and multicarrier power amplifiers that support a broad range of worldwide analog
and digital wireless transmissions standards, including AMPS, TDMA, CDMA, TACS
and GSM. The Company, founded in 1984 to perform design and engineering
services, first entered the commercial amplifier market in 1988 and shipped its
first cellular power amplifiers in 1990. The Company's revenues are now derived
primarily from sales to a limited number of OEMs in the wireless infrastructure
equipment market, in particular Northern Telecom. The Company pursues a strategy
of vertical integration in its design and manufacturing processes, including
operating its own 4 inch wafer fabrication facility. As a result, the Company
has a higher level of fixed costs and is dependent upon substantial revenue to
achieve profitability. In the fourth quarter of fiscal 1998, first quarter of
fiscal 1997 and third quarter of fiscal 1996, product orders fell sharply
resulting in substantial losses in those quarters. There can be no assurance
that the Company will not experience such fluctuations in the future. For
example, the significant reduction in product revenue the Company experienced in
the fourth quarter of fiscal 1998 reflects the impact of fluctuations in demand
with a cost structure that is relatively fixed in the short term from the
softening demand in the TDMA markets and delays in build-out of the Korean PCS
systems due to the unstable Asian financial markets and general economic
conditions in Korea and other Asian countries. The Company also anticipates
lower product revenues over the next two to three quarters as a result of such
factors and anticipates that revenues for fiscal 1999 may not equal, and will
not exceed, revenues for fiscal 1998.
During fiscal 1998, Northern Telecom, Nortel Matra and LGIC accounted for
approximately 57%, 22% and 14% of revenues, respectively. During fiscal 1997,
Northern Telecom and Nortel Matra accounted for approximately 63% and 12% of
revenues, respectively. During fiscal 1996, Northern Telecom and Nortel Matra
accounted for approximately 58% and 17% of revenues, respectively. The Company's
business, financial condition and results of operations have been materially
adversely affected in the past by anticipated orders failing to materialize and
by deferrals or cancellations of orders as a result of changes in OEM
requirements. If the Company were to lose Northern Telecom or any other major
OEM customer, or if orders by Northern Telecom or any other major OEM customer
were to otherwise materially decrease either in unit quantity or in price, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the recent financial market turmoil
and economic downturn in Korea may have a material adverse effect on the
Company's sales of its products to LGIC, an OEM based in Korea, because a
majority of the Company's products ordered by LGIC to date relate to the
build-out of the Korean PCS system. In addition, because the Company's products
are priced in U.S. dollars, the currency instability in the Korean and other
Asian financial markets may have the effect of making the Company's products
more expensive to LGIC than those of other manufacturers whose products are
priced in one of the affected Asian currencies, and, therefore, LGIC may reduce
future purchases of the Company's products.
18
<PAGE>
The Company's vertical integration strategy entails a number of risks,
including a high level of fixed and variable costs, the management of complex
processes, dependence on a single source of supply and a strict regulatory
environment. During periods of low demand, high fixed wafer fabrication costs
are likely to have a material adverse effect on the Company's operations. In
addition, the Company's strategy of frequently introducing and rapidly expanding
the manufacture of new products to meet evolving OEM customer and wireless
service provider needs has caused the Company to experience high materials and
manufacturing costs, including high scrap and material waste, significant
material obsolescence, labor inefficiencies, high overtime hours, inefficient
material procurement and an inability to realize economies of scale.
The market for the Company's products is becoming increasingly competitive.
The Company has recently begun selling its power amplifier products in South
Korea, as well as directly to cellular service providers where its competitors
are already established as suppliers. In addition, the Company competes with at
least one amplifier manufacturer for business from Northern Telecom. This
competition has resulted in, and will continue to result in reduced average
selling prices for the Company's products, which accordingly will negatively
impact gross margins.
Results of Operations
The following table sets forth for the periods indicated certain statement
of operations data of the Company expressed as a percentage of total revenues
and the gross margin on sales.
Fiscal Year ended March 31,
------------------------------
1998 1997 1996
----- ----- -----
Revenues .................................. 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of sales ............................ 78.6 74.0 62.9
Research and development ................. 11.0 19.6 20.2
Selling, general and administrative ...... 7.8 10.5 10.3
----- ----- -----
Total costs and expenses ............... 97.4 104.1 93.4
----- ----- -----
Operating income (loss) ................ 2.6 (4.1) 6.6
Interest income (expense), net ............ 2.0 (0.4) 1.2
Other income, net ......................... 0.9 -- --
----- ----- -----
Income (loss) before income taxes ........ 5.5 (4.5) 7.8
Income tax expense ........................ 0.2 -- 0.2
----- ----- -----
Net income (loss) ........................ 5.3% (4.5)% 7.6%
===== ===== =====
Gross margin on sales ..................... 21.4% 26.0 % 37.1%
Years Ended March 31, 1998 and 1997
Revenues. The Company's revenues increased by 91% to $168.8 million for the
fiscal year ending March 31, 1998 ("fiscal 1998") from $88.3 million for the
fiscal year ending March 31, 1997 ("fiscal 1997"). The sizable increase in
revenues for fiscal 1998 reflects a significant increase in demand in the first
three fiscal quarters of 1998, primarily by Northern Telecom, for the Company's
second generation GSM and multicarrier products, single carrier TDMA products
and Korean PCS CDMA products. In the fourth quarter of fiscal 1998, the
Company's revenues decreased substantially to $27.6 million from $47.2 million
in the immediately preceding quarter due to reduced orders from OEM customers
stemming in part from the impact of the financial market and economic turmoil in
parts of Asia, particularly Korea. The Company believes that it is unlikely that
demand for the Company's products will return to prior levels in calendar 1998,
if ever. As a result of this factor and others as well as the difficulties in
predicting the Company's future revenue, the Company believes that the revenues
in fiscal 1999 may not meet, and will not exceed, fiscal 1998 revenues.
Cost of Sales. Cost of sales consists primarily of raw materials, RF
semiconductor fabrication costs, amplifier assembly and test costs (including
turnkey assembly services), overhead and warranty costs. The
19
<PAGE>
Company's cost of sales increased by 103% to $132.7 million for fiscal 1998 from
$65.3 million for fiscal 1997. Included in the cost of sales were costs
associated with the rapid increase in manufacturing volume for new products and
costs associated with discontinuing older products. Gross margin on sales was
21% for fiscal 1998 as compared to 26% for fiscal 1997. The decline in gross
margin for fiscal 1998 primarily reflects costs associated with steep new
product volume manufacturing growth including investment in overhead
infrastructure and automated test equipment, premium costs associated with
materials procurement and logistics, excess and obsolete inventories and product
warranty costs. In the fourth quarter of fiscal 1998, the Company had negative
gross margin of 17.4% as compared to positive gross margins of 28.5% and 27.2%
in the third quarter of fiscal 1998 and the fourth quarter of fiscal 1997,
respectively. The decline in the gross margin for the fourth quarter of fiscal
1998 was attributable to increased material, warranty, excess and obsolete
inventory costs that were not reduced proportionately to revenues. The Company
anticipates that the use of turnkey contractors to assemble certain high volume
printed circuit board components may reduce the growth of manufacturing costs in
future periods.
Research and Development. Research and development ("R&D") expenses include
the cost of designing, developing or reducing the manufacturing cost of
amplifiers and RF semiconductors. The Company's R&D expenses increased by 8% to
$18.6 million in fiscal 1998 from $17.2 million in fiscal 1997. R&D spending in
fiscal 1997 included development costs for the Company's 4 inch wafer
fabrication facility. The increase in R&D spending in fiscal 1998 reflects
increased spending in both amplifier and semiconductor R&D for personnel
expenses and project development expenses. R&D expenses as a percentage of
revenues decreased to 11.0% in fiscal 1998 from 19.6% in fiscal 1997, reflecting
the substantially higher revenue levels in fiscal 1998.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses include compensation and benefits for sales, marketing, senior
management and administrative personnel, commissions paid to independent sales
representatives, professional fees and other expenses. The Company's SG&A
expenses increased by 39.9% to $13.0 million for fiscal 1998 from $9.3 million
for fiscal 1997. SG&A expenses as a percentage of revenues decreased to 7.8% for
fiscal 1998 from 10.5% for fiscal 1997. The increase in SG&A expenses was
primarily due to outside commissions paid for South Korean sales, MIS investment
in new infrastructure, increases in sales and administrative headcount, and to a
lesser extent the maintenance of a South Korean sales support office. The
decrease of SG&A expenses as a percentage of sales was a result of the
substantially higher revenue level in that period.
Interest Income (Expense), net. Interest income, net for fiscal 1998 was
$3.3 million compared to net interest expense of $392,000 for fiscal 1997. The
increase in net interest income was the result of interest income earned on
substantially higher cash balances and short-term investments reflecting
primarily the investment of the proceeds of the Company's August 1997 public
offering.
Other Income, net. Other income of $1.5 million was recorded in the first
quarter of fiscal 1998 representing the net gain realized from the cash sale of
the Company's wholly owned subsidiary, AMT, to the management group and
employees of AMT. No other expense or other income was recorded during fiscal
1997.
Income Taxes. The Company recorded income tax expense for fiscal 1998 of
$399,000. The combined effective tax rate of 4.3% for fiscal 1998 reflects the
use of net operating loss carryforwards ("NOLs"). The Company's ability to use
its NOLs against taxable income may be subject to restrictions and limitations
under Section 382 of the Internal Revenue Code of 1986, as amended, in the event
of a change in ownership of the Company as defined therein.
Years Ended March 31, 1997 and 1996
Revenues. The Company's revenues increased by 22.4% to $88.3 million in
fiscal 1997 from $72.1 million in fiscal 1996. The increase was due primarily to
increasing volume in sales of PCS products, reflecting the build-out of the U.S.
PCS network infrastructure, and continued strong GSM product sales.
Cost of Sales. The Company's cost of sales increased by 44.0% to $65.3
million in fiscal 1997 from $45.4 million in fiscal 1996. Gross margin on sales
in fiscal 1997 declined to 26.0% from 37.1% in fiscal 1996. During fiscal 1997
the Company introduced 14 new products into manufacturing to meet customer and
20
<PAGE>
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.
Research and Development. The Company's R&D expenses increased 18.4% to
$17.2 million in fiscal 1997 from $14.5 million in fiscal 1996. As a percentage
of revenues, R&D expenses declined slightly to 19.6% in fiscal 1997 from 20.2%
in fiscal 1996. The increase in R&D expenses primarily reflected nine months of
development expenses for the Company's 4 inch wafer fabrication facility as
compared to only three months in fiscal 1996 as well as increased R&D hiring and
the associated recruiting and salary costs.
Selling, General and Administrative. The Company's SG&A expenses increased
by 24.8% to $9.3 million in fiscal 1997 from $7.5 million in fiscal 1996. SG&A
expenses as a percentage of revenues increased slightly to 10.5% in fiscal 1997
from 10.3% in fiscal 1996. The increase in SG&A expenses from fiscal 1996 to
fiscal 1997 was primarily attributable to increases in sales and marketing
headcount and the related salaries and expense benefits, as well as outside
commissions expenses required to support the Company's expanding customer base
and product portfolio.
Interest Income (Expense), net. Net interest expense for fiscal 1997 was
$392,000, compared to net interest income of $889,000 in fiscal 1996. The change
between fiscal 1997 and fiscal 1996 primarily reflects decreased interest income
as a result of lower average cash balances in fiscal 1997 and the interest
expense incurred as a result of the Company utilizing various debt financing
instruments during fiscal 1997.
Income Taxes. The Company did not record a provision for income taxes in
fiscal 1997 because the Company incurred a net loss. An income tax provision of
$169,000 was recorded in fiscal 1996, an effective tax rate of 3% after use of
NOLs from prior periods.
Liquidity and Capital Resources
The Company has financed its growth through its initial public offering in
August 1994, a public equity offering in August 1997, private sales of equity
securities, capital equipment leases, bank lines of credit and cash flows from
operations. Cash provided by operations was $16.6 million in fiscal 1998, while
cash used by operations in fiscal 1997 was $8.1 million. The cash provided by
operations for fiscal 1998 was principally generated by the Company's profits
over the first three quarters of the fiscal year. The cash used by operations in
fiscal 1997 was principally for purchasing inventory to support production
growth for increasing product shipment volumes.
As of March 31, 1998, the Company had working capital of $117.5 million
including $99.6 million in cash, cash equivalents and short-term investments. In
addition, the Company has a revolving line of credit of $10.0 million with a
bank secured by the majority of the Company's assets. Under the terms of the
master agreement governing this credit instrument, the Company is required to
maintain certain minimum working capital, net worth, profitability and other
specific financial ratios. As of March 31, 1998, the Company was in compliance
with all of these financial covenants with the exception of the profitability
covenant with respect to which covenant the lender granted a waiver to the
Company. There were no borrowings outstanding against this line of credit as of
March 31, 1998.
In April 1998, the Company announced a repurchase program (the "1998
Repurchase Program") pursuant to which it may acquire up to one million shares
of Common Stock in open market purchases. To date, no shares have been
repurchased under the 1998 Repurchase Program.
In January 1997, the Company borrowed $6.0 million under a term loan
secured by certain capital equipment. The loan, which expires in January 2002,
requires the payment of monthly principal plus interest and is subject to
certain minimum working capital, net worth and other specific financial ratios.
The Company was in compliance with these covenants as of March 31, 1998. 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 $18.0 million for fiscal 1998 and
$16.3 million in fiscal 1997. Capital additions for fiscal 1998 included the
purchase of new corporate management information
21
<PAGE>
systems software, manufacturing test and production equipment required to
support new products and increase factory capacity, and test equipment to
support various research and development projects.
The Company anticipates spending approximately $18 million over the next 12
months for capital additions primarily to support manufacturing capacity
requirements, development projects and facilities expansion. Based on the
Company's current working capital position, the cash flows the Company expects
to generate from fiscal 1999 operations and the available line of credit the
Company expects to renew, the Company believes that sufficient resources will be
available to meet the Company's cash requirements for at least the next twelve
months. Cash requirements for periods beyond the next twelve months depend on
the Company's profitability, timing and level of capital expenditures, working
capital requirements and rate of growth.
Factors Affecting Future Operating Results
Customer Concentration; Dependence on Northern Telecom. The wireless
infrastructure equipment market is dominated by a small number of large OEMs,
including Ericsson, Lucent, Motorola, Northern Telecom, Nortel Matra and Siemens
AG. The Company's revenues are derived primarily from sales to a limited number
of these OEMs, particularly Northern Telecom and Nortel Matra. During fiscal
1998 Northern Telecom, Nortel Matra and LGIC accounted for approximately 57%,
22% and 14% of revenues, respectively. During fiscal 1997, Northern Telecom and
Nortel Matra accounted for approximately 63% and 12% of revenues, respectively.
During fiscal 1996, Northern Telecom and Nortel Matra accounted for
approximately 58% and 17% of revenues, respectively. Furthermore, a substantial
portion of revenues from Northern Telecom and Nortel Matra in fiscal 1998,
fiscal 1997 and fiscal 1996 resulted from sales of a limited number of the
Company's products. The Company's business, financial condition and results of
operations have been materially adversely affected in the past by anticipated
orders failing to materialize and by deferrals or cancellations of orders as a
result of changes in OEM requirements. The Company, Northern Telecom and Nortel
Matra have an agreement, renegotiated annually, pursuant to which Northern
Telecom and Nortel Matra commit to purchase a certain volume of their annual
power amplifier requirements for specified prices from the Company. The renewal
of the Company's agreement with Northern Telecom and Nortel Matra for calendar
year 1998 was finalized in October 1997. Based on lower RF amplifier volume
commitments and reduced pricing contained in this agreement, the recent slowdown
in demand for TDMA products and delays in the Korean PCS system build-out, as
well as other factors, the Company expects that the Company's recent significant
growth in revenues will not be sustainable. The Company also anticipates that
the Company's fiscal 1999 revenues may not meet, and will not exceed, fiscal
1998 revenues. In addition, there can be no assurance that Northern Telecom and
Nortel Matra will enter into a contract as favorable to the Company, if any, in
the future otherwise agree to purchase the same or similar levels of their power
amplifier requirements at the same or similar pricing. Any reduction in the
level of purchases of the Company's amplifiers by Northern Telecom and Nortel
Matra, or any material reduction in pricing without significant offsets, would
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, if the Company were to lose Northern Telecom
or any other major OEM customer, or if orders by Northern Telecom or any other
major OEM customer were to otherwise materially decrease, the Company's
business, financial condition and results of operations would be materially
adversely affected. In addition, the recent financial market turmoil and
economic downturn in Korea may have a material adverse effect on the Company's
sales of its products to LGIC, an OEM based in Korea, because a majority of the
Company's products ordered by LGIC to date relate to the build-out of the Korean
PCS system. In addition, because the Company's products are priced in U.S.
dollars, the currency instability in the Korean and other Asian financial
markets may have the effect of making the Company's products more expensive to
LGIC than those of other manufacturers whose products are priced in one of the
affected Asian currencies, and, therefore, LGIC may reduce future purchases of
the Company's products. In addition, wireless infrastructure equipment OEMs have
come under increasing price pressure from wireless service providers, which in
turn has resulted in downward pricing pressure on the Company's products. The
Company expects to incur increasing pricing pressures from Northern Telecom and
other major OEM customers in future periods, which could result in declining
average sales prices for the Company's products. See "Business--OEM Customers,
Sales and Marketing."
22
<PAGE>
Fluctuations in Operating Results. The Company's quarterly and annual
results have in the past been, and will continue to be, subject to significant
fluctuations due to a number of factors, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In particular, the Company's results of operations are likely to
vary due to the timing, cancellation, delay or rescheduling of OEM customer
orders and shipments; the timing of announcements or introductions of new
products by the Company, its competitors or their respective OEM customers; the
acceptance of such products by wireless equipment OEMs and their customers;
relative variations in manufacturing efficiencies, yields and costs; competitive
factors such as the pricing, availability, and demand for competing
amplification products; changes in average sales prices and product mix;
variations in operating expenses; changes in manufacturing capacity and
variations in the utilization of this capacity; shortages of key supplies; the
long sales cycles associated with the Company's customer specific products; the
timing and level of product and process development costs; and changes in
inventory levels; and most recently, the relative strength or weakness of
international financial markets. Anticipated orders from the Company's OEM
customers have in the past failed to materialize and delivery schedules have
been deferred or canceled as a result of changes in OEM customer requirements
and the Company expects this pattern to continue as customer requirements
continue to change and industry standards continue to evolve. Reduced demand for
wireless infrastructure equipment in the latter part of fiscal 1996 and the
early part of fiscal 1997, driven partly by delays in the build-out of PCS
infrastructure, caused significant fluctuations in the Company's product sales
during that period of time. There can be no assurance that the Company will not
experience such fluctuations in the future, and, in fact, the Company
experienced a significant reduction in product revenue in the fourth quarter of
fiscal 1998 and anticipates lower product revenues over the next two to three
quarters as a result of softening demand in the TDMA markets and delays in
Korean PCS demand due to the unstable Asian financial markets and general
economic conditions in Korea and other Asian countries. The Company establishes
its expenditure levels for product development and other operating expenses
based on its expected revenues, and expenses are relatively fixed in the short
term. As a result, variations in timing of revenues can cause significant
variations in quarterly results of operations. There can be no assurance that
the Company will be profitable on a quarter to quarter basis in the future. The
Company believes that period to period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. Due to all the foregoing factors, it is likely that in some
future quarter or quarters the Company's revenues or operating results will not
meet the expectations of public stock market analysts or investors. In such
event, the market price of the Company's Common Stock would be materially
adversely affected.
Internal Amplifier Design and Production Capabilities of OEMs. The Company
believes that a majority of the present worldwide production of power amplifiers
is captive within the manufacturing operations of wireless equipment OEMs, many
of which have chosen not to purchase amplifiers from outside suppliers. The
Company also believes that those OEMs that purchase from third party amplifier
vendors are reluctant to switch once committed to a particular merchant vendor.
Consequently, the Company has only limited opportunities to increase revenues by
replacing internal OEM amplifier production or displacing other merchant
amplifier suppliers. Moreover, given the limited opportunities for merchant RF
amplifier suppliers, any decision by an OEM to employ a second source merchant
supplier for a product currently purchased from a merchant supplier may reduce
the existing merchant supplier's ability to maintain a given level of product
sales to such OEM or, possibly, to retain the OEM as a customer due to price
competition from the second source merchant supplier. There can be no assurance
that the Company's major OEM customers will continue to rely, or increase their
reliance, on the Company as an external source of supply for their power
amplifiers, or that other wireless equipment OEMs will become customers of the
Company. If the major wireless infrastructure equipment suppliers do not
purchase or continue to purchase their power amplifiers from merchant suppliers,
the Company's business, results of operations and financial condition will be
materially adversely affected. See "Business--OEM Customers, Sales and
Marketing."
Rapid Technological Change; Evolving Industry Standards; Dependence on New
Products. The markets in which the Company and its OEM customers compete are
characterized by rapidly changing
23
<PAGE>
technology, evolving industry standards and continuous improvements in products
and services. In particular, because the Company's strategy of rapidly bringing
to market products customized for numerous and evolving RF modulation standards
requires developing and achieving volume production of a large number of
distinct products, the Company's ability to rapidly design and produce
individual products for which there is significant OEM customer demand will be a
critical determinant of the Company's future success. For example, continued
softening of demand in the TDMA market or failure of another modulation standard
in which the Company has invested substantial development resources may have a
material adverse effect on the Company's business, financial condition and
results of operations. No assurance can be given that the Company's product
development efforts will be successful, that its new products will meet customer
requirements and be accepted or that its OEM customers' product offerings will
achieve customer acceptance. If a significant number of development projects do
not result in substantial volume production or if technologies or standards
supported by the Company's or its customers' products become obsolete or fail to
gain widespread commercial acceptance, the Company's business may be materially
adversely affected. See "Business--OEM Customers, Sales and Marketing,"
"--Manufacturing" and "--Research and Development."
Risks Associated with Internal Wafer and Device Fabrication. The Company's
operation of its wafer and device fabrication facilities entails a number of
risks, including a high level of fixed and variable costs, the management of
complex processes, dependence on a single source of supply and a strict
regulatory environment. During periods of low demand, high fixed wafer
fabrication costs are likely to have a material adverse effect on the Company's
business, financial condition and results of operations. The design and
fabrication of RF semiconductors is a complex and precise process. Such
manufacturing is sensitive to a wide variety of factors, including variations
and impurities in the raw materials, quality control of the packages,
difficulties in the fabrication process, performance of the manufacturing
equipment, defects in the masks used to print circuits on a wafer and the level
of contaminants in the manufacturing environment. As a result of these and other
factors, semiconductor manufacturing yields from time to time in the past have
suffered, and there can be no assurance that the Company will be able to achieve
acceptable production yields in the future. In addition, the Company's wafer and
device 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 and device fabrication facilities
could have a material adverse effect on the Company's business, financial
condition and results of operations. Any failure to maintain acceptable wafer
and device production levels, will have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Manufacturing" and "--Facilities."
Product Quality, Performance and Reliability. The Company expects that its
customers will continue to establish demanding specifications for quality,
performance and reliability that must be met by the Company's products. RF
semiconductors as complex as those offered by the Company often encounter
development delays and may contain undetected defects or failures when first
introduced or after commencement of commercial shipments. The Company has from
time to time in the past experienced product quality, performance or reliability
problems. In addition, multicarrier power amplifiers have a higher probability
of malfunction than single carrier power amplifiers because of their greater
complexity. There can be no assurance that defects or failures will not occur in
the future relating to the Company's product quality, performance and
reliability that may have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Manufacturing."
Sole or Limited Sources of Materials and Services. The Company currently
procures from single sources certain components and services for its products
including cast housings, printed circuit boards, specialized RF components and
specialized subassemblies. The Company purchases these components and services
on a purchase order basis, does not carry significant inventories of these
components and does not have any long-term supply contracts with its sole source
vendors. Although the Company is currently identifying potential alternative
sources of these components, its reliance on sole sources entails certain risks,
including reduced control over the price, timely delivery, reliability and
quality of the components. If the Company were to change any of its sole source
vendors, the Company would be
24
<PAGE>
required to requalify the components with each new vendor. Any inability of the
Company to obtain timely deliveries of components of acceptable quality in
required quantities or a significant increase in the prices of components for
which the Company does not have alternative sources could materially and
adversely affect the Company's business, financial condition and results of
operations. The Company has occasionally experienced difficulties in obtaining
these components, and no assurance can be given that shortages will not occur in
the future. See "Business--Manufacturing."
Declining Average Sales Prices. The Company has experienced, and expects to
continue to experience, declining average sales prices for its products.
Wireless infrastructure equipment manufacturers have come under increasing price
pressure from wireless service providers, which in turn has resulted in downward
pricing pressure on the Company's products. In addition, competition among
merchant suppliers has increased the downward pricing pressure on the Company's
products. Since wireless infrastructure equipment manufacturers frequently
negotiate supply arrangements far in advance of delivery dates, the Company
often must commit to price reductions for its products before it is aware of
how, or if, cost reductions can be obtained. To offset declining average sales
prices, the Company believes that it must achieve manufacturing cost reductions.
If the Company is unable to achieve such cost reductions, the Company's gross
margins will decline, and such decline will have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Manufacturing."
Risks of International Sales. Sales outside of the United States were 95%,
73% and 72% of revenues in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively. The Company expects that international sales will continue to
account for a significant percentage of the Company's total revenues for the
foreseeable future. These sales involve a number of inherent risks, including
imposition of government controls, currency exchange fluctuations, potential
insolvency of international distributors and representatives or customers,
reduced protection for intellectual property rights in some countries, the
impact of recessionary environments in economies outside the United States,
political instability and generally longer receivables collection periods, as
well as tariffs and other trade barriers. In addition, because substantially all
of the Company's foreign sales are denominated in U.S. dollars, increases in the
value of the dollar relative to the local currency would increase the price of
the Company's products in foreign markets and make the Company's products
relatively more expensive and less price competitive than competitors' products
that are priced in local currencies. There can be no assurance that these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations. The Company anticipates that the recent
turmoil in Asian financial markets and the recent deterioration of the
underlying economic conditions in certain Asian countries may have an impact on
its sales to customers located in or whose projects are based in those countries
due to the impact of currency fluctuations on the relative price of the
Company's products and restrictions on government spending imposed by the IMF on
those countries receiving the IMF's assistance. In addition, customers in those
countries may face reduced access to working capital to fund component
purchases, such as the Company's products, due to higher interest rates, reduced
bank lending due to contractions in the money supply or the deterioration in the
customer's or its bank's financial condition or the inability to access local
equity financing. A substantial majority of the Company's products are sold to
OEMs who incorporate the Company's products into systems sold and installed to
end-user customers. These OEMs are not required by contract and do not typically
provide the Company with information regarding the location and identity of
their end-user customers, and, therefore, the Company is not able to determine
what portion of its product sales have been or future orders will be
incorporated into OEM sales to end-users in those Asian countries currently
experiencing financial market turmoil and/or deterioration of economic
conditions. Furthermore, a large portion of the Company's existing customers and
potential new customers are servicing new markets in developing countries that
the Company's customers expect will deploy wireless communication networks as an
alternative to the construction of a wireline infrastructure. If such countries
decline to construct wireless communication systems, or construction of such
systems is delayed for any reason, including business and economic conditions
and changes in economic stability due to factors such as increased inflation and
political turmoil, such delays could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--OEM Customers, Sales and Marketing."
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<PAGE>
Reliance upon Growth of Wireless Services. Sales of power amplifiers to
wireless infrastructure equipment suppliers have in the past accounted, and are
expected in the future to account, for substantially all of the Company's
product sales. Demand for wireless infrastructure equipment is driven by demand
for wireless service. Although demand for power amplifiers has grown in recent
years, if demand for wireless services fails to increase or increases more
slowly than the Company or its OEM customers currently anticipate, the Company's
business, financial condition and results of operations would be materially and
adversely affected. See "Business--Industry Background."
Market for the Company's Products Is Highly Competitive. The wireless
communications equipment industry is extremely competitive and is characterized
by rapid technological change, new product development and product obsolescence,
evolving industry standards and significant price erosion over the life of a
product. The ability of the Company to compete successfully and sustain
profitability depends in part upon the rates at which wireless equipment OEMs
incorporate the Company's products into their systems and the Company captures
market share from other merchant suppliers. The Company's major OEM customers,
including Northern Telecom, Nortel Matra, LGIC and QUALCOMM, continuously
evaluate whether to manufacture their own amplification products or purchase
them from outside sources. There can be no assurance that these OEM customers
will incorporate the Company's products into their systems or that in general
they will continue to rely, or expand their reliance, on external sources of
supply for their power amplifiers. These customers and other large manufacturers
of wireless communications equipment could also elect to enter the merchant
market and compete directly with the Company, and at least one OEM, NEC, has
already done so. Such increased competition could materially adversely affect
the Company's business, financial condition and results of operations. See
"--Internal Amplifier Design and Production Capabilities of OEMs."
The Company's principal competitors in the market for wireless
amplification products provided by merchant suppliers currently include AML
Communications, Amplidyne, Hewlett-Packard Wireless Infrastructure Division,
M/A--COM (a subsidiary of AMP), Microwave Power Devices, NEC and Powerwave
Technologies. No assurance can be given that the Company's competitors will not
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features compared to the
Company's products. See "Business--Competition."
Uncertain Protection of Intellectual Property. The Company's ability to
compete successfully and achieve future revenue growth will depend, in part, on
its ability to protect its proprietary technology and operate without infringing
the rights of others. The Company has a policy of seeking patents on inventions
resulting from its ongoing research and development activities. The Company has
been awarded 16 United States patents, and has 22 United States patent
applications pending, including five that had been allowed but not yet formally
issued. The Company also has been awarded four foreign patents and has ten
foreign patent applications pending. There can be no assurance that the
Company's pending patent applications will be allowed or that the issued or
pending patents will not be challenged or circumvented by competitors.
Notwithstanding the Company's active pursuit of patent protection, the Company
believes that the success of its business depends more on the collective value
of its patents, specifications, computer aided design and modeling tools,
technical processes and employee expertise. The Company generally enters into
confidentiality and nondisclosure agreements with its employees, suppliers, OEM
customers, and potential customers and limits access to and distribution of its
proprietary technology. However, there can be no assurance that such measures
will provide adequate protection for the Company's trade secrets or other
proprietary information, or that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently developed by
competitors. The failure of the Company to protect its proprietary technology
could have a material adverse effect on its business, financial condition and
results of operations. See "Business--Patents and Proprietary Technology."
Risk of Third Party Claims of Infringement. The communications equipment
industry is characterized by vigorous protection and pursuit of intellectual
property rights or positions, which have resulted in significant and often
protracted and expensive litigation. Although there is currently no pending
intellectual property litigation against the Company, the Company or its
suppliers may from time to time be notified of claims that the Company may be
infringing patents or other intellectual property rights owned by third parties.
If it is necessary or desirable, the Company may seek licenses under such
patents or other
26
<PAGE>
intellectual property rights. However, there can be no assurance that licenses
will be offered or that the terms of any offered licenses will be acceptable to
the Company. The failure to obtain a license from a third party for technology
used by the Company or otherwise secure rights to use such technology could
cause the Company to incur substantial liabilities, to suspend the manufacture
of products or expend significant resources to develop noninfringing technology.
There can be no assurance that the Company would be successful in such
development or that such licenses would be available on reasonable terms, if at
all. In the event that any third party makes a successful claim against the
Company or its customers and either a license is not made available to the
Company on commercially reasonable terms or a "design around" is not
practicable, the Company's business, financial condition and results of
operations would be materially adversely affected. Furthermore, the Company may
initiate claims or litigation against third parties for infringement of the
Company's proprietary rights or to establish the validity of the Company's
proprietary rights. Litigation by or against the Company could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation results in a
favorable determination for the Company. In the event of an adverse result in
any such litigation, the Company could be required to pay substantial damages,
indemnify its customers, cease the manufacture, use and sale of infringing
products, expend significant resources to develop noninfringing technology,
discontinue the use of certain processes or obtain licenses to the infringing
technology. See "Business--Patents and Proprietary Technology."
Government Regulation of Communications Industry. Radio frequency
transmissions and emissions, and certain equipment used in connection therewith,
are regulated in the United States, Canada and throughout the rest of the world.
Regulatory approvals generally must be obtained by the Company in connection
with the manufacture and sale of its products, and by wireless service providers
to operate the Company's products. The United States Federal Communications
Commission (the "FCC") and regulatory authorities abroad constantly review RF
emission issues and promulgate standards based on such reviews. If more
stringent RF emission regulations are adopted, the Company and its OEM customers
may be required to alter the manner in which radio signals are transmitted or
otherwise alter the equipment transmitting such signals, which could materially
adversely affect the Company's products and markets. The enactment by federal,
state, local or international governments of new laws or regulations or a change
in the interpretation of existing regulations could also materially adversely
affect the market for the Company's products. Although recent deregulation of
international communications industries along with recent radio frequency
spectrum allocations made by the FCC have increased the potential demand for the
Company's products by providing users of those products with opportunities to
establish new wireless personal communications services, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded personal communications services
will continue or that other future regulatory changes will have a positive
impact on the Company. The increasing demand for wireless communications has
exerted pressure on regulatory bodies worldwide to adopt new standards for such
products, generally following extensive investigation of and deliberation over
competing technologies. The delays inherent in this governmental approval
process have in the past caused, and may in the future cause, the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company's OEM customers. These delays have had in the past, and in the
future may have, a material adverse effect on the sale of products by the
Company to such OEM customers.
Environmental Regulations. The Company is subject to a variety of local,
state and federal governmental regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of toxic or other
hazardous substances used to manufacture the Company's products. The Company
believes that it is currently in compliance in all material respects with such
regulations and that it has obtained all necessary environmental permits to
conduct its business. Nevertheless, the failure to comply with current or future
regulations could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its manufacturing processes or cessation
of operations. Compliance with such regulations could require the Company to
acquire expensive remediation equipment or to incur substantial expenses. Any
failure by the Company to control the use, disposal, removal or storage of, or
to adequately restrict the discharge of, or assist in the cleanup of, hazardous
or toxic substances, could subject the Company to significant liabilities,
including joint and several liability under
27
<PAGE>
certain statutes. The imposition of such liabilities could materially adversely
affect the Company's business, financial condition and results of operations.
See "Business--Manufacturing."
Year 2000 Compliance. Many installed computer programs were written using a
two digit date field rather than a four digit field to define the applicable
year. Such computer programs utilizing a two digit date field may recognize a
date using "00" as the year 1900 rather than the year 2000. The Year 2000 Issue
could potentially result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other similar normal
business activities. The Company has identified Year 2000 Issues in certain of
its internal operating systems and is in the process of installing a new
computer software system which will increase operational and financial
efficiencies and information analysis. The new enterprise system recognizes
dates beyond December 31, 1999 and addresses the substantial position of the
Year 2000 Issue that impact the Company. The cost of this project, as it relates
to the Year 2000 Issue, is not expected to have a material effect on the
operations of the Company and will be funded through operating cash flows. The
Company has not completed an audit of its remaining internal systems or products
with respect to Year 2000 Issues.
Management of Growth; Dependence on Key Personnel. The growth in the
Company's business has placed, and is expected to continue to place, a
significant strain on the Company's personnel, management and other resources.
The Company's ability to manage any future growth effectively will require it to
attract, train, motivate, manage and retain new employees successfully, to
integrate new employees into its overall operations and in particular its
manufacturing operations, to retain the continued service of its key technical,
marketing and management personnel, and to continue to improve its operational,
financial and management information systems. Although the Company has
employment contracts with several of its executive officers, these agreements do
not obligate such individuals to remain in the employment of the Company. The
Company does not maintain key person life insurance on any of its key technical
personnel. The competition for such personnel is intense, and the loss of key
employees could have a material adverse effect on the Company. See
"Business--Employees" and "Management."
Volatility of Stock Price. The market price of the shares of Common Stock
has recently been and is likely to continue to be highly volatile, and is
affected significantly by factors such as fluctuations in the Company's
operating results, announcements of technological innovations, new customer
contracts or new products by the Company or its competitors, announcements by
the Company's customers regarding their business or prospects, changes in
analysts' expectations, governmental regulatory action, developments with
respect to patents or proprietary rights, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. The market price of the Company's Common
Stock has fluctuated substantially during fiscal 1998, from a low of $10.75 on
April 1, 1997 to a high of $66.375 on October 1, 1997. On May 18, 1998, the last
reported sale price of the Common Stock as reported on the Nasdaq National
Market was $16.125. See "Market for Registrant's Common Equity and Related
Stockholder Matters."
Pending Litigation. Since December 23, 1997, a number of complaints have
been filed against the Company and certain of its officers in the Federal Court
for the Northern District of California that allege violations of the federal
securities laws. Similar complaints have been filed in California state court
that allege violations of California state securities laws and California common
law. The complaints have been consolidated in the federal and state courts,
respectively. The plaintiffs in both the federal and state lawsuits purport to
represent a class of persons who purchased the Company's securities during the
period of July 17, 1997 through October 23, 1997. The complaints allege that the
Company and certain of its officers misled the investing public regarding the
financial prospects of the Company. The Company believes that the allegations
are completely without merit and will vigorously defend itself. Certain
provisions of the Company's Certificate of Incorporation and indemnification
agreements between the Company and its officers require the Company to advance
to such officers ongoing legal expenses of defending the suits and may require
the Company to indemnify them against judgments rendered on certain claims. The
Company expects to incur significant legal expenses on its behalf and on behalf
of such officers in connection with this litigation. In addition, defending this
litigation has resulted and will likely continue to result in the diversion of
management's attention from the day to day operations of the
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<PAGE>
Company's business. Although the Company does not believe that it or any of its
officers has engaged in any wrongdoing, there can be no assurance that this
stockholder litigation will be resolved in the Company's favor. An adverse
result, settlement or prolonged litigation could have a material adverse effect
on the Company's business, financial condition or results of operations.
Shareholder Rights Plan; Issuance of Preferred Stock. The Board of
Directors of the Company adopted a Shareholder Rights Plan in October 1996 (the
"Rights Plan"). Pursuant to the Rights Plan, the Board declared a dividend of
one Preferred Stock Purchase Right per share of Common Stock (the "Rights") and
each such Right has an exercise price of $126.00. The Rights become exercisable
upon the occurrence of certain events, including the announcement of a tender
offer or exchange offer for the Company's Common Stock or the acquisition of a
specified percentage of the Company's Common Stock by a third party. The
exercise of the Rights could have the effect of delaying, deferring or
preventing a change in control of the Company, including, without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of the Company's Common Stock. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of the Company's Common Stock. The Board of Directors has the authority to issue
up to 5,000,000 shares of undesignated Preferred Stock and to determine the
powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued shares of
undesignated Preferred Stock and to fix the number of shares constituting any
series and the designation of such series, without any further vote or action by
the Company's stockholders. For example, in connection with the Company's
Shareholder Rights Plan, the Board of Directors designated 20,000 shares of
Preferred Stock as Series A Participating Preferred Stock although none of such
shares have been issued. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to those of the holders of
Common Stock. The issuance of Preferred Stock under certain circumstances could
have the effect of delaying, deferring or preventing a change in control of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and the independent
auditors' report appear on pages F-1 through F-15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
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
"Section 16(a) Beneficial Ownership Reporting Compliance" contained in the
Company's Proxy Statement related to the 1998 Annual Meeting of Stockholders to
be held June 26, 1998, 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 in "Business--Management" and certain other
information required by this item is incorporated by reference from the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
sections captioned "Security Ownership of Certain Beneficial Owners and
Management" and "Record Date; Outstanding Shares" 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.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following consolidated financial statements are incorporated by
reference in Item 8 of this Report:
Independent Auditors' Report
Consolidated Balance Sheets, March 31, 1998 and 1997
Consolidated Statements of Operations for the years ended March 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended March 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves (see page
S-1)
Independent Auditors' Report (see page F-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.
(a)(3) Exhibits
3.1(4) Restated Articles of Incorporation of Registrant.
3.4(1) Bylaws of Registrant.
3.5(14) Certificate of Incorporation of Registrants.
3.6(15) 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(8) 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.
10.7.3(14) Amended and Restated Business Loan Agreement between
Registrant and Silicon Valley Bank dated February 11, 1997 and
ancillary documents thereto.
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.
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<PAGE>
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.
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(12) Employment Agreement dated March 11, 1997 between the
Registrant and Bruce R. Wright.
10.25(12) Letter Agreement dated November 6, 1996 between the Company
and Edward Supplee.
10.26(13) Stock Option Agreement dated November 26, 1997 between
Registrant and Garrett A. Garrettson.
10.27(13) Stock Option Agreement dated November 26, 1997 between
Registrant and Garrett A. Garrettson.
10.28(13) Stock Option Agreement dated November 26, 1997 between
Registrant and Garrett A. Garrettson.
10.29(13) Stock Option Agreement dated March 24, 1997 between Registrant
and Bruce Wright.
10.30(13) Stock Option Agreement dated March 20, 1997 between Registrant
and Michael Morrione.
10.31(13) Stock Option Agreement dated March 20, 1997 between Registrant
and Stephen B. Greenspan.
10.32(15) Form of Indemnification Agreement with directors and officers.
10.33(16) 1998 Nonstatutory Stock Option Plan.
10.34 1998 Employee Stock Purchase Plan.
10.35 Lease Agreement dated December 19, 1997 between Registrant and
Stanford Ranch I, LLC.
10.36(17) Stock Option Agreement dated December 15, 1997 between the
Registrant and John Rottenburg.
10.37 First Amendment to Lease dated February 19, 1998 between
Registrant and Stanford Ranch I, LLC.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on page 41).
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.
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<PAGE>
(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 exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-38561) as filed with the
Securities and Exchange Commission on October 23, 1997.
(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 Annual Report
on Form 10-K for the year ended March 31, 1997.
(13) Incorporated by reference to exhibits filed with Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form S-8
(File No. 333-25435) as filed with the Securities and Exchange Commission
on October 21, 1997.
(14) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997.
(15) Incorporated by reference to exhibits filed with Registrant's Current
Report on Form 8-K dated October 10, 1997.
(16) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (File No. 333-49081) as filed with the Securities and
Exchange Commission on April 1, 1998.
(17) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (File No. 333-53079) as filed with the Securities and
Exchange Commission on May 19, 1998.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the three months ended March 31, 1998.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
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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: May 21, 1998
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.
<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 May 21, 1998
- --------------------------- Director (Principal Executive Officer)
Garrett A. Garrettson
/s/ Bruce R. Wright Executive Vice President, Finance and May 21, 1998
- --------------------------- Administration, Chief Financial
Bruce R. Wright Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ James A. Cole Director May 21, 1998
- ---------------------------
James A. Cole
/s/ Robert C. Wilson Director May 21, 1998
- ---------------------------
Robert C. Wilson
/s/ Eric A. Young Director May 21, 1998
- ---------------------------
Eric A. Young
/s/ Martin Cooper Director May 21, 1998
- ---------------------------
Martin Cooper
/s/ Charles D. Kissner Director May 21, 1998
- ---------------------------
Charles D. Kissner
</TABLE>
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
-----
Independent Auditors' Report ........................................ F-2
Consolidated Balance Sheets ......................................... F-3
Consolidated Statements of Operations ............................... F-4
Consolidated Statements of Cash Flows ............................... F-5
Consolidated Statements of Changes in Stockholders' Equity .......... F-6
Notes to Consolidated Financial Statements .......................... F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Spectrian Corporation:
We have audited the accompanying consolidated balance sheets of Spectrian
Corporation (the Company) and subsidiaries as of March 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended March 31, 1998. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Item 14(a). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spectrian
Corporation and subsidiaries as of March 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related 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.
/s/KPMG Peat Marwick LLP
Mountain View, California
April 22, 1998
F-2
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
----------------------
1998 1997
--------- ---------
Assets
Current assets:
Cash and cash equivalents ........................... $ 31,460 $ 6,240
Short-term investments .............................. 68,128 --
Accounts receivable, less allowance for doubtful
accounts of $376 and $365, respectively ........... 21,123 15,825
Inventories ......................................... 15,362 17,301
Prepaid expenses and other current assets ........... 6,202 1,806
--------- ---------
Total current assets .............................. 142,275 41,172
Property and equipment, net .......................... 32,776 25,461
--------- ---------
$ 175,051 $ 66,633
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................... $ 10,456 $ 8,101
Accrued liabilities ................................. 12,981 7,421
Current portion of debt obligations ................. 1,360 1,588
--------- ---------
Total current liabilities ......................... 24,797 17,110
Debt obligations, net of current portion ............. 5,912 7,057
--------- ---------
Total liabilities ................................. 30,709 24,167
--------- ---------
Stockholders' equity:
Common stock, $0.001 par value, 20,000,000 shares
authorized; 10,904,077 and 8,265,230 shares
issued and outstanding, respectively .............. 10 8
Additional paid-in capital .......................... 146,827 53,387
Deferred compensation expense ....................... (609) --
Unrealized gains on investments ..................... 121 --
Accumulated deficit ................................. (2,007) (10,929)
--------- ---------
Total stockholders' equity ........................ 144,342 42,466
--------- ---------
Commitments and contingencies
--------- ---------
$ 175,051 $ 66,633
========= =========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Year ended March 31,
-------------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues ............................................... $168,798 $ 88,252 $ 72,113
-------- -------- --------
Costs and expenses:
Cost of product sales ................................. 132,684 65,322 45,355
Research and development .............................. 18,644 17,230 14,548
Selling, general and administrative ................... 13,014 9,299 7,450
-------- -------- --------
164,342 91,851 67,353
-------- -------- --------
Operating income (loss) ............................. 4,456 (3,599) 4,760
Interest income (expense), net ......................... 3,335 (392) 889
Other income, net ...................................... 1,530 -- --
-------- -------- --------
Income (loss) before income taxes ................... 9,321 (3,991) 5,649
Income tax expense ..................................... 399 -- 169
-------- -------- --------
Net income (loss) ................................... $ 8,922 $ (3,991) $ 5,480
======== ======== ========
Net income (loss) per share:
Basic ............................................... $ 0.90 $ (0.49) $ 0.71
Diluted ............................................. $ 0.83 $ (0.49) $ 0.66
Shares used in computing per share amounts:
Basic ............................................... 9,881 8,150 7,684
Diluted ............................................. 10,701 8,150 8,363
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended March 31,
----------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 8,922 $ (3,991) $ 5,480
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Gain on sale of subsidiary .................................... (1,530) -- --
Depreciation and amortization ................................. 9,761 6,574 4,793
Stock compensation expense .................................... 609 182 (49)
Tax benefit associated with stock options ..................... -- -- 138
Changes in operating assets and liabilities:
Accounts receivable .......................................... (10,051) (3,845) (1,360)
Inventories .................................................. 362 (10,072) (2,444)
Prepaid expenses and other assets ............................ (412) (1,386) (26)
Accounts payable ............................................. 3,141 1,137 2,897
Accrued liabilities .......................................... 5,811 3,301 173
-------- -------- --------
Net cash provided by (used for) operating activities ....... 16,613 (8,100) 9,602
-------- -------- --------
Cash flows from investing activities:
Proceeds (purchases) of short-term investments, net ............. (68,008) 3,000 9,107
Proceeds from sale of subsidiary ................................ 4,016 -- --
Proceeds from sale of property .................................. -- 16,414 --
Purchase of property and equipment .............................. (17,953) (16,321) (28,182)
-------- -------- --------
Net cash provided by (used for) investing activities ....... (81,945) 3,093 (19,075)
-------- -------- --------
Cash flows from financing activities:
Proceeds from real estate loan .................................. -- 2,917 --
Proceeds from bank debt and equipment financing ................. -- 18,000 --
Repayments of debt and capital lease obligations ................ (1,672) (12,272) --
Proceeds from sales of common stock, net ........................ 92,224 1,439 2,216
-------- -------- --------
Net cash provided by financing activities .................. 90,552 10,084 2,216
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ....... 25,220 5,077 (7,257)
Cash and cash equivalents, beginning of year ............... 6,240 1,163 8,420
-------- -------- --------
Cash and cash equivalents, end of year ..................... $ 31,460 $ 6,240 $ 1,163
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest .......................... $ 457 $ 660 $ 31
Taxes paid during the year ...................................... $ 952 $ -- $ --
Noncash investing and financing activities:
Equipment recorded under capital lease obligations ............ $ 307 $ -- $ --
Deferred stock option compensation ............................ $ 1,218 $ -- $ (425)
Unrealized gain on investments ................................ $ 121 $ -- $ --
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share data)
<CAPTION>
Unrealized
Common Stock Deferred Gains Total
----------------------- Paid-In Compensation (Losses) on Accumulated Stockholders'
Shares Amount Capital Expense Investments Deficit Equity
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of March 31, 1995 .... 7,155,800 $ 7 $ 50,020 $ (558) $ 5 $ (12,418) $ 37,056
Exercise of stock options ........ 761,778 1 1,160 -- -- -- 1,161
Employee stock purchase plan ..... 96,947 -- 1,055 -- -- -- 1,055
Deferred stock option
compensation .................... -- -- (425) 425 -- -- --
Stock option compensation ........ -- -- -- (49) -- -- (49)
Tax benefit associated with
stock options ................... -- -- 138 -- -- -- 138
Unrealized losses on investments . -- -- -- -- (3) -- (3)
Net income ....................... -- -- -- -- -- 5,480 5,480
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances as of March 31, 1996 .... 8,014,525 8 51,948 (182) 2 (6,938) 44,838
Exercise of stock options ........ 114,671 -- 276 -- -- -- 276
Employee stock purchase plan ..... 136,034 -- 1,163 -- -- -- 1,163
Stock option compensation ........ -- -- -- 182 -- -- 182
Unrealized losses on investments . -- -- -- -- (2) -- (2)
Net loss ......................... -- -- -- -- -- (3,991) (3,991)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances as of March 31, 1997 .... 8,265,230 8 53,387 -- -- (10,929) 42,466
Exercise of stock options ........ 431,470 -- 5,589 -- -- -- 5,589
Employee stock purchase plan ..... 207,377 -- 1,604 -- -- -- 1,604
Public offering, net of
$4,969 expenses ................. 2,000,000 2 85,029 -- -- -- 85,031
Deferred stock option
compensation .................... -- -- 1,218 (1,218) -- -- --
Stock compensation expense ....... -- -- -- 609 -- -- 609
Unrealized gain on investments ... -- -- -- -- 121 -- 121
Net income ....................... -- -- -- -- -- 8,922 8,922
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances as of March 31, 1998 .... 10,904,077 $ 10 $ 146,827 $ (609) $ 121 $ (2,007) $ 144,342
========== ========== ========== ========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
F-6
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue upon shipment and concurrently accrues for
expected warranty expenses. Repair and service revenues are recognized when the
service is performed.
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
commercial paper as of March 31, 1998.
The Company has classified its investments in certain debt securities as
"available-for-sale," and records such investments at fair market value, with
unrealized gains and losses reported as a separate component of stockholders'
equity. Interest income is recorded using an effective interest rate, with the
associated premium or discount amortized to interest income. At March 31, 1998
and 1997, 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 recorded using 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 more likely than not.
Per Share Computations
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" effective December 28, 1997. SFAS No. 128 requires
presentation of basic earnings per share ("EPS") and, for companies with complex
capital structures, diluted EPS. Basic EPS excludes dilution and is computed by
dividing net income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS includes
dilution and net income per share is
F-7
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
include the effect of the exercise of stock options. For the year ended March
31, 1997, common equivalent shares were not included for the calculation of
diluted EPS as they were considered antidilutive. The Company has restated net
income (loss) per share for all periods presented in the accompanying
consolidated financial statements to reflect net income (loss) per share on both
a basic and a diluted basis.
<TABLE>
A reconciliation of the basic and diluted per share calculations follows:
<CAPTION>
Year ended Year ended
March 31, 1998 March 31, 1997
------------------------------ ---------------------------------
Per Per
Net Share Net Share
Income Shares Amount Loss Shares Amount
(In thousands, except per share data) ------ ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic ...................................... $ 8,922 9,881 $ 0.90 $(3,991) 8,150 $ (0.49)
Effect of dilutive securities .............. -- 820 -- -- -- --
------- ------- ----- ------- ------- -----
Diluted .................................... $ 8,922 10,701 $ 0.83 $(3,991) 8,150 $ (0.49)
======= ======= ===== ======= ======= =====
</TABLE>
Year ended
March 31, 1996
----------------------------------
Per
Net Share
Income Shares Amount
(In thousands, except per share data) ------ ------ ------
Basic ............................... $5,480 7,684 $ 0.71
Effect of dilutive securities ....... -- 679 --
------ ------ -----
Diluted ............................. $5,480 8,363 $ 0.66
====== ====== =====
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 and liabilities, the
disclosure of contingent assets and liabilities, revenues and expenses during
the reporting period. The most significant of these relate to the extent of
inventory obsolescence, the allowance for doubtful accounts and the warranty
accrual. Actual results could differ from those estimates.
Accounting for Stock-Based Compensation
The Company continues to account for its stock option plans using the
intrinsic value method.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its fair value. To date
the Company has made no such adjustments.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Available-for-sale securities at March 31, 1998 and 1997 were as follows:
1998 1997
------- -------
(In thousands)
Commercial paper ............................. $63,341 $ --
Repurchase agreements ........................ -- 4,830
U.S. government securities ................... 28,158 128
------- -------
$91,499 $ 4,958
======= =======
F-8
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As of March 31, 1998 and 1997 the estimated fair value of each investment
approximated the amortized cost and, therefore, there were no significant
unrealized gains or losses. At March 31, 1998 and 1997 all securities held were
due in less than one year and were classified as follows (in thousands):
March 31,
-------------------------
1998 1997
------- -------
Cash equivalents ......................... $23,371 $ 4,958
Short-term investments ................... 68,128 --
------- -------
$91,499 $ 4,958
======= =======
3. BALANCE SHEET COMPONENTS
Balance sheet components at March 31, 1998 and 1997 are as follows (in
thousands):
March 31,
---------------------
1998 1997
------- -------
Inventories:
Raw materials .............................. $ 7,395 $ 9,315
Work in progress ........................... 5,538 6,699
Finished goods ............................. 2,429 1,287
------- -------
$15,362 $17,301
======= =======
Property and equipment:
Machinery and equipment .................... $51,091 $37,181
Land, building and improvements ............ 2,829 2,822
Furniture and fixtures ..................... 1,382 1,376
Leasehold improvements ..................... 1,633 867
------- -------
56,935 42,246
Less accumulated depreciation and
amortization ............................. 24,159 16,785
------- -------
$32,776 $25,461
======= =======
Accrued liabilities:
Employee compensation and benefits ......... $ 2,958 $ 3,772
Warranty ................................... 7,326 1,940
Deferred revenue and other ................. 2,697 1,709
------- -------
$12,981 $ 7,421
======= =======
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 December 1, 1998, bears interest at the bank's prime rate, and
provides for borrowings and letters of credit aggregating up to $10,000,000
based on a specified percentage of eligible accounts receivable. As of March 31,
1998, the Company was in compliance with all but its quarterly profitability
financial covenant for which the Company has received a waiver from its bank. As
of March 31, 1998, the Company had $10,000,000 available under this line of
credit with no borrowings outstanding.
F-9
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 and other
specific ratios for which the Company was in compliance as of March 31, 1998.
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%.
Future minimum debt principal payments under these loans as of March 31,
1998 aggregated $7,272,000 including $1,360,000, $1,300,000, $889,000,
$1,472,000, and $178,000 for the fiscal years 1999, 2000, 2001, 2002 and 2003,
respectively, and $2,073,000, 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.
In 1998, the Company entered into operating leases for an ancillary 40,000
square foot manufacturing facility in Rocklin, California and a 7,750 square
foot engineering design center in Quincy, Illinois. The Rocklin facility has a
sixty-two month lease term commencing in June 1998 and expiring in July 2003.
The Quincy lease has a twelve-month lease term and expires in March 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, 1998 aggregated $26,494,000
including $2,202,000, $2,317,000, $2,317,000, $2,311,000 and $2,310,000 for the
fiscal years 1999, 2000, 2001, 2002 and 2003, respectively and $15,037,000,
thereafter. Rent expense was approximately $2,530,000, $819,000, and $778,000
for the years ended March 31, 1998, 1997 and 1996, respectively.
5. STOCKHOLDERS' EQUITY
Reincorporation
On September 11, 1997, the Company's shareholders approved the Company's
reincorporation in the state of Delaware, providing for 20,000,000 authorized
shares of Common Stock and 5,000,000 authorized shares of Preferred Stock, both
with par values of $.001 per share. On October 3, 1997, the reincorporation in
the state of Delaware was effected. The accompanying financial statements have
been restated to give effect to the reincorporation.
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000 shares of
undesignated preferred stock and to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any wholly unissued shares of undesignated preferred stock and to fix the
F-10
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
number of shares constituting any series and the designation of such series,
without any further vote or action by the Company's stockholders. The Board of
Directors has designated 20,000 shares of preferred stock as Series A
Participating Preferred Stock, although none of such shares have been issued.
Public Offering
On August 20, 1997, the Company completed a public offering of 2,000,000
shares of common stock and received net proceeds of $85,031,000.
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.
A total of 186,380 shares of Common Stock have been reserved for issuance
under the 1992 Stock Plan as of March 31, 1998. Under the 1994 Director Option
Plan, 25,000 shares were granted during fiscal 1998, and 35,000 shares of Common
Stock were reserved for issuance as of March 31, 1998.
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. In fiscal 1998, one officer and two employees were granted a
combined total of 90,000 options outside of the Plans at exercise prices ranging
from $16.88 to $56.38, which are subject to the same vesting schedule as that of
the 1992 Stock Plan.
In January 1998 the Company adopted the 1998 Nonstatutory Stock Option Plan
under which 400,000 shares were reserved. Under this plan, certain employees
were granted stock options with exercise prices ranging from $6.59 to $16.36
that were below the $17.25 fair market value of the stock on the day of grant
and were subject to a six-month vesting schedule. Stock compensation of $609,000
was recorded for these options in the fourth quarter of fiscal 1998. A total of
226,312 shares were reserved for issuance as of March 31, 1998.
F-11
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table summarizes option activity under the Company's various
plans:
Weighted
Average
Available for Exercise
Grant Options Price
---------- ---------- ------
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
Additional shares reserved ............. 390,000 -- --
Granted at fair market value ........... (1,790,746) 1,790,746 14.91
Granted in excess of fair market value . (250,000) 250,000 14.50
Exercised .............................. -- (114,671) 2.50
Canceled ............................... 1,124,874 (1,124,874) 19.69
---------- ---------- ------
Outstanding as of March 31, 1997 .......... 665,419 1,726,753 $13.18
Additional shares reserved ................ 500,000 -- --
Granted ................................ (855,755) 855,755 25.91
Exercised .............................. -- (431,511) 12.87
Canceled ............................... 138,028 (138,028) 17.45
---------- ---------- ------
Outstanding as of March 31, 1998 .......... 447,692 2,024,005 $18.34
========== ========== ======
Using the Black-Scholes Option-Pricing Model, the per share weighted
average fair market value of stock options granted during fiscal 1998, fiscal
1997 and fiscal 1996 were $18.34, $9.41 and $17.69, respectively, on the date of
grant. Assumptions used with the Black-Scholes Option-Pricing Model were as
follows: for fiscal 1998, a stock price volatility of 83%, no expected
dividends, an average risk-free interest rate of 5.6% and an average expected
option term of 4.5 years; and for both fiscal 1997 and fiscal 1996, a stock
price volatility of 80%, no expected dividends, an average risk-free interest
rate of 6.0% and an average expected option term of 4.3 years.
F-12
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
The following tables summarize information about stock options outstanding
at March 31, 1998:
<CAPTION>
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price Options Price
- ----------------- ------------- ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.20 - 6.59 149,402 8.6 $ 5.46 38,957 $ 2.28
7.00 - 9.50 337,380 8.6 9.37 109,375 9.12
10.00 - 14.38 219,540 9.0 14.04 44,327 13.85
14.50 - 14.50 606,890 7.9 14.50 243,140 14.50
16.25 - 21.25 294,593 9.6 18.52 12,549 18.92
21.38 - 43.31 295,000 8.9 31.13 43,751 22.86
43.50 - 64.13 121,200 9.5 54.60 -- --
--------- -------
2,024,005 8.7 $ 18.34 492,099 $ 13.13
========= =======
</TABLE>
Employee Stock Purchase Plan
In May 1994, the Board of Directors approved the 1994 Employee Stock
Purchase Plan (the "Purchase Plan") which permitted eligible employees to
purchase the Company's Common Stock through payroll deductions. The Purchase
Plan consisted of consecutive and overlapping 24-month offering periods, each
divided into four 6-month purchase periods. The purchase price of the shares in
the Purchase Plan was 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 475,000 shares of common stock for
issuance under this plan, of which no remaining shares of Common Stock were
available for issuance as of March 31, 1998. During the year ended March 31,
1998, there were 207,377 shares acquired under the Purchase Plan at per share
prices ranging from $6.59 to $16.36.
Under SFAS No. 123, pro forma 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 1998, fiscal 1997
and fiscal 1996, respectively, was $4.32, $5.14 and $6.54, using the
Black-Scholes Option-Pricing Model with the following assumptions: for fiscal
1998, a stock price volatility of 83%, no expected dividends, risk free interest
rate of 5.6% and an expected term of 0.5 years; for fiscal 1997, a stock price
volatility of 80%, no expected dividends, a risk free interest rate of 6.0% and
an expected term of 0.9 years; and for fiscal 1996, a stock price volatility of
80%, no expected dividends, a risk free interest rate of 6.0% and an expected
term of 0.8 years.
Pro Forma Fair Value Information
<TABLE>
The Company accounts for its stock options using the intrinsic value
method. 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) and related per share amounts would have been altered as indicated
in the pro forma amounts indicated below:
<CAPTION>
1998 1997 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net income (loss) .......... As reported $ 8,922,000 $ (3,991,000) $ 5,480,000
Pro forma $ (1,870,000) $ (8,018,000) $ 2,339,000
Net income (loss) per share:
Basic ................... As reported $ 0.90 $ (0.49) $ 0.71
Pro forma $ (0.19) $ (0.98) $ 0.30
Diluted ................. As reported $ 0.83 $ (0.49) $ 0.66
Pro forma $ (0.19) $ (0.98) $ 0.28
</TABLE>
F-13
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Pro forma net income (loss) reflects only the options granted in fiscal
1998, 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.
6. INCOME TAXES
Income tax expense for the years ended March 31, 1998, 1997 and 1996
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,
-----------------------------
1998 1997 1996
------- ------- -------
Federal tax (benefit) at statutory rate $ 3,189 $(1,357) $ 1,921
Utilization of net operating loss
carryforwards ........................ (3,314) -- (1,921)
Unutilized net operating losses ....... -- 1,337 --
Alternative minimum tax ............... 183 -- 169
FSC tax expense ....................... 215 -- --
Unrealized benefit from LLC loss ...... 44 -- --
Other ................................. 82 20 --
------- ------- -------
Income tax expense .................... $ 399 $ -- $ 169
======= ======= =======
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,
----------------------
1998 1997
-------- --------
Deferred tax assets:
Various accruals and reserves ........... $ 6,999 $ 2,921
Net operating loss carryforwards ........ 7,986 10,266
Credit carryforwards .................... 6,604 4,721
-------- --------
Total gross deferred tax assets ...... 21,589 17,908
Less valuation allowance ............. (20,642) (17,313)
-------- --------
Net deferred tax assets .............. $ 947 $ 595
======== ========
Deferred tax liabilities:
Property and equipment depreciation
differences ............................ $ (947) $ (595)
-------- --------
Total gross deferred tax liabilities.. (947) (595)
-------- --------
Net deferred tax assets .............. $ -- --
======== ========
A valuation allowance is provided due to uncertainties relating to the
realization of deferred tax assets.
As of March 31, 1998, the Company has a net operating loss carryforward of
$23 million for federal income tax purposes. The Company has research credit
carryforwards of approximately $2 million and
F-14
<PAGE>
SPECTRIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$1.9 million for federal and California income tax purposes, respectively. If
not utilized, these carryforwards will expire in various amounts beginning in
1999. The Company also has an investment tax credit carryforward of
approximately $2.3 million for California income tax purposes which, if not
utilized, will expire in 2004 through 2006. Included in the deferred tax assets
is approximately $13.3 million of assets relating to the tax benefit associated
with stock option exercises 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 1998, 1997 and 1996, and the amounts due from these customers as a
percentage of total accounts receivable as of March 31, 1998 and 1997, follows:
Percentage of
Total Accounts
Receivable
Percentage of Revenues as of
Year Ended March 31, March 31,
------------------------ --------------
1998 1997 1996 1998 1997
------ ------ ------ ------ -----
Customer A ......... 57% 63% 58% 41% 51%
Customer B ......... 22% 12% 17% 33% 27%
Customer C ......... 14% -- -- 8% --
Customers A, B and C 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,
-------------------------
1998 1997 1998
------ ------ -------
Canada ................ 49% 57% 51%
Europe ................ 20% 13% 20%
Korea ................. 26% 2% --
Other ................. -- 1% 1%
-- -- --
Total exports ......... 95% 73% 72%
== == ==
8. LITIGATION
Since December 23, 1997, a number of complaints have been filed against the
Company and certain of its officers in the Federal Court for the Northern
District of California that allege violations of the federal securities laws.
Similar complaints have been filed in California state court that allege
violations of California state securities laws and California common law. The
complaints have been consolidated in the federal and state courts, respectively.
The plaintiffs in both the federal and state lawsuits purport to represent a
class of persons who purchased the Company's securities during the period of
July 17, 1997 through October 23, 1997. The complaints allege that the Company
and certain of its officers misled the investing public regarding the financial
prospects of the Company. The Company believes that the allegations are
completely without merit and will vigorously defend itself.
F-15
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Balance at Additions Balance at
Allowance for Doubtful Beginning Charged to End of
Accounts and Sales Returns: of Period Income Deductions Period
--------------------------- --------- ------ ---------- ------
1998 $365 $ 24 $ 13 $376
1997 $339 $ 36 $ 10 $365
1996 $454 $ 14 $129 $339
S-1
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibits Numbered Page
-------- -------------
3.1(4) Restated Articles of Incorporation of
Registrant.
3.4(1) Bylaws of Registrant.
3.5(14) Certificate of Incorporation of
Registrants.
3.6(15) 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(8) 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.
10.7.3(14) Amended and Restated Business Loan
Agreement between Registrant and Silicon
Valley Bank dated February 11, 1997 and
ancillary documents thereto.
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.
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.
<PAGE>
Sequentially
Exhibits Numbered Page
-------- -------------
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(12) Employment Agreement dated March 11, 1997
between the Registrant and Bruce R.
Wright.
10.25(12) Letter Agreement dated November 6, 1996
between the Company and Edward Supplee.
10.26(13) Stock Option Agreement dated November 26,
1997 between Registrant and Garrett A.
Garrettson.
10.27(13) Stock Option Agreement dated November 26,
1997 between Registrant and Garrett A.
Garrettson.
10.28(13) Stock Option Agreement dated November 26,
1997 between Registrant and Garrett A.
Garrettson.
10.29(13) Stock Option Agreement dated March 24,
1997 between Registrant and Bruce Wright.
10.30(13) Stock Option Agreement dated March 20,
1997 between Registrant and Michael
Morrione.
10.31(13) Stock Option Agreement dated March 20,
1997 between Registrant and Stephen B.
Greenspan.
10.32(15) Form of Indemnification Agreement with
directors and officers.
10.33(16) 1998 Nonstatutory Stock Option Plan.
10.34 1998 Employee Stock Purchase Plan.
10.35 Lease Agreement dated December 19, 1997
between Registrant and Stanford Ranch I,
LLC.
10.36(17) Stock Option Agreement dated December 15,
1997 between the Registrant and John
Rottenburg.
10.37 First Amendment to Lease dated February
19, 1998 between Registrant and Stanford
Ranch I, LLC.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on page 41).
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. 33-70594) as declared effective by the Securities and Exchange
Commission December 13, 1993.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for quarter ended October 1, 1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for quarter ended December 31, 1994.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for 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 exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-38561) as filed with the
Securities and Exchange Commission on October 23, 1997.
<PAGE>
(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 Annual Report
on Form 10-K for the year ended March 31, 1997.
(13) Incorporated by reference to exhibits filed with Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form S-8
(File No. 333-25435) as filed with the Securities and Exchange Commission
on October 21, 1997.
(14) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997.
(15) Incorporated by reference to exhibits filed with Registrant's Current
Report on Form 8-K dated October 10, 1997.
(16) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (File No. 333-49081) as filed with the Securities and
Exchange Commission on April 1, 1998.
(17) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (File No. 333- ) as filed with the Securities and
Exchange Commission on May 19, 1998.
SPECTRIAN CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of Spectrian Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Spectrian Corporation and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, commissions, overtime, shift premium, incentive compensation,
incentive payments, and bonuses.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Purchase Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Periods" shall mean the periods of approximately
twelve (12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twelve months later; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after July 1, 1998, and
shall end on the last Trading Day on or before April 30, 1998. The duration and
timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1998 Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean 85% of the Fair Market Value
of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that, in the event (i) the Company's
shareholders approve an increase in the number of shares available for issuance
under the Plan, (ii) all or a portion of such additional shares are to be issued
with respect to one or more Offering Periods that are underway at the time of
such shareholder approval ("New Shares"), and (iii) the Fair Market Value of a
share of Common Stock on the date of such approval (the "Authorization Date
FMV") is higher than the Fair Market Value on the Enrollment Date for any such
Offering Period, the Purchase Price with respect to New Shares shall be 85% of
the Authorization Date FMV or the Fair Market Value of a share of Common Stock
on the Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the
-2-
<PAGE>
next Exercise Date; provided, however, that the first Purchase Period under the
Plan shall commence with the first Trading Day on or after July 1, 1998, and
shall end on the last Trading Day on or before October 31, 1998.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds twenty-five thousand dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after July
1, 1998 and shall end on the last Trading Day on or before April 30, 1998. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
shareholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
-4-
<PAGE>
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier with drawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
-5-
<PAGE>
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be 250,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 1999 equal to the lesser of (i) 300,000
shares, (ii) 2% of the outstanding shares on the last day of the prior fiscal
year such date or (iii) a lesser amount determined by the Board. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company
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<PAGE>
shall make a pro rata allocation of the shares remaining available for purchase
in as uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such partici pant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment,
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<PAGE>
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
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<PAGE>
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish a limit on the number of shares purchasable by all
participants at the end of each Purchase Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars, permit
payroll withholding in excess of the amount designated by a participant in order
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its committee)
determines in its sole discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form
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<PAGE>
specified by the Company at the location, or by the person, designated by the
Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
SPECTRIAN CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ___________________________ hereby elects to participate in the
Spectrian Corporation 1998 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 15%) during
the Offering Period in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only):
______________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes
<PAGE>
as having received ordinary income at the time of such disposition in
an amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid
for the shares. I hereby agree to notify the Company in writing within
30 days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value
of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the
shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________________
(First) (Middle) (Last)
_______________________________ __________________________________
Relationship
__________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: __________________________________
Employee's Address: __________________________________
__________________________________
__________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ __________________________________
Signature of Employee
__________________________________
Spouse's Signature
(If beneficiary other than spouse)
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<PAGE>
EXHIBIT B
SPECTRIAN CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Spectrian
Corporation 1998 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically termi nated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
__________________________________
__________________________________
__________________________________
Signature:
__________________________________
Date:_____________________________
BASIC LEASE INFORMATION
LEASE DATE: December 19, 1997
TENANT: Spectrian Corporation
a Delaware corporation
TENANT'S ADDRESS: 350 West Java Drive
Sunnyvale, CA 94089
LANDLORD: Stanford Ranch I, LLC
a Delaware limited liability company
LANDLORD'S ADDRESS: P.O. Box 1200
Rocklin, CA 95677-1200
Project: Atherton Tech Center, Lot 10
Rocklin, CA 95765
Building Description: An approximate 40,000 SF single-story
concrete tilt-up building.
Premises: Approximately 20,858 square feet of office,
tech, and warehouse space situated on the
western side of the building commonly
referred to as Suite 500 located within
Atherton Tech Center on Lot 10 and outlined
on the floor plan attached hereto as Exhibit
A.
Permitted Use: General office, manufacturing, storage and
shipping
Parking Density: Tenant shall have the right to 83 parking
spaces.
Estimated Term
Commencement Date: June 1, 1998
Length of Term: Five (5) years.
Base Rent: Shall be $17,729.30 per month or $0.85 per
SF NNN
Landlord's Expense: Net, Net, Net
Security Deposit: None
Tenant's Proportionate Share: 52.1%
Broker: Cornish & Carey Commercial
1601 Response Road, Suite 160
Sacramento, CA 95815
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
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<PAGE>
TABLE OF CONTENTS
Basic Lease Information......................................i
Table of Contents...........................................ii
1. Premises ....................................................1
2. Possession and Lease Commencement............................1
3. Term.........................................................1
4. Use..........................................................1
5. Rules and Regulations........................................2
6. Rent ........................................................2
7. Basic Operating Cost.........................................3
8. Insurance and Indemnification................................4
9. Waiver of Subrogation .......................................6
10. Landlord's Repairs and Services..............................6
11. Tenant's Repairs.............................................6
12. Alterations..................................................6
13. Signs........................................................7
14. Inspection/Posting Notices...................................7
15. Utilities....................................................7
16. Subordination................................................7
17. Financial Statements.........................................8
18. Estoppel Certificate.........................................8
19. Security Deposit.............................................8
20. Tenant's Remedies............................................8
21. Assignment and Subletting....................................8
22. Authority of Parties ........................................9
23. Condemnation.................................................9
24. Casualty Damage............................................. 9
25. Holding Over................................................10
26. Default ....................................................10
27. Liens.......................................................12
28. Substitution................................................12
29. Transfers by Landlord.......................................12
30. Right of Landlord to Perform Tenant's Covenants.............12
31. Waiver......................................................12
32. Notices.....................................................12
33. Attorneys' Fees.............................................13
34. Successors and Assigns......................................13
35. Force Majeure...............................................13
36. Brokerage Commission........................................13
37. Miscellaneous...............................................13
38. Additional Provisions.......................................14
Signatures..................................................14
First Addendum to Lease
Exhibits:
Exhibit A................................................... Site Plan
Exhibit B................................................. Work Letter
Exhibit C..................................... Standard Specifications
Exhibit D................................................. Sign Policy
Exhibit E....................................... Rules and Regulations
Exhibit F............................... Permitted Hazardous Materials
ii
<PAGE>
LEASE
THIS LEASE is made as of this 19th day of December, 1997, by and
between STANFORD RANCH I, LLC (hereinafter called "Landlord") and SPECTRIAN
CORPORATION (hereinafter called "Tenant").
1. PREMISES.
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "Premises")
depicted on the floor plan dated November 6, 1997, attached hereto as Exhibit A
and described in the Basic Lease Information. The Premises may be all or part of
the building (the "Building") or of the project (the "Project") which may
consist of more than one building. The Building and Project are depicted
respectively on Exhibit A.
2. POSSESSION AND LEASE COMMENCEMENT.
A. Intentionally Omitted.
B. Construction of Improvements. The term commencement date ("Term
Commencement Date") shall be the earlier of the date on which: (1) Tenant takes
possession of some or all of the Premises, or (2) the improvements constructed
or to be constructed in the Premises shall have been substantially completed in
accordance with the plans and specifications described on Exhibits A, B and C
attached hereto, whether or not substantial completion of the Building itself
shall have occurred, and Landlord has delivered to Tenant a copy of a temporary
or permanent occupancy permit. In no event shall the Term Commencement Date
occur sooner than June 1, 1998, unless Tenant agrees to the earlier date in
writing. If for any reason Landlord cannot deliver possession of the Premises to
Tenant on the Estimated Term Commencement Date, Landlord shall not be subject to
any liability therefor, nor shall Landlord be in default hereunder. In the event
of any dispute as to substantial completion of work performed or required to be
performed by Landlord, the certificate of Landlord's architect or general
contractor shall be conclusive. Substantial completion shall have occurred
notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant
shall submit, if at all, within thirty (30) days after the Term Commencement
Date. As of the Term Commencement Date, Tenant acknowledges that Tenant shall
have inspected the Premises and will accept the Premises in their then existing
"as is" condition, broom clean, as suitable for the purpose for which the
Premises are leased, and Tenant agrees that said Premises and other improvements
are in good and satisfactory condition as of when possession was taken, subject
only to the punchlist. Tenant further acknowledges that no representations as to
the condition or repair of the Premises nor promises to alter, remodel or
improve the Premises have been made by Landlord unless such are expressly set
forth in this Lease. Tenant shall, upon demand, execute and deliver to Landlord
a letter of acceptance of delivery of the Premises. In no event, subject to
Paragraph 35, shall the Term Commencement Date be later than December 31, 1998.
3. TERM. The Term of this Lease shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a date
other than the first day of the calendar month, the Term shall be the number of
months of the Length of Term in addition to the remainder of the calendar month
following the Term Commencement Date.
4. USE.
A. General. Tenant shall use the Premises for the Permitted Use and for
no other use or purpose. Tenant shall control Tenant's employees, agents,
customers, visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "Tenant's Parties") in such a manner that Tenant and Tenant's
Parties cumulatively do not exceed the Parking Density at any time. Tenant and
Tenant's Parties shall have the nonexclusive right to use, in common with other
parties occupying the Building or Project, the parking areas and driveways of
the Project, subject to such rules and regulations as Landlord may from time to
time prescribe.
B. Limitations. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises, nor take any
action which would constitute a nuisance or would disturb, obstruct or endanger
any other tenants of the Building or Project in which the Premises are situated
or interfere with their use of their respective premises. Storage outside the
Premises of materials, vehicles or any other items is prohibited, unless
Landlord approves thereof in writing, which approval may be withheld by Landlord
in its sole and absolute discretion. Tenant shall not use or allow the Premises
to be used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any waste in, on
or about the Premises. Tenant shall not allow any sale by auction upon the
Premises, or place any loads upon the floors, walls or ceilings which endanger
the structure, or place any harmful liquids in the drainage system of the
Building or Project. No waste, materials or refuse shall be dumped upon or
permitted to remain outside the Premises except in trash containers placed
inside exterior enclosures designated for that purpose by Landlord. Landlord
shall not be responsible to Tenant for the non-compliance by any other tenant or
occupant of the Building or
1
<PAGE>
Project with any of the above-referenced rules or any other terms or provisions
of such tenant's or occupant's lease or other contract. Landlord agrees to use
reasonable efforts to cause other tenants and occupants of the Building to
comply with the above-referenced rules; however, Landlord shall not be obligated
to litigate in connection therewith.
C. Compliance with Regulations. By entering the Premises, Tenant
accepts the Premises in the condition existing as of the date of such entry,
subject to all existing or future applicable municipal, state and federal and
other governmental statutes, regulations, laws and ordinances, including zoning
ordinances and regulations governing and relating to the use, occupancy and
possession of the Premises and the use, storage, generation and disposal of
Hazardous Materials (hereinafter defined) in, on and under the Premises
(collectively "Regulations"). Except for pre-existing violations, Tenant shall,
at Tenant's sole expense, strictly comply with all Regulations now in force or
which may hereafter be in force relating to the Premises and the use of the
Premises and/or the use, storage, generation of Hazardous Materials in, on and
under the Premises. Tenant shall, at its sole cost and expense obtain any and
all licenses or permits necessary for Tenant's use of the Premises. Tenant shall
promptly comply with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted. Tenant shall not do or permit
anything to be done in, on, or about the Premises or bring or keep anything
which will in any way increase the rate of any insurance upon the Premises,
Building or Project, or upon any contents therein or cause a cancellation of
said insurance or otherwise affect said insurance in any manner. Tenant shall
indemnify, defend, protect and hold Landlord harmless from and against any loss,
cost, expense, damage, attorneys' fees or liability arising out of the failure
of Tenant to comply with any applicable law or comply with the requirements as
set forth herein.
D. Hazardous Wastes. Tenant shall not cause, or allow any of Tenant's
Parties to cause, any Hazardous Materials to be used, generated, stored or
disposed of on or about the Premises, the Building or the Project, except for
those Hazardous Materials listed on Exhibit "F" attached hereto, which shall be
permitted so long as Tenant uses, stores and handles the same in compliance with
all laws. As used in this Lease, "Hazardous Materials" shall include, but not be
limited to, hazardous, toxic and radioactive materials and those substances
defined as "hazardous substances," "hazardous materials," "hazardous wastes,"
"toxic substances," or other similar designations in any federal, state, or
local law, regulation, or ordinance. Landlord shall have the right at all
reasonable times to inspect the Premises and to conduct tests and investigations
to determine whether Tenant is in compliance with the foregoing provisions, and
if same indicate Tenant has violated any laws, breached this Lease or
contaminated the Premises, Building or Project in any way, in addition to any
and all rights and remedies of Landlord, the costs of all such inspections,
tests and investigations to be borne by Tenant. Tenant shall indemnify, defend,
protect and hold Landlord harmless from and against all liabilities, losses,
costs and expenses, demands, causes of action, claims or judgments directly or
indirectly arising out of the use, generation, storage or disposal of Hazardous
Materials by Tenant or any of Tenant's Parties, which indemnity shall include,
without limitation, the cost of any required or necessary repair, cleanup or
detoxification, and the preparation of any closure or other required plans,
whether such action is required or necessary prior to or following the
termination of this Lease. Neither the written consent by Landlord to the use,
generation, storage or disposal of Hazardous Materials nor the strict compliance
by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant
from Tenant's obligation of indemnification pursuant to this Paragraph 4.D.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
termination of this Lease.
5. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with any
rules and regulations Landlord may from time to time prescribe in writing for
the purpose of maintaining the proper care, cleanliness, safety, traffic flow
and general order of the Premises or Project. Tenant shall cause Tenant's
Parties to comply with such rules and regulations. Landlord shall not be
responsible to Tenant for the non-compliance by any other tenant or occupant of
the Building or Project with any of the rules and regulations. Landlord agrees
to use reasonable efforts to cause other tenants and occupants of the Building
to comply with the above-referenced rules; however, Landlord shall not be
obligated to litigate in connection therewith.
6. RENT.
A. Base Rent. Tenant shall pay to Landlord, without demand throughout
the Term, Base Rent as specified in the Basic Lease Information, payable in
monthly installments in advance on or before the first day of each calendar
month, in lawful money of the United States, without deduction or offset
whatsoever, at the address specified in the Basic Lease Information or to such
other place as Landlord may from time to time designate in writing. If the
obligation for payment of Base Rent commences on other than the first day of a
month, then Base Rent shall be prorated and the prorated installment shall be
paid on the first day of the calendar month next succeeding the Term
Commencement Date.
B. Additional Rent. All monies other than Base Rent required to be paid
by Tenant hereunder, including, but not limited to, the interest and late charge
described in Paragraph 26.D., any monies spent by Landlord pursuant to Paragraph
30, and Tenant's Proportionate Share of Basic Operating Cost, as specified in
Paragraph 7 of this Lease, shall be considered additional rent ("Additional
Rent"). "Rent" shall mean Base Rent and Additional Rent.
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7. BASIC OPERATING COST.
A. Basic Operating Cost. In addition to the Base Rent required to be
paid hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate
Share, as defined in the Basic Lease Information, of Basic Operating Cost in the
manner set forth below. Landlord shall account for each item of Basic Operating
Cost as either a cost attributable to the Building or to the Project, as
determined by Landlord in Landlord's sole discretion, and unless provided to the
contrary in this Lease, Tenant shall pay the applicable Tenant's Proportionate
Share of each such Basic Operating Cost, as set forth in the Basic Lease
Information. Basic Operating Cost shall mean all expenses and costs of every
kind and nature which Landlord shall pay or become obligated to pay, because of
or in connection with the management, maintenance, preservation and operation of
the Project and its supporting facilities (determined in accordance with
generally accepted accounting principles, consistently applied) including but
not limited to the following:
(1) Taxes. All real property taxes, possessory interest taxes,
business or license taxes or fees, service payments in lieu of such taxes or
fees, annual or periodic license or use fees, excises, transit charges, housing
fund assessments, open space charges, assessments, levies, fees or charges,
general and special, ordinary and extraordinary, unforeseen as well as foreseen,
of any kind (including fees "in-lieu" of any such tax or assessment) which are
assessed, levied, charged, confirmed, or imposed by any public authority upon
the Project, its operations or the Rent (or any portion or component thereof)
(all of the foregoing being hereinafter collectively referred to as "real
property taxes"), or any tax imposed in substitution, partially or totally, of
any tax previously included within the definition of real property taxes, or any
additional tax the nature of which was previously included within the definition
of real property taxes, except (a) inheritance or estate taxes imposed upon or
assessed against the Project, or any part thereof or interest therein, and (b)
taxes computed upon the basis of net income of Landlord or the owner of any
interest therein, except as otherwise provided in the following sentence. Basic
Operating Cost shall also include any taxes, assessments, or any other fees
imposed by any public authority upon or measured by the monthly rental or other
charges payable hereunder, including, without limitation, any gross income tax
or excise tax levied by the local governmental authority in which the Project is
located, the federal government, or any other governmental body with respect to
receipt of such rental, or upon, with respect to or by reason of the
development, possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or any portion
thereof, or upon this transaction or any document to which Tenant is a party
creating or transferring an interest or an estate in the Premises. In the event
that it shall not be lawful for Tenant to reimburse Landlord for all or any part
of such taxes, the monthly rental payable to Landlord under this Lease shall be
revised to net to Landlord the same net rental after imposition of any such
taxes by Landlord as would have been payable to Landlord prior to the payment of
any such taxes.
(2) Insurance. All insurance premiums and costs, including but
not limited to, any deductible amounts, premiums and cost of insurance incurred
by Landlord, as more fully set forth in Paragraph 8.A. herein.
(3) Repairs and Improvements. Repairs, replacements and
general maintenance for the Premises, Building and Project (except for those
repairs expressly made the financial responsibility of Landlord pursuant to the
terms of this Lease, repairs to the extent paid for by proceeds of insurance or
by Tenant or other third parties, and alterations attributable solely to tenants
of the Project other than Tenant). Such repairs, replacements, and general
maintenance shall include the cost of any capital improvements made to or
capital assets acquired for the Project, Building, or Premises after the Term
Commencement Date that reduce any other Basic Operating Cost, are reasonably
necessary for the health and safety of the occupants of the Project, or are made
to the Building by Landlord after the date of this Lease and are required under
any governmental law or regulation, such costs or allocable portions thereof to
be amortized over such reasonable period as Landlord shall determine, together
with interest on the unamortized balance at the "prime rate" charged at the time
such improvements or capital assets are constructed or acquired by Wells Fargo
Bank, N.A. (San Francisco), plus two (2) percentage points, but in no event more
than the maximum rate permitted by law.
(4) Services. All expenses relating to maintenance, janitorial
and service agreements and services, and costs of supplies and equipment used in
maintaining the Premises, Building and Project and the equipment therein and the
adjacent sidewalks, driveways, parking and service areas, including, without
limitation, alarm service, window cleaning, elevator maintenance, Building
exterior maintenance and landscaping.
(5) Utilities. Utilities which benefit all or a portion of the
Premises, Building or Project.
(6) Management Fee. A management and accounting cost recovery
fee equal to three percent (3%) of the sum of Base Rent and Basic Operating
Cost.
(7) Legal and Accounting. Legal and accounting expenses
relating to the Project, including the cost of audits by certified public
accountants.
In the event that the Building is not fully occupied during any fiscal year of
the Term as determined by Landlord, an adjustment shall be made in computing the
Basic Operating Cost for such year so that Tenant pays Tenant's Proportionate
Share of Basic Operating Cost, with variable costs increased on an
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extrapolated basis to what they would be if the Building was fully occupied, as
reasonably determined by Landlord; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred percent (100%) of the
total Basic Operating Cost from all of the tenants in the Building including
Tenant.
Basic Operating Cost shall not include specific costs incurred for the account
of, separately billed to and paid by specific tenants.
B. Payment of Estimated Basic Operating Cost. "Estimated Basic
Operating Cost" for any particular year shall mean Landlord's estimate of the
Basic Operating Cost for such fiscal year made prior to commencement of such
fiscal year as hereinafter provided. Landlord shall have the right from time to
time to revise its fiscal year and interim accounting periods so long as the
periods as so revised are reconciled with prior periods in accordance with
generally accepted accounting principles applied in a consistent manner. During
the last month of each fiscal year during the Term, or as soon thereafter as
practicable, Landlord shall give Tenant written notice of the Estimated Basic
Operating Cost for the ensuing fiscal year. Tenant shall pay Tenant's
Proportionate Share of the Estimated Basic Operating Cost with installments of
Base Rent for the fiscal year to which the Estimated Basic Operating Cost
applies in monthly installments on the first day of each calendar month during
such year, in advance. If at any time during the course of the fiscal year,
Landlord determines that Basic Operating Cost is projected to vary from the then
Estimated Basic Operating Cost by more than ten percent (10%), Landlord may, by
written notice to Tenant, revise the Estimated Basic Operating Cost for the
balance of such fiscal year, and Tenant's monthly installments for the remainder
of such year shall be adjusted so that by the end of such fiscal year Tenant has
paid to Landlord Tenant's Proportionate Share of the revised Estimated Basic
Operating Cost for such year.
C. Computation of Basic Operating Cost Adjustment. "Basic Operating
Cost Adjustment" shall mean the difference between Estimated Basic Operating
Cost and Basic Operating Cost for any fiscal year determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, Landlord shall deliver to Tenant a statement of Basic Operating Cost for
the fiscal year just ended, accompanied by a computation of Basic Operating Cost
Adjustment. It such statement shows that Tenant's payment based upon Estimated
Basic Operating Cost is less than Tenant's Proportionate Share of Basic
Operating Cost, then Tenant shall pay to Landlord the difference within thirty
(30) days after receipt of such statement. If such statement shows that Tenant's
payments of Estimated Basic Operating Cost exceed Tenant's Proportionate Share
of Basic Operating Cost, then (provided that Tenant is not in default under this
Lease) Landlord shall pay to Tenant the difference within thirty (30) days after
delivery of such statement to Tenant. If this Lease has been terminated or the
Term hereof has expired prior to the date of such statement, then the Basic
Operating Cost Adjustment shall be paid by the appropriate party within thirty
(30) days after the date of delivery of the statement. Should this Lease
commence or terminate at any time other than the first day of the fiscal year,
Tenant's Proportionate Share of the Basic Operating Cost adjustment shall be
prorated by reference to the exact number of calendar days during such fiscal
year that this Lease is in effect.
D. Net Lease. This shall be a net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease, The provisions for payment of Basic
Operating Cost and the Basic Operating Cost Adjustment are intended to pass on
to Tenant and reimburse Landlord for all costs and expenses of the nature
described in Paragraph 7.A. incurred in connection with the ownership,
maintenance and operation of the Building or Project and such additional
facilities now and in subsequent years as may be determined by Landlord to be
necessary to the Building or Project.
E. Tenant Audit. In the event that Tenant shall dispute the amount set
forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above,
Tenant shall have the right, not later than thirty (30) days following the
receipt of such statement and upon the condition that Tenant shall first deposit
with Landlord the full amount in dispute, to cause Landlord's books and records
with respect to Basic Operating Cost for such fiscal year to be audited by
certified public accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Basic Operating Cost Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of ten percent (10%) of Tenant's Proportionate
Share of the Basic Operating Cost Adjustment previously reported, the cost of
such audit shall be borne by Landlord; otherwise the cost of such audit shall be
paid by Tenant. If Tenant shall not request an audit in accordance with the
provisions of this Paragraph, i.e., within thirty (30) days after receipt of
Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement
shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION.
A. Landlord's Insurance. Landlord agrees to maintain insurance insuring
the Building against fire, lightning, vandalism and malicious mischief
(including, if Landlord elects, "All Risk" coverage, earthquake, and/or flood
insurance), in an amount not less than eighty percent (80%) of the replacement
cost thereof, with deductibles and the form and endorsements of such coverage as
selected by Landlord. Such insurance may also include, at Landlord's option,
insurance against loss of Base Rent and Additional Rent, in an amount equal to
the amount of Base Rent and Additional Rent payable by Tenant for a period of at
least twelve (12) months commencing on the date of loss. Such insurance shall be
for the sole benefit of Landlord and under Landlord's sole control. Landlord
shall not be obligated to insure any furniture, equipment, machinery, goods or
supplies which Tenant may keep or maintain in the
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Premises, or any leasehold improvements, additions or alterations within the
Premises. Landlord may also carry such other insurance as Landlord may deem
prudent or advisable, including, without limitation, liability insurance in such
amounts and on such terms as Landlord shall determine.
B. Tenant's insurance.
(1) Property Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and fixtures of
Tenant and all improvements made by or for Tenant to the Premises, insuring such
property for the full replacement value of such property.
(2) Liability Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at all times
until the end of the Term either Comprehensive General Liability insurance or
Commercial General Liability insurance applying to the use and occupancy of the
Premises and the Building, and any part of either, and any areas adjacent
thereto, and the business operated by Tenant, or by any other occupant on the
Premises. Such insurance shall include Broad Form Contractual Liability
Insurance coverage insuring all of Tenant's indemnity obligations under this
Lease. Such coverage shall have a minimum combined single limit of liability of
at least Two Million Dollars ($2,000,000.00), and a general aggregate limit of
Three Million Dollars ($3,000,000.00). All such policies shall be written to
apply to all bodily injury, property damage or loss, personal injury and other
covered loss, however occasioned, occurring during the policy term, shall be
endorsed to add Landlord and any party holding an interest to which this Lease
may be subordinated as an additional insured, and shall provide that such
coverage shall be primary and that any insurance maintained by Landlord shall be
excess insurance only. Such coverage shall also contain endorsements: (i)
deleting any employee exclusion on personal injury coverage; (ii) including
employees as additional insureds; (iii) deleting any liquor liability exclusion;
and (iv) providing for coverage of employer's automobile non- ownership
liability. All such insurance shall provide for severability of interests; shall
provide that an act or omission of one of the named insureds shall not reduce or
avoid coverage to the other named insureds; and shall afford coverage for all
claims based on acts, omissions, injury and damage, which claims occurred or
arose (or the onset of which occurred or arose) in whole or in part during the
policy period. Said coverage shall be written on an "occurrence" basis, if
available. If an "occurrence" basis form is not available. Tenant must purchase
"tail" coverage for the most number of years available, and Tenant must also
purchase "tail" coverage if the retroactive date of an "occurrence" basis form
is changed so as to leave a gap in coverage for occurrences that might have
occurred in prior years. If a "claims made" policy is ever used, the policy must
be endorsed so that Landlord is given the right to purchase "tail" coverage
should Tenant for any reason not do so or if the policy is to be canceled for
nonpayment of premium.
(3) General Insurance Requirements. All coverages described in
this Paragraph 8.B. shall be endorsed to provide Landlord with thirty (30) days'
notice of cancellation or change in terms. If at any time during the Term the
amount or coverage of insurance which Tenant is required to carry under this
Paragraph 8.B. is, in Landlord's reasonable judgment, materially less than the
amount or type of insurance coverage typically carried by owners or tenants of
properties located in the general area in which the Premises are located which
are similar to and operated for similar purposes as the Premises, Landlord shall
have the right to require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance policies
required to be carried under this Lease shall be written by companies rated A +
XII or better in "Best's Insurance Guide" and authorized to do business in
California. Any deductible amounts under any insurance policies required
hereunder shall be subject to Landlord's prior written approval. In any event
deductible amounts shall not exceed Ten Thousand Dollars ($10,000.00), provided,
however, that the original Tenant may have a deductible of up to Fifty Thousand
Dollars ($50,000.00). Tenant shall deliver to Landlord on or before the Term
Commencement Date, and thereafter at least thirty (30) days before the
expiration dates of the expiring policies, certified copies of Tenant's
insurance policies, or a certificate evidencing the same issued by the insurer
thereunder, showing that all premiums have been paid for the full policy period;
and, in the event Tenant shall fail to procure such insurance, or to deliver
such policies or certificates, Landlord may, at Landlord's option and in
addition to Landlord's other remedies in the event of a default by Tenant
hereunder, procure the same for the account of Tenant, and the cost thereof
shall be paid to Landlord as Additional Rent.
C. Indemnification. Landlord shall not be liable to Tenant for any loss
or damage to person or property caused by theft, fire, acts of God, acts of a
public enemy, riot, strike, insurrection, war, court order, requisition or order
of governmental body or authority or for any damage or inconvenience which may
arise through repair or alteration of any part of the Building or Project or
failure to make any such repair, except as expressly otherwise provided in
Paragraph 10. Tenant shall indemnify, defend by counsel acceptable to Landlord,
protect and hold Landlord harmless from and against any and all liabilities,
losses, costs, damages, injuries or expenses, including reasonable attorneys'
fees and court costs, arising out of or related to: (1) claims of injury to or
death of persons or damage to property occurring or resulting directly or
indirectly from the use or occupancy of the Premises, or from activities of
Tenant, Tenant's Parties or anyone in or about the Premises or Project, or from
any cause whatsoever; (2) claims for work or labor performed, or for materials
or supplies furnished to or at the request of Tenant in connection with
performance of any work done for the account of Tenant within the Premises or
Project; and (3) claims arising from any breach or default on the part of Tenant
in the performance of any covenant contained in this Lease. The foregoing
indemnity shall not be applicable to claims arising from the active negligence
or willful misconduct of Landlord. The provisions of this
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Paragraph shall survive the expiration or termination of this Lease with respect
to any claims or liability occurring prior to such expiration or termination.
9. WAIVER OF SUBROGATION. To the extent permitted by law and without
affecting the coverage provided by insurance to be maintained hereunder,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damages to property; (c) damages
to the Premises or any part thereof; and (d) claims arising by reason of the
foregoing due to hazards covered by insurance to the extent of proceeds
recovered therefrom. This provision is intended to waive fully, and for the
benefit of each party, any rights and/or claims which might give rise to a right
of subrogation in favor of any insurance carrier. The coverage obtained by each
party pursuant to this Lease shall include, without limitation, a waiver of
subrogation by the carrier which conforms to the provisions of this paragraph.
10. LANDLORD'S REPAIRS AND SERVICES. Landlord shall, at Landlord's expense,
maintain the structural soundness of the structural beams of the roof,
foundations and exterior walls of the Building in good repair, reasonable wear
and tear excepted. The term "exterior walls" as used herein shall not include
windows, glass or plate glass, doors, special store fronts or office entries.
Landlord shall perform on behalf of Tenant and other tenants of the Project, as
an item of Basic Operating Cost, the maintenance of the Building, Project, and
public and common areas of the Project, including but not limited to the roof,
pest extermination, the landscaped areas, parking areas, driveways, the truck
staging areas, rail spur areas, fire sprinkler systems, sanitary and storm sewer
lines, utility services, electric and telephone equipment servicing the
Building(s), exterior lighting, and anything which affects the operation and
exterior appearance of the Project, which determination shall be at Landlord's
sole discretion. Except for the expenses directly involving the items
specifically described in the first sentence of this Paragraph 10, Tenant shall
reimburse Landlord for all such costs in accordance with Paragraph 7. Any damage
caused by or repairs necessitated by any act of Tenant may be repaired by
Landlord at Landlord's option and at Tenant's expense. Tenant shall immediately
give Landlord written notice of any defect or need of repairs after which
Landlord shall have a reasonable opportunity to repair same. Landlord's
liability with respect to any defects, repairs, or maintenance for which
Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance.
11. TENANT'S REPAIRS. Tenant shall at Tenant's expense maintain all parts
of the Premises in a good, clean and secure condition and promptly make all
necessary repairs and replacements, including but not limited to all windows,
glass, doors, walls and wall finishes, floor covering, heating, ventilating and
air conditioning systems, truck doors, dock bumpers, dock plates and levelers,
plumbing work and fixtures, downspouts, electrical and lighting systems, and
fire sprinklers. Tenant shall, at Tenant's expense, also perform regular removal
of trash and debris. If required by the railroad company, Tenant agrees to sign
a joint maintenance agreement governing the use of the rail spur, if any. Tenant
shall, at Tenant's own expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor for servicing all hot
water, heating and air conditioning systems and equipment within or serving the
Premises. The maintenance contractor and the contract must be approved by
Landlord. The service contract must include all services suggested by the
equipment manufacturer within the operation/maintenance manual and must become
effective and a copy thereof delivered to Landlord within thirty (30) days after
the Term Commencement Date. Tenant shall not damage any demising wall or disturb
the integrity and support provided by any demising wail and shall, at its sole
expense, immediately repair any damage to any demising wall caused by Tenant or
Tenant's Parties.
12. ALTERATIONS. Tenant shall not make, or allow to be made, any
alterations or physical additions in, about or to the Premises without obtaining
the prior written consent of Landlord, which consent shall not be unreasonably
withheld with respect to proposed alterations and additions which: (a) comply
with all applicable laws, ordinances, rules and regulations; (b) are in
Landlord's opinion compatible with the Project and its mechanical, plumbing,
electrical, heating/ventilation/air conditioning systems; and (c) will not
interfere with the use and occupancy of any other portion of the Building or
Project by any other tenant or its invitees. Notwithstanding the foregoing,
Tenant shall have the right to make interior, nonstructural alterations or
additions to the Premises that do not exceed in the aggregate Ten Thousand
Dollars ($10,000.00) per occurrence without Landlord's prior written consent, so
long as same do not affect utilities, HVAC or other building systems or
equipment. Tenant shall, however, provide Landlord with advance written notice
of such interior, nonstructural alterations or additions as required in this
Lease. If Landlord's consent is required for any alterations or additions, then,
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed alterations
or additions, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
alteration or additions, and the time for performance of such work. Tenant shall
also supply to Landlord any documents and information reasonably requested by
Landlord in connection with Landlord's consideration of a request for approval
hereunder. Tenant shall reimburse Landlord for all costs which Landlord may
incur in connection with granting approval to Tenant for any such alterations
and additions, including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said plans and
specifications. All such alterations, physical additions or improvements shall
remain the property of Tenant until termination of this Lease, at which time
they shall be and become the property of Landlord if Landlord so elects;
provided, however, that Landlord may, at Landlord's option, require that Tenant,
at Tenant's expense, remove any or all alterations, additions, improvements and
partitions made by Tenant and restore the Premises by the termination of this
Lease, whether by lapse of time, or otherwise, to their condition existing prior
to the construction of any such alterations, additions, partitions or leasehold
improvements. All such removals and restoration shall be
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accomplished in a good and workmanlike manner so as not to cause any damage to
the Premises or Project whatsoever. If Tenant fails to so remove such
alterations, additions, improvements and partitions or Tenant's fixtures or
furniture, Landlord may keep and use them or remove any of them and cause them
to be stored or sold in accordance with applicable law, at Tenant's sole
expense. In addition to and wholly apart from Tenant's obligation to pay
Tenant's Proportionate Share of Basic Operating Cost, Tenant shall be
responsible for and shall pay prior to delinquency any taxes or governmental
service fees, possessory interest taxes, fees or charges in lieu of any such
taxes, capital levies, or other charges imposed upon, levied with respect to or
assessed against its personal property, on the value of the alterations,
additions or improvements within the Premises, and on Tenant's interest pursuant
to this Lease. To the extent that any such taxes are not separately assessed or
billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by
Landlord.
13. SIGNS. All signs, notices and graphics of every kind or character,
visible in or from public view or corridors, the common areas or the exterior of
the Premises, shall be subject to Landlord's prior written approval. Tenant
shall not place or maintain any banners whatsoever or any window decor in or on
any exterior window or window fronting upon any common areas or service area or
upon any truck doors or man doors without Landlord's prior written approval. Any
installation of signs or graphics on or about the Premises and Project shall be
subject to any applicable governmental laws, ordinances, regulations and to any
other requirements imposed by Landlord. Tenant shall remove all such signs and
graphics prior to the termination of this Lease. Such installations and removals
shall be made in such manner as to avoid injury or defacement of the Premises,
Building or Project and any other improvements contained therein, and Tenant
shall repair any injury or defacement, including, without limitation,
discoloration caused by such installation or removal.
14. INSPECTION / POSTING NOTICES. After reasonable notice, except in
emergencies where no such notice shall be required, Landlord, and Landlord's
agents and representatives, shall have the right to enter the Premises to
inspect the same, to clean, to perform such work as may be permitted or required
hereunder, to make repairs or alterations to the Premises or Project or to other
tenant spaces therein, to deal with emergencies, to post such notices as may be
permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Project or to exhibit the Premises to prospective
tenants, purchasers, encumbrancers or others, or for any other purpose as
Landlord may deem necessary or desirable; provided, however, that Landlord shall
use reasonable efforts not to unreasonably interfere with Tenant's business
operations. Tenant shall not be entitled to any abatement of Rent by reason of
the exercise of any such right of entry. At any time within six (6) months prior
to the end of the Term, Landlord shall have the right to erect on the Premises
and/or Project a suitable sign indicating that the Premises are available for
lease. Tenant shall give written notice to Landlord at least thirty (30) days
prior to vacating the Premises and shall meet with Landlord for a joint
inspection of the Premises at the time of vacating for purposes of determining
Landlord's and Tenant's responsibility for repairs and restorations. Upon
completion and/or payment, as applicable, of repair and restoration items by
Tenant which are approved of by Landlord in writing, Tenant shall be relieved of
all further repair and restoration obligations, except those subsequently caused
by Tenant or Tenant's agents, employees, contractors, subtenants or assigns. In
the event of Tenant's failure to give such notice or participate in such joint
inspection, Landlord's inspection at or after Tenant's vacating the Premises
shall conclusively be deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
15. UTILITIES. Tenant shall pay directly for all water, gas, heat, air
conditioning, light, power, telephone, sewers, sprinkler charges and other
utilities and services used on or from the Premises, together with any taxes,
penalties, surcharges or the like pertaining thereto, and maintenance charges
for utilities and shall furnish all electric light bulbs, ballasts and tubes.
Landlord shall at Landlord's sole cost and expense separately meter gas and
electricity for the Premises. If any such services are not separately metered to
Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord, of
all charges jointly serving other premises. Landlord shall not be liable for any
damages directly or indirectly resulting from nor shall the Rent or any monies
owed Landlord under this Lease herein reserved be abated by reason of: (a) the
installation, use or interruption of use of any equipment used in connection
with the furnishing of any such utilities or services; (b) the failure to
furnish or delay in furnishing any such utilities or services when such failure
or delay is caused by acts of God or the elements, labor disturbances of any
character, or any other accidents or other conditions beyond the reasonable
control of Landlord; or (c) the limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any other form of energy or any
other service or utility whatsoever serving the Premises or Project. Landlord
shall be entitled to cooperate voluntarily and in a reasonable manner with the
efforts of national, state or local governmental agencies or utility suppliers
in reducing energy or other resource consumption. The obligation to make
services available hereunder shall be subject to the limitations of any such
voluntary, reasonable program.
16. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, the Lease shall
be subject and subordinate at all times to: (a) all ground leases or underlying
leases which may now exist or hereafter be executed affecting the Premises
and/or the land upon which the Premises and Project are situated, or both; and
(b) any mortgage or deed of trust which may now exist or be placed upon said
Project, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items which is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. In the event that any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, notwithstanding
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any subordination, attorn to and become the Tenant of the successor in interest
to Landlord at the option of such successor in interest. Within ten (10) days
after request by Landlord, Tenant shall execute and deliver any additional
documents evidencing Tenant's attornment or the subordination of this Lease with
respect to any such ground leases or underlying leases or any such mortgage or
deed of trust, in the form requested by Landlord or by any ground landlord,
mortgagee, or beneficiary under a deed of trust.
17. FINANCIAL STATEMENTS. At the request of Landlord, Tenant shall provide
to Landlord Tenant's current financial statement or other information discussing
financial worth of Tenant, which Landlord shall use solely for purposes of this
Lease and in connection with the ownership, management and disposition of the
Project.
18. ESTOPPEL CERTIFICATE. Tenant agrees from time to time, within fifteen
(15) days after request of Landlord, to deliver to Landlord, or Landlord's
designee, an estoppel certificate stating that this Lease is in full force and
effect, the date to which Rent has been paid, the unexpired portion of this
Lease, and such other matters pertaining to this Lease as may be reasonably
requested by Landlord. Failure by Tenant to execute and deliver such certificate
shall constitute an acceptance of the Premises and acknowledgment by Tenant that
the statements included are true and correct without exception. Landlord and
Tenant intend that any statement delivered pursuant to this Paragraph may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Project or any interest therein. The parties agree that Tenant's obligation
to furnish such estoppel certificates in a timely fashion is a material
inducement for Landlord's execution of the Lease, and shall be an event of
default if Tenant fails to fully comply.
19. SECURITY DEPOSIT. Intentionally Omitted.
20. TENANT'S REMEDIES. The liability of Landlord to Tenant for any default
by Landlord under the terms of this Lease are not personal obligations of the
individual or other partners, directors, officers and shareholders of Landlord,
and Tenant agrees to look solely to Landlord's interest in the Project for the
recovery of any amount from Landlord, and shall not look to other assets of
Landlord, nor seek recourse against the assets of the individual or other
partners, directors, officers and shareholders of Landlord. Any lien obtained to
enforce any such judgment and any levy of execution thereon shall be subject and
subordinate to any lien, mortgage or deed of trust on the Project.
21. ASSIGNMENT AND SUBLETTING.
A. General. Tenant shall not assign or sublet the Premises or any part
thereof without Landlord's prior written approval except as provided herein. If
Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant
shall give Landlord written notice forty-five (45) days prior to the anticipated
effective date of the assignment or sublease. Landlord shall then have a period
of thirty (30) days following receipt of such notice to notify Tenant in writing
that Landlord elects either: (1) to terminate this Lease as to the space so
affected as of the date so requested by Tenant; or (2) to permit Tenant to
assign this Lease or sublet such space, subject, however, to Landlord's prior
written approval of the proposed assignee or subtenant and of any related
documents or agreements associated with the assignment or sublease. If Landlord
should fail to notify Tenant in writing of such election within said period,
Landlord shall be deemed to have waived option (1) above, but written approval
by Landlord of the proposed assignee or subtenant shall be required. If Landlord
does not exercise the option provided in subitem (1) above, Landlord's consent
to a proposed assignment or sublet shall not be unreasonably withheld. Without
limiting the other instances in which it may be reasonable for Landlord to
withhold Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold Landlord's
consent in the following instances: The use of the Premises by such proposed
assignee or subtenant would not be a permitted use or would increase the Parking
Density of the Project; the proposed assignee or subtenant is not of sound
financial condition; the proposed assignee or subtenant is a governmental
agency; the proposed assignee or subtenant does not have a good reputation as a
tenant of property; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project; the assignment or
subletting would entail any alterations which would lessen the value of the
leasehold improvements in the Premises; or if Tenant is in default of any
obligation of Tenant under this Lease, or Tenant has defaulted under this Lease
on three (3) or more occasions during any twelve (12) months preceding the date
that Tenant shall request consent. Failure by Landlord to approve a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon a
termination under this Paragraph 21.A., Landlord may lease the Premises to any
party, including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant.
B. Bonus Rent. Any Rent or other consideration realized by Tenant under
any such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission, shall be divided and paid,
fifty percent (50%) to Tenant, fifty percent (50%) to Landlord. In any
subletting or assignment undertaken by Tenant, Tenant shall diligently seek to
obtain the maximum rental amount available in the marketplace for such
subletting or assignment.
C. Corporation. If Tenant is a corporation, a transfer of corporate
shares by sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in federal
or state bankruptcy, insolvency or other proceedings), so as to result in a
change in the present control of such corporation or any of its parent
corporations by the person or
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persons owning a majority of said corporate shares, shall constitute an
assignment for purposes of this Lease.
D. Partnership. If Tenant is a partnership, joint venture or other
incorporated business form, a transfer of the interest of persons, firms or
entities responsible for managerial control of Tenant by sale, assignment,
bequest, inheritance, operation of law or other disposition, so as to result in
a change in the present control of said entity and/or a change in the identity
of the persons responsible for the general credit obligations of said entity,
shall constitute an assignment for all purposes of this Lease.
E. Liability. No assignment or subletting by Tenant shall relieve
Tenant of any obligation under this Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
22. AUTHORITY OF PARTIES. Landlord represents and warrants that it has
full right and authority to enter into this Lease and to perform all of
Landlords's obligations hereunder. Tenant represents and warrants that it has
full right and authority to enter into this Lease and to perform all of Tenant's
obligations hereunder.
23. CONDEMNATION.
A. Condemnation Resulting In Termination. If the whole or any
substantial part of the Project of which the Premises are a part should be taken
or condemned for any public use under governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof, and the
taking would prevent or materially interfere with the Permitted Use of the
Premises, this Lease shall terminate and the Rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred. If more than five percent (5%) of the floor area
of the Premises or thirty percent (30%) of the land area of the Project which is
not occupied by any building is taken by condemnation, Tenant may, at Tenant's
option, terminate this Lease as of the date the condemning authority takes such
possession, which option is to be exercised, if at all, by written notice
thereof to Landlord within ten (10) days after Landlord has given Tenant written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession).
B. Condemnation Not Resulting In Termination. If a portion of the
Project of which the Premises are a part should be taken or condemned for any
public use under any governmental law, ordinance, or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and this Lease is not
terminated as provided in Paragraph 23.A. above, this Lease shall not terminate,
but the Rent payable hereunder during the unexpired portion of the Lease shall
be reduced, beginning on the date when the physical taking shall have occurred,
to such amount as may be fair and reasonable under all of the circumstances.
C. Award. Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired portion of this
Lease. Notwithstanding the foregoing, any compensation specifically awarded
Tenant for loss of business, Tenant's personal property, moving costs or loss of
goodwill shall be and remain the property of Tenant.
24. CASUALTY DAMAGE.
A. General. If the Premises or Building should be damaged or destroyed
by fire, tornado or other casualty, Tenant shall give immediate written notice
thereof to Landlord. Within thirty (30) days after Landlord's receipt of such
notice, Landlord shall notify Tenant whether in Landlord's opinion such repairs
can reasonably be made either: (1) within ninety (90) days; (2) in more than
ninety (90) days but in less than one hundred eighty (180) days; or (3) in more
than one hundred eighty (180) days from the date of such notice. Landlord's
determination shall be binding on Tenant.
B. Less Than 90 Days. If the Premises or Building should be damaged by
fire, tornado or other casualty, but only to such extent that rebuilding or
repairs can in Landlord's estimation be reasonably completed within ninety (90)
days after the date of such damage, this Lease shall not terminate, and provided
that insurance proceeds are available to fully repair the damage, Landlord shall
proceed to rebuild and repair the Premises in the manner determined by Landlord,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other leasehold improvements
which may have been placed in, on or about the Premises. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately, to the extent the Premises are unfit for occupancy.
C. Greater Than 90 Days. If the Premises or Building should be damaged
by fire, tornado or other casualty, but only to such extent that rebuilding or
repairs can in Landlord's estimation be reasonably completed in more than ninety
(90) days but in less than one hundred eighty 180 days, then Landlord shall have
the option of either: (1) terminating the Lease effective upon the date of the
occurrence of such damage, in which event the Rent shall be abated during the
unexpired portion of the Lease; or (2) electing to rebuild or repair the
Premises to substantially the condition in which they existed
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prior to such damage, provided that insurance proceeds are available, to fully
repair the damage, except that Landlord shall not be required to rebuild, repair
or replace any part of the partitions, fixtures, additions and other
improvements which may have been placed in, on or about the Premises. If the
Premises are untenantable in whole or in part following such damage, the Rent
payable hereunder during the period in which they are untenantable shall be
abated proportionately, to the extent the Premises are unfit for occupancy. In
the event that Landlord should fail to complete such repairs and rebuilding
within one hundred eighty days (180) days after the date upon which Landlord is
notified by Tenant of such damage, such period of time to be extended for delays
caused by the fault or neglect of Tenant or because of acts of God, acts of
public agencies, labor disputes, strikes, fires, freight embargoes, rainy or
stormy weather, inability to obtain materials, supplies or fuels, or delays of
the contractors or subcontractors or any other causes or contingencies beyond
the reasonable control of Landlord, Tenant may at Tenant's option within ten
(10) days after the expiration of such one hundred eighty (180) day period (as
such may be extended), terminate this Lease by delivering written notice of
termination to Landlord as Tenant's exclusive remedy, whereupon all rights
hereunder shall cease and terminate thirty (30) days after Landlord's receipt of
such termination notice.
D. Greater Than 180 Days. If the Premises or Building should be so
damaged by fire, tornado or other casualty that rebuilding or repairs cannot in
Landlord's estimation be completed within one hundred eighty (180) days after
such damage, this Lease shall terminate and the Rent shall be abated during the
unexpired portion of this Lease, effective upon the date of the occurrence of
such damage.
E. Tenant's Fault. If the Premises or any other portion of the Building
are damaged by fire or other casualty resulting from the fault, negligence, or
breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and
Additional Rent shall not be diminished during the repair of such damage and
Tenant shall be liable to Landlord for the cost and expense of the repair and
restoration of the Building caused thereby to the extent such cost and expense
is not covered by insurance proceeds.
F. Uninsured Casualty. Notwithstanding anything herein to the contrary,
in the event that the Premises or Building are damaged or destroyed and are not
fully covered by the insurance proceeds received by Landlord or in the event
that the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to such
indebtedness, then in either case Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Landlord that said damage or destruction
is not fully covered by insurance or such requirement is made by any such
holder, as the case may be, whereupon all rights and obligations hereunder shall
cease and terminate.
G. Waiver. Except as otherwise provided in this Paragraph 24, Tenant
hereby waives the provisions of Sections 1932(a), 1933(4), 1941 and 1942 of the
Civil Code of California.
25. HOLDING OVER. If Tenant shall retain possession of the Premises or
any portion thereof without Landlord's consent following the expiration of the
Lease or sooner termination for any reason, then Tenant shall pay to Landlord
for each day of such retention double the amount of the daily rental as of the
last month prior to the date of expiration or termination. Tenant shall also
indemnify, defend, protect and hold Landlord harmless from any loss, liability
or cost, including reasonable attorneys' fees, resulting from delay by Tenant in
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. Acceptance of Rent by Landlord
following expiration or termination shall not constitute a renewal of this
Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right
of reentry or any other right. Unless Landlord consents in writing to Tenant's
holding over, Tenant shall be only a Tenant at sufferance, whether or not
Landlord accepts any Rent from Tenant while Tenant is holding over without
Landlord's written consent. Additionally, in the event that upon termination of
the Lease, Tenant has not fulfilled its obligation with respect to repairs and
cleanup of the Premises or any other Tenant obligations as set forth in this
Lease, then Landlord shall have the right to perform any such obligations as it
deems necessary at Tenant's sole cost and expense, and Tenant shall be liable
for all damages caused thereby, including, without limitation, liability to any
new tenant or occupant of the Premises or any part thereof and lost rent which
Landlord will suffer due to delay in making the Premises available for
alterations and/or occupancy by the next tenant or occupant.
26. DEFAULT.
A. Events of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment of the Premises for a continuous
period in excess of five (5) days, unless Tenant is paying all Rent when due
hereunder. Tenant waives any right to notice Tenant may have under Section
1951.3 of the Civil Code of the State of California, the terms of this Paragraph
26.A. being deemed such notice to Tenant as required by said Section 1951.3
(2) Nonpayment of Rent. Failure to pay any installment of Rent
or any other amount due and payable hereunder upon the date when said payment is
due.
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(3) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for
thirty (30) days after written notice of such failure.
(4) General Assignment. A general assignment by Tenant for the
benefit of creditors.
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
thirty (30) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of
this Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations under
this Lease.
(6) Receivership. The employment of a receiver to take
possession of substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undischarged for a period of ten (10) days
after the order therefor.
(7) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) days after the levy thereof.
B. Remedies Upon Default.
(1) Termination. In the event of the occurrence of any event
of default, Landlord shall have the right to give a written termination notice
to Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or before
such date all arrears of rental and all other sums payable by Tenant under this
Lease and all costs and expenses incurred by or on behalf of Landlord hereunder
shall have been paid by Tenant and all other events of default of this Lease by
Tenant at the time existing shall have been fully remedied to the satisfaction
of Landlord. At any time after such termination, Landlord may recover possession
of the Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, by any lawful means, and again repossess
and enjoy the Premises without prejudice to any of the remedies that Landlord
may have under this Lease, or at law or equity by reason of Tenant's default or
of such termination.
(2) Continuation After Default. Even though an event of
default may have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under Paragraph 26.B(1)
hereof, and Landlord may enforce all of Landlord's rights and remedies under
this Lease, including without limitation, the right to recover Rent as it
becomes due, and Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a landlord under Section 1951.4 of the Civil Code of
the State of California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a receiver
upon application of Landlord to protect Landlord's interest under this Lease
shall not constitute an election to terminate Tenant's right to possession.
C. Damages After Default. Should Landlord terminate this Lease pursuant
to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights
and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the
State of California, or successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law, Landlord shall be entitled to recover from Tenant: (1) the
worth at the time of award of the unpaid Rent and other amounts which had been
earned at the time of termination, (2) the worth at the time of award of the
amount by which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such Rent loss that Tenant proves
could have been reasonably avoided; (3) the worth at the time of award of the
amount by which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such Rent loss that the Tenant proves could be
reasonably avoided; and (4) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease or which, in the ordinary course of things, would
be likely to result therefrom. The "worth at the time of award" of the amounts
referred to in (1) and (2) above shall be computed at the lesser of the "prime
rate," as announced from time to time by Wells Fargo Bank, N.A. (San Francisco),
plus five (5) percentage points, or the maximum interest rate allowed by law
("Applicable Interest Rate"). The "worth at the time of award" of the amount
referred to in (3) above shall be computed by discounting such amount at the
Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time
of the award. If this Lease provides for any periods during the Term during
which Tenant is not required to pay Base Rent or if Tenant otherwise receives a
Rent concession, then upon the occurrence of an event of default, Tenant shall
owe to Landlord the full amount of such Base Rent or value of such Rent
concession, plus interest at the Applicable Interest Rate, calculated from the
date that such Base Rent or Rent concession would have been payable.
D. Late Charge. If any installment of Rent is not paid within five (5)
working days after same is due, such amount shall bear interest at the
Applicable Interest Rate from the date on which said
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payment shall be due until the date on which Landlord shall receive said
payment. In addition, Tenant shall pay Landlord a late charge equal to five
percent (5%) of the delinquency, to compensate Landlord for the loss of the use
of the amount not paid and the administrative costs caused by the delinquency,
the parties agreeing that Landlord's damage by virtue of such delinquencies
would be difficult to compute and the amount stated herein represents a
reasonable estimate thereof. This provision shall not relieve Tenant of Tenant's
obligation to pay Rent at the time and in the manner herein specified.
E. Remedies Cumulative. All rights, privileges and elections or
remedies of the parties are cumulative and not alternative, to the extent
permitted by law and except as otherwise provided herein.
27. LIENS. Tenant shall keep the Premises free from liens arising out of
or related to work performed, materials or supplies furnished or obligations
incurred by Tenant or in connection with work made, suffered or done by or on
behalf of Tenant in or on the Premises or Project. In the event that Tenant
shall not, within ten (10) days following the imposition of any such lien, cause
the same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by such
means as Landlord shall deem proper, including payment of the claim giving rise
to such lien. All sums paid by Landlord on behalf of Tenant and all expenses
incurred by Landlord in connection therewith shall be payable to Landlord by
Tenant on demand with interest at the Applicable Interest Rate. Landlord shall
have the right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises, the Project and any other party having an
interest therein, from mechanics' and materialmen's liens, and Tenant shall give
Landlord not less than ten (10) business days prior written notice of the
commencement of any work in the Premises or Project which could lawfully give
rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION. Intentionally Omitted.
29. TRANSFERS BY LANDLORD. In the event of a sale or conveyance by Landlord
of the Building or a foreclosure by any creditor of Landlord, the same shall
operate to release Landlord from any liability upon and obligate Landlord's
successor-in-interest to any of the covenants or conditions, express or implied,
herein contained in favor of Tenant, to the extent required to be performed
after the passing of title to Landlord's successor-in-interest during their
respective period of ownership. In such event, Tenant agrees to look solely to
the responsibility of the successor-in-interest of Landlord under this Lease
with respect to the performance of the covenants and duties of "Landlord" to be
performed after the passing of title to Landlord's successor-in-interest. This
Lease shall not be affected by any such sale and Tenant agrees to attorn to the
purchaser or assignee. Landlord's successor(s)-in-interest shall not have
liability to Tenant with respect to the failure to perform all of the
obligations of "Landlord", to the extent required to be performed prior to the
date such successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS. All covenants
and agreements to be performed by Tenant under any of the terms of this Lease
shall be performed by Tenant at Tenant's sole cost and expense and without any
abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base
Rent and Basic Operating Cost, required to be paid by Tenant hereunder or shall
fail to perform any other act on Tenant's part to be performed hereunder, and
such failure shall continue for five (5) days after notice thereof by Landlord,
Landlord may, but shall not be obligated to do so, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
perform any such act on Tenant's part to be made or performed. All sums so paid
by Landlord and all necessary incidental costs, together with interest thereon
at the Applicable Interest Rate from the date of such payment by Landlord, shall
be payable to Landlord on demand, and Tenant covenants to pay such sums, and
Landlord shall have, in addition to any other right or remedy of Landlord, the
same rights and remedies in the event of the non-payment thereof by Tenant, as
in the case of default by Tenant in the payment of Base Rent and Basic Operating
Cost.
31. WAIVER. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition contained herein. The acceptance of Rent by Landlord shall
not constitute a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord or Tenant of
any term, covenant or condition contained in this Lease may only be made by a
written document signed by Landlord or Tenant, respectively.
32. NOTICES. Each provision of this Lease or of any applicable governmental
laws, ordinances, regulations and other requirements with reference to sending,
mailing or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. Rent. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address set forth in the
Basic Lease Information, or at
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such other address as Landlord may specify from time to time by written notice
delivered in accordance herewith. Tenant's obligation to pay Rent and any other
amounts to Landlord under the terms of this Lease shall not be deemed satisfied
until such Rent and other amounts have been actually received by Landlord.
B. Other. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in writing
and either personally delivered, sent by commercial overnight courier, or
mailed, certified or registered, postage prepaid, and addressed to the party to
be notified at the address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from time to
time designate by at least fifteen (15) days notice to the notifying party.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant appoints as its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the person in charge of
or apparently in charge of occupying the Premises at the time, and, if there is
no such person, then such service may be made by attaching the same on the main
entrance of the Premises.
33. ATTORNEYS' FEES. In the event that Landlord places the enforcement of
this Lease, or any part thereof, or the collection of any Rent due, or to become
due hereunder, or recovery of possession of the Premises in the hands of an
attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable
attorneys' fees and court costs. In any action which Landlord or Tenant brings
to enforce its respective rights hereunder, the unsuccessful party shall pay all
costs incurred by the prevailing party, including reasonable attorneys' fees, to
be fixed by the court, and said costs and attorneys' fees shall be a part of the
judgment in said action.
34. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure to
the benefit of Landlord, its successors and assigns, and shall be binding upon
and inure to the benefit of Tenant, its successors, and to the extent assignment
is approved by Landlord hereunder, Tenant's assigns.
35. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant, such party shall not be liable or
responsible for, and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the control of such party
(financial inability to perform excepted); provided, however, that nothing
contained in this Section 35 shall excuse or delay the proper and timely payment
of Rent by Tenant to Landlord.
36. BROKERAGE COMMISSION. Landlord shall pay a brokerage commission to
Broker in accordance with a separate agreement between Landlord and Broker.
Tenant warrants to Landlord that Tenant's sole contact with Landlord or with the
Premises in connection with this transaction has been directly with Landlord and
Broker, and that no other broker or finder can properly claim a right to a
commission or a finder's fee based upon contacts between the claimant and Tenant
with respect to Landlord or the Premises. Tenant shall indemnify, defend by
counsel acceptable to Landlord, protect and hold Landlord harmless from and
against any loss, cost or expense, including, but not limited to, attorneys'
fees and costs, resulting from any claim for a fee or commission by any broker
or finder which claims it has dealt with or has a relationship with Tenant in
connection with the Premises and this Lease other than Broker.
37. MISCELLANEOUS.
A. General. The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the singular or plural
number, individuals, firms or corporations, and their respective successors,
executors, administrators and permitted assigns, according to the context
hereof.
B. Time. Time is of the essence regarding this Lease and all of its
provisions.
C. Choice of Law. This Lease shall in all respects be governed by the
laws of the State of California.
D. Entire Agreement. This Lease, together with its Exhibits, supersedes
in its entirety the Lease between Landlord and Tenant also dated December 19,
1997, containing typewritten and handwritten inserts and cross-outs. The purpose
of this Lease is to restate said Lease in its entirety, and this Lease contains
all the agreements of the parties hereto and supersedes any previous
negotiations. There have been no representations made by the Landlord or
understandings made between the parties other than those set forth in this Lease
and its Exhibits.
E. Modification. This Lease may not be modified except by a written
instrument by the parties hereto.
F. Severability. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the other provisions shall
be and remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short form
memorandum hereof.
13
<PAGE>
H. Examination of Lease. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective otherwise
until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser amount
than the Rent nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies.
J. Easements. Landlord may grant easements on the Project and dedicate
for public use portions of the Project without Tenant's consent; provided that
no such grant or dedication shall substantially interfere with Tenant's use of
the Premises. Upon Landlord's demand, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge that
this Lease has been agreed to by both parties, that both Landlord and Tenant
have consulted with or had the opportunity to consult with attorneys with
respect to the terms of this Lease and that no presumption shall be created
against Landlord because Landlord drafted this Lease. Except as otherwise
specifically set forth in this Lease, with respect to any consent, determination
or estimation of Landlord required in this Lease or requested of Landlord,
Landlord's consent, determination or estimation shall be made in Landlord's good
faith opinion, whether objectively reasonable or unreasonable.
L. Exhibits. Exhibits A, B, C, D, E and F attached hereto are hereby
incorporated herein by this reference.
M. No Light, Air or View Easement. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to or
in the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between Landlord
and Tenant and nothing herein is intended to create any third party benefit.
38. ADDITIONAL PROVISIONS.
First Addendum to Lease
Exhibit "A" Floor Plan
Exhibit "B" Work Letter
Exhibit "C" Standard Specifications
Exhibit "D" Atherton Center Sign Policy
Exhibit "E" Rules and Regulations
Exhibit "F" Hazardous Materials / Wastes
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year
first above written.
"Landlord"
STANFORD RANCH I, LLC
By: _________________________________________________________________
Name: ________________________________________________________________
Title: _______________________________________________________________
"Tenant'
SPECTRIAN CORPORATION
By: __________________________________________________________________________
Stephen B. Greenspan, Chief Operating Officer
By: __________________________________________________________________
Name: ________________________________________________________________
Title: _______________________________________________________________
14
<PAGE>
EXHIBIT A
FLOOR PLAN
(TO BE ATTACHED)
Page 1 of 2 Pages
<PAGE>
EXHIBIT A
SITE PLAN
(TO BE ATTACHED)
Page 2 of 2 Pages
<PAGE>
EXHIBIT B
WORK LETTER
This Work Letter shall set forth the terms and conditions relating to
the construction of the tenant improvements in the Premises. This Work Letter is
essentially organized chronologically and addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during the
actual construction of the Premises.
SECTION 1
CONSTRUCTION DRAWINGS FOR THE PREMISES
Landlord shall cause the improvements in the Premises (the "Tenant
Improvements") to be constructed, at Landlord's sole cost and expense, pursuant
to the specifications outlined in the preliminary drawings as prepared by CHMD
dated November 6, 1997, as shown on Exhibit "A". Tenant shall make no changes or
modifications to the Approved Working drawings without the prior written consent
of Landlord, which consent may be withheld in Landlord's sole discretion if such
change or modification would directly or indirectly delay the Substantial
Completion, as that term is defined in Section 2.1 of this Work Letter, of the
Premises or increase the cost of designing or constructing the Tenant
Improvements. In the event Tenant makes changes to Exhibit "A" causing
allowances to exceed that in Paragraph 5 of the First Addendum Lease, such
excess shall be amortized as noted in Paragraph 5 of the First Addendum Lease
contained herein.
SECTION 2
COMPLETION OF THE TENANT IMPROVEMENTS:
COMMENCEMENT DATE
2.1 Ready for Occupancy. The Premises shall be deemed "Ready for
Occupancy" upon the Substantial Completion of the Premises. For purposes of this
Lease, "Substantial Completion" of the Premises shall occur upon the completion
of construction of the Tenant Improvements in the Premises pursuant to the
Approved Working Drawings, with the exception of any punch list items and any
tenant fixtures, work-stations, built-in furniture, or equipment to be installed
by Tenant or under the supervision of the Contractor.
2.2 Delay of the Substantial Completion of the Premises. Except as
provided in this Section 2.2, the Commencement Date shall occur by June 1, 1998.
If there shall be a delay or there are delays in the Substantial Completion of
the Premises or in the occurrence of any of the other conditions precedent to
the Commencement Date, as set forth in the Base Lease Information of the Lease,
as a direct, indirect, partial, or total result of the following (collectively,
"Tenant Delays"):
2.2.1 Tenant's failure to timely approve any matter requiring
Tenant's approval;
2.2.2 A breach by Tenant of the terms of this Work Letter or
the Lease;
2.2.3 Tenant's request for changes in the Approved Working
Drawings;
2.2.4 Changes in any of the Approved Working Drawings because
the same do not comply with applicable laws;
2.2.5 Tenant's requirement for materials, components, finishes
or improvements which are not available in a commercially reasonable time given
the anticipated Commencement Date, as set forth in the Lease, or which are
different from, or not included in, Landlord's standard improvement package
items for the Building.
2.2.6 Changes to the base, shell and core work of the Building
required by the Approved Working Drawings or any changes thereto; or
2.2.7 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Work Letter and regardless of the actual date of the Substantial Completion of
the Premises, the Commencement Date shall be deemed to be the date the
Commencement Date would have occurred if no Tenant Delay or Delays, as set forth
above, had occurred, subject to receiving a Temporary Certificate of Occupancy.
SECTION 3
MISCELLANEOUS
3.1 Tenant's Entry Into the Premises Prior to Substantial Completion.
Provided that Tenant and its agents do not interfere with Contractor's work in
the Building and the Premises, Contractor shall
Page 1 of 2 Pages
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allow Tenant access to the Premises prior to the Substantial Completion of the
Premises for the purpose of Tenant installing equipment or fixtures (including
Tenant's data and telephone and other items) in the Premises. Prior to Tenant's
entry into the Premises as permitted by the terms of this Section, Tenant shall
submit a schedule to Landlord and Contractor, for their approval, which schedule
shall detail the timing and purpose of Tenant's entry. Tenant shall hold
Landlord harmless from and indemnify, protect and defend Landlord against any
loss or damage to the Building or Premises and against injury to any persons
caused by Tenant's actions pursuant to this Section.
3.2 Tenant's Agents. All subcontractors, laborers, materialmen, and
suppliers retained directly by Tenant shall conduct their activities in and
around the Premises, Building and Property in a harmonious relationship with all
other subcontractors, laborers, materialmen and suppliers at the Premises,
Building and Property.
3.3 Time of the Essence in This Work Letter. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. In all instances where Tenant is required to approve or deliver
an item, if no written notice of approval is given or the item is not delivered
within the stated time period, at Landlord's sole option, at the end of such
period the item shall automatically be deemed approved or delivered by Tenant
and the next succeeding time period shall commence.
3.4 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in the Lease, if a Default by Tenant as described in Section
26 of this Lease, or a default by Tenant under this Work Letter, has occurred at
any time on or before the Substantial Completion of the Premises, then (i) in
addition to all other rights and remedies granted to Landlord pursuant to this
Lease, Landlord shall have the right to cause Contractor to cease the
construction of the Premises (in which case Tenant shall be responsible for any
delay in the Substantial Completion of the Premises caused by such work stoppage
as set forth in Section 5 of this Work Letter), and (ii) all other obligations
of Landlord under the terms of this Work Letter shall be forgiven until such
time as such default is cured pursuant to the terms of the Lease.
Agreed and Acknowledged:
LANDLORD: STANFORD RANCH I, LLC
BY: DATE:
--------------------------------- -------------
ITS:
---------------------------------
TENANT: SPECTRIAN INC.
BY: DATE:
--------------------------------- -------------
ITS:
---------------------------------
BY: DATE:
--------------------------------- -------------
ITS:
---------------------------------
Page 2 of 2 Pages
<PAGE>
Exhibit C
Stanford Business Park
Standard Specifications
I. Walls
A. Demising Walls
1. Framing
a. Demising wall shall be framed from finished
floor to the underside of the roof deck. All
demising walls shall be attached at top to
the roof deck and to the floor.
b. All demising walls shall be framed with a
stud of sufficient size, gauge and at a
spacing such that diagonal bracing is not
required. Walls to a height of 16'0" shall
be framed with 3-5/8" 20 GA. metal studs at
2'-0" on center. Walls to heights from 16'0"
to 25'-4" shall be framed with 6" 18 GA.
metal studs at 16" on center. Walls above
25'-4" shall be framed with 6" 20 GA. metal
studs at 16" and/or 12" as required per the
Table For Non-bearing Screwable Steel Studs
and Joists contained in the ICBO Report
#2274.
2. Gypsum Wall Board
a. Wall shall be 5/8" Type "X" gypsum board.
Fine tape finish. U.O.N. Gypsum wall board
shall be placed on the opposite side U.O.N.
b. Insulate walls for sound absorption R-11.
B. Interior Office Walls
1. Framing
a. Interior walls shall be framed to either 6"
above the finished ceiling or to the ceiling
grid. If to the grid, all walls to receive
edging for uniformity of appearance.
b. Perimeter office walls shall be framed full
height to roof deck. Sheetrock applied both
sides to 6" above grid and to warehouse side
only balance of the frame. See Demising
Walls above for requirements.
c. Insulate walls for sound absorption R-11.
2. Gypsum Wall Board
a. Walls shall be 5/8" Type "X" gypsum board.
3. Furred Walls
a. Furred walls to be insulated with R-13.
C. Wall Finishes
1. All office walls shall be textured with a light spray
texture. Walls shall be scaled and painted with two
coats of latex flat. Paint to be Kelly-Moore, Product
#555. Verify color with Tenant and Owner.
2. Restroom walls shall be textured with a light spray
texture. Wainscot at 4'-0" shall be flat white
"Marlite," with brushed aluminum trim. All restroom
ceilings shall be 8' U.O.N. All restroom walls and
ceilings shall receive two coats semi-gloss enamel
finish paint with light spray texture. Verify color
with Owner. All restroom walls to be sound insulated
with R-11.
D. All door openings shall use 16-gauge king stud.
Page 1 of 6 Pages
<PAGE>
II. CEILINGS
A. Restrooms
1. Framing shall be 4" 25 GA. metal joist at 1'-4" on
center. Maximum span 8"- 9". For spans in excess of
8"-9" refer to the tables shown on the plans.
2. Ceilings shall be covered with 5/8" type "X" gypsum
board.
3. Finish shall be light spray texture with two coats
semi-gloss latex paint.
4. Insulate wall with R-11 insulation. Insulate ceiling
with R-19 insulation.
5. Ceiling height shall be 8'-0" above finished floor.
B. Office
1. Ceilings shall be 2' x 4' T-bar white suspended
ceiling system. 10' above finished floor.
2. Ceiling tiles
a. Standard shall be Second Look II Acoustical
ceiling tile by Armstrong at 9'-0" above
finished floor in office area and 10' in
tech area or at top of storefront if higher.
Provide shims, routered edges and detailing
per manufacturer's specs.
b. Alternate shall be Standard Fissured tiles
for large work areas. This tile shall be
used only when indicated on the plans.
3. Provide R-19 unfaced fiberglass insulation above all
lay-in ceilings. Cut in insulation around light
fixtures. If roof insulation is existing or specified
on the plans, consult with Lincoln Property Company
representatives to determine if lay-in ceiling
insulation above grid is required.
4. Provide Seismic Compression Posts as required by
code. All ceiling fixtures shall be supported per
U.B.C. standards.
III. FLOOR COVERINGS
A. Office
1. Carpet shall be either "Shaw" or "Designweave" 26 oz.
yarn weight textured loop or 32 oz yarn weight cut
pile in lobby area only. Verify color and choice with
Owner. All carpet shall receive 2-1/2" rubber top set
base U.O.N.
2. Sheet Vinyl shall be Armstrong "Classic Corlon
Commercial Sheet Flooring" or approved equivalent
with 6" coving or approved equal. Verify color with
Owner.
3. Vinyl Composition Tile shall be Armstrong "Standard
Exoclon" or approved equivalent with 2-1/2" Rubber
base or approved equal. Verify color with Owner.
B. Warehouse
1. Warehouse floors shall be sealed with a chlorinated
rubber sealer. Contractor shall verify the condition
of the existing floors prior to submitting proposals.
IV. DOORS
A. Door Frames
1. All door frames to be Timely pre-finished frames.
Finish to match storefronts unless otherwise noted.
All frames shall be provided with a one (1) hour fire
Page 2 of 6 Pages
<PAGE>
rating. Frames shall have a standard certificate
plate indicating the one (1) hour rating.
B. Interior Doors
1. Interior doors shall be 3'-0" x 7'0". Doors shall be
paint grade plain by Cal- Wood. All doors shall be
supplied with 20-minute label.
C. Hardware
1. Latchsets (no lock) to be Schlage "Levon" "A" series (626)
satin bronze finish.
2. Hinges to match hardware finish. Provide 1-1/2 pair for
each door.
3. Doors to be installed in a rated condition (1-hour
condition required by code) shall be installed with a
closer. Closer shall be 1.CN#1-160#1 aluminum. finish
to match door hardware unless otherwise noted.
4. All private offices shall receive coat hook on back
of door, Ameruck BP 3460- 26.
V. RESTROOM ACCESSORIES
A. All restrooms to include the following accessories:
1. Towel Dispenser shall be surface mounted stainless
steel. Provide Bobrich #B262, McKinney Parker #610 or
approved equal.
2. Seat Cover Dispenser shall be surface mounted
stainless steel. Provide Bobrich #B221, McKinney
Parker #610 or approved equal.
3. Toilet Paper Dispenser shall be Bobrich #B-2740 or
approved equal.
4. Mirror. Bobrich #B165 or approved equal. Size shall
be 24" x 36".
5. Grab bars. Bobrich #B6806, 36" and 42" or approved
equal.
6. Feminine Napkin Disposal shall be surface mounted
stainless steel. Provide McKinney Parker #610 or
approved equal. (Woman's restroom only.)
VI. PLUMBING
A. All water piping shall be copper U.O.N. All hot water piping
shall be insulated with Armaflex form insulation.
B. Water closets to be American Standard elongated water saver
Cadet #2108.408 and Olsonite #95 or approved equal.
C. Urinals to be American Standard - water saver Allbrook Urinal
#65-40.017 w/Sloan Royal #180-15 flush valve or approved
equal.
D. Lavatories to be American Standard Lucern lavatory #0355.012
wall hung with 2103.620 faucet with 4" wrist blade handles or
approved equal.
Lavatories in counter top shall be American Standard "Horizon
Lavatory" #3301.025 with 2103.1459 faucet with 4" wrist blade
handles and pop-up drain. Verify color of counter with Owner.
E. Hospitality sink when called for shall be Elkay #1.R-1918 19"
x 18" x 7-12" D stainless steel bar sink with LK-2223 deluxe
two handle bar faucet with 9" high traditional swing spout and
LK-367 small basket strainer. Sink shall be installed in
plastic laminate counter unless otherwise noted.
F. Drinking fountain when called for shall be Haws barrier free
water cooler model #11CBF7.
G. Service sink when called for shall be American Standard
"Lakewell" #7692.023 with 8769.018 rim board and 8340.242
faucet.
Page 3 of 6 Pages
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H. All hot water heaters to be National Steel Construction or
approved equal.
I. Showers where called for. Handicapped, prefabricated Kimstock
Southwest, Inc. Verify model number with Owner.
J. All toilet partitions where called for shall be Sony Metal
Normandie or Knicherbocker New Yorker, baked enamel
floor-braced with coat hook and bumper. Verify color with
owner.
K. Breakroom sink to have 1/2 HP (min.) garbage disposal.
L. Water main and branch lines to have valve shutoffs.
VII. ELECTRICAL
A. Designed and installed in accordance with the California
Energy Act - title 24, 225 amp, 208 volt service typical, 42
circuit distribution panel.
B. Power distributed as required by Tenant for warehouse,
assembly and manufacturing equipment, appliance operating and
special office machinery shall be ceiling hung U.O.N.
Subpanels and transformers shall be located in the tenant
space per code.
C. Warehouse. Flush mounted ('296 strip fluorescent light
fixtures by Lithonia or) approved equal in areas with open
ceiling per Exhibit "A".
D. Ceiling mounted fixture at restroom-Lithonia Wallens, #1.B240
120A.
E. Other lighting as required by Tenant or code. Same light
fixtures to be used as called out in C. above except provided
on 8' x 8' centers for shipping/receiving area will be
provided.
F. Provide ivory plates and covers for all power outlets,
switches or plates. Provide rings and pull wires at all
telephone, computer and cable (C.R.T.) outlets as indicated on
plan. All switches to be at 46" on center, all outlets to be
at 18" on center, all warehouse outlets at 26" on center.
Provide stainless steel covers in manufacturing and warehouse
areas.
G. Illuminated exit signs as required by Tenant or code.
H. Office lighting is by 2' x 4' recessed mounted fluorescent
ceiling fixtures, Lithonia 2GT340A12-277V or equal, approved
by Owner, with acrylic prism lens. Lighting to comply to T-24
Energy Standards. Pattern shall be 8' x 8'.
I. 2-4" PVC chase and pull line for telephone from T.B.B. to T.I.
space. Provide 4' x 8' x 3/4' backboard at location shown on
drawings.
J. Any switch gear used in Electric room that will impede future
T.I. additions is not permissible without prior written
permission from Landlord.
K. 1500 Amps/480 Volt/3-Phase power to be allocated to Spectrian.
Of the remaining 500 Amps/480 Volt/3-Phase power, Spectrian
shall be entitled to a pro rata share basis of this power
should Spectrian expand into the adjacent space in the future.
VIII. FINISHES/SPECIALTIES
A. Special office wall or floor finishes. See T.I. drawings for
specifications.
B. Lunch room, conference room, coffee or wet bar cabinetry and
plumbing and appliances as required by Tenant.
C. Refer to tenant improvement plans for locations and
specifications.
D. All exterior windows to receive 1" mini-blinds to be outside
mounted on the window mullion. Each mullion to receive one (1)
mini-blind from ceiling height to floor.
Verify color and brand with Owner.
IX. FIRE SPRINKLERS
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A. Designed in accordance with local codes. Sprinkler pipe drops
are extended from existing fire lines in the roof structure.
Sprinkler heads are semi-recessed chrome with chrome color to
finish. Fire hoses, extinguisher and detectors are provided as
required by code or tenant. Sprinkler heads shall be centered
in 2 x 2 section of 2 x 4 Second Look II ceiling tile.
HVAC PERFORMANCE CRITERIA
1. Load calculations for standard office space/manufacturing
space/warehouse space:
A. Use ASHRAE fundamentals summer design dry bulb
temperature at 0.5%.
B. Indoor design conditions are to be 72 degrees
Fahrenheit 50% R.H. for summer and 70 degrees
Fahrenheit for winter.
C. Lighting internal load allowance: 1.5 watts per
square foot.
D. Miscellaneous equipment internal load allowance: 3.0
watts per square foot.
E. People load allowance: 120 square foot per person or
actual count, whichever is greater.
F. Minimum ventilation allowance: 20CFM per person.
2. HVAC systems shall be fully zoned for exposure, usage and
occupancy.
3. All roof mounted HVAC units to be mounted above a glue-lam
unless otherwise approved structurally designed to accommodate
load.
4. Toilet rooms to be exhausted at 12 air changes per hour,
exhausted to exterior.
5. Air conditioning equipment to be Carrier or Trane.
6. Exhaust fans to be sized properly.
7. Supply diffusers to be modular air core type; Titus, Metal-Air
or equal.
8. HVAC ductwork to be metallic.
9. Discharge and intake ductwork at air conditioning unit shall
be internally lined with 1" - 1-1/2 lb. per cubic foot vinyl
face, black matt insulation for sound attenuation (designed
for proper acoustical attenuation).
10. Wrap all unlined concealed supply and return duct with 2" 3/4
lb. per cubic foot insulation and foil vapor barrier.
11. Wire flexible duct is ONLY to be used at the supply/return
outlet (maximum length 10').
12. Rectangular elbows to be installed with directional vanes.
13. Rectangular taps to be constructed with a 45 degree upstream
side.
14. All supply branches to have a manual volume damper.
15. Support for all piping and ductwork shall be in accordance
with SMACNA "Guidelines for Seismic Restraints of Mechanical
Systems."
16. Intentionally omitted.
17. Basic HVAC control system shall be Honeywell programmable
timeclock-thermostat configuration.
18. Each thermostat is to be installed with a 3-hour by-pass timer
for overtime usage.
19. Air balance shall be done by the installing contractor and to
provide balance report to Tenant.
Page 5 of 6 Pages
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20. Mechanical contractor is to comply with all ASHRAE, SMACNA,
UBC and local code requirements.
21. All material and workmanship provided by mechanical contractor
is to be warranted to be free from defects for a period of one
(1) year.
22. All gas meters to be approved by Landlord prior to selection.
23. All duct joints shall be sealed airtight.
24. Submit Title 24 plans, calls for permit.
25. Provide slot diffusers in lobby.
26. Fire/smoke dampers and detectors to be provided and installed
by mechanical contractor. To be constructed as per code.
27. Condensate drain to be approved receptacle/location.
Page 6 of 6 Pages
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EXHIBIT D
ATHERTON CENTER SIGN POLICY
Tenant Suite Identification - Window Graphics
Height: Tenant: Copy - 4".
General Placement: All copy centered onto glass area to the
left or right of entrance door, whichever
appropriate.
Copy Placement: 5'0" from floor to middle of sign. Copy
not to exceed a 3" margin on right and left sides.
Material: Vinyl
Color: Matte white
Typeface: Tenant copy - Century Bold, upper and lower case.
Copy: Signage shall be limited to the name of the tenant,
as detailed in the lease, or the publicly recorded
assumed business name of the tenant, and shall not
include a descriptive advertisement.
Responsibility: Tenant: signage shall be paid by the tenant.
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
1. Lessee shall not obstruct or interfere with the rights of other lessees of
the Project, or of persons having business in the Project, or in any way injure
or annoy such lessees or persons.
2. Lessee shall not commit any act or permit anything in or about the Project
which shall or might subject Lessor to any liability or responsibility for
injury to any person or property by reason of any business or operation being
carried on, in or about the Project or for any other reason.
3. Lessee shall not use the Project for lodging, sleeping, cooking, or for any
immoral or illegal purpose or for any purpose that will damage the Project, or
the reputation thereof, or for any purposes other than those specified in the
Lease.
4. Canvassing, soliciting and peddling in the Project are prohibited, and Lessee
shall cooperate to prevent such activities.
5. Lessee shall not bring or keep within the Project any animal, bicycle or
motorcycle.
6. Except as expressly provided in this Lease, Lessee shall not cook or prepare
food, or place or use any inflammable, combustible, explosive or hazardous
fluid, chemical, device, substance or material in or about the Project without
the prior written consent of Lessor. Lessee shall comply with all statutes,
ordinances, rules, orders, regulations and requirements imposed by governmental
or quasi-governmental authorities in connection with fire and panic safety and
fire prevention and shall not commit any act, or permit any object to be brought
or kept in the Project, which shall result in a change of the rating of the
Project by the Insurance Services Office or any similar person or entity. Lessee
shall not commit any act or permit any object to be brought or kept in the
Project which shall increase the rate of fire insurance on the Project or on
property located therein. Notwithstanding the foregoing, Lessee may cook with a
microwave oven for personal use of its employees.
7. Lessee shall not conduct in or about the Project any auction, public or
private, without the prior written approval of Lessor.
8. Lessee shall not install or use in the Project any air conditioning unit,
engine, boiler, generator, machinery, heating unit, stove, water cooler,
ventilator, radiator or any other similar apparatus without the express prior
written consent of Lessor, and then only as Lessor may direct.
9. All equipment and any other device of any electrical or mechanical nature
shall be placed by Lessee in the Premises in settings approved by Lessor, so as
to absorb or prevent any vibration, noise or annoyance. Lessee shall not cause
improper noises, vibrations or odors within the Project.
10. Lessee shall not move or install such objects in or about the Project in
such a fashion as to unreasonably obstruct the activities of other lessees, and
all such moving shall be at the sole expense, risk and responsibility of Lessee.
11. Lessee shall not place within the Project any safes, copying machines,
computer equipment or other objects of unusual size or weight, nor shall Lessee
place within the Project any objects which exceed the floor weight
specifications of the Project without the express prior written consent of
Lessor. The placement and positioning of all such objects within the Project
shall be prescribed by Lessor and such objects shall, in all cases, be placed
upon plates or footings of such size as shall be prescribed by Lessor.
12. Lessee shall not deposit trash, refuse, cigarettes, or other substances of
any kind within or out of the Project, except in the refuse containers provided
therefor. Lessee shall not introduce into the Project any substance which might
add an undue burden to the
Page 1 of 4 Pages
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cleaning or maintenance of the Premises or the Project. Lessee shall exercise
its best efforts to keep the sidewalks, entrances, passages, courts, lobby
areas, garages or parking areas, elevators, escalators, stairways, vestibules,
public corridors and halls in and about the Project (hereinafter "Common Areas")
clean and free from rubbish.
13. Lessee shall use the Common Areas only as a means of ingress and egress, and
Lessee shall permit no loitering by any persons upon Common Areas or elsewhere
within the Project. The Common Areas and roof of the Project are not for the use
of the general public, and Lessor shall in all cases retain the right to control
or prevent access thereto by all persons whose presence, in the judgment of
Lessor, shall be prejudicial to the safety, character, reputation or interests
of the Project and its lessees. Lessee shall not enter the mechanical rooms, air
conditioning rooms, electrical closets, janitorial closets, or similar areas or
go upon the roof of the Project without the express prior written consent of
Lessor.
14. Lessor reserves the right to exclude or expel from the Project any person
who, in the opinion of Lessor, is intoxicated or under the influence of liquor
or drugs or who shall in any manner act in violation of the rules and
regulations of the Project.
15. Lessor shall have the right to designate the area or areas, if any, in which
Lessee and Lessee's servants, employees, contractors, jobbers, agents,
licensees, invitees, guests and visitors may park vehicles, and Lessee and its
servants, employees, contractors, jobbers, agents, licensees, invitees, guests
and visitors and shall observe and comply with all driving and parking signs and
markers within and about the Project. All parking ramps and areas and any
pedestrian walkways, plazas or other public areas forming a part of the Project
or the land upon which the Project is situated shall be under the sole and
absolute control of Lessor who shall have the exclusive right to regulate and
control those areas.
16. Lessee shall not use the washrooms, restrooms, and plumbing fixtures of the
Project, and appurtenances thereto, for any other purpose than the purposes for
which they were constructed, and Lessee shall not waste water by interfering or
tampering with the faucets or otherwise. If Lessee or Lessee's servants,
employees, contractors, jobbers, agents, licensees, invitees, guests or visitors
cause any damage to such washrooms, restrooms, plumbing fixtures or
appurtenances, such damage shall be repaired at Lessee's expense, and Lessor
shall not be responsible therefor.
17. Lessee shall not mark, paint, drill into, cut, string wires within, or in
any way deface any part of the Project, without the express prior written
consent of Lessor, and as Lessor may direct. Upon removal of any wall
decorations or installations or floor coverings by Lessee, any damage to the
walls or floors shall be repaired by Lessee at Lessee's sole cost and expense.
Without limitation upon any of the provisions of the Lease, Lessee shall refer
all contractor's representatives, installation technicians, janitorial workers
and other mechanics, artisans and laborers rendering any service in connection
with the repair, maintenance or improvement of the Premises to Lessor for
Lessor's supervision, approval and control before performance of any such
service. This Paragraph 17 shall apply to all work performed in the Project,
including attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other portion of the
Project. Plans and specifications for such work, prepared at Lessee's sole
expense shall be submitted to Lessor and shall be subject to Lessor's express
prior written approval in each instance before the commencement of work. All
installations, alterations and additions shall be constructed by Lessee in a
good and workman-like manner and only good grades of material shall be used in
connection therewith. The means by which telephone, telegraph and similar wires
are to be introduced to the Premises and the location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
express prior written approval of Lessor. The use of cement or other similar
adhesive material is expressly prohibited.
18. No signs, awnings, showcases, advertising devices or other projections or
obstructions shall be attached to the outside walls of the Project or attached
or placed upon any Common Areas without the express prior written consent of
Lessor. No window shades, blinds, drapes or other window coverings shall be
installed in the Project without the express prior written consent of Lessor. No
sign, picture, advertisement, window display or other public display or notice
shall be inscribed, exhibited, painted or affixed by Lessee upon or within any
part of the Premises in such a fashion as to be seen from the
Page 2 of 4 Pages
<PAGE>
outside of the Premises or the Project without the express prior written consent
of Lessor. In the event of the violation of any of the foregoing by Lessee,
Lessor may remove the articles constituting the violation without any liability
and Lessee shall reimburse Lessor for the expense incurred in such removal upon
demand as additional rent under the Lease. Interior signs on doors and upon the
Project directory shall be subject to the express prior written approval of
Lessor and shall be inscribed, painted or affixed by Lessor at the expense of
Lessee.
19. Lessee shall not use the name of the Project or of Lessor in its business
name, trademarks, signs, advertisements, descriptive material, letterhead,
insignia or any other similar item without Lessor's express prior written
consent.
20. Lessee shall be entitled to have its name entered upon the directory of the
Project. In the event that Lessee wishes to have additional entries made upon
the Project directory for the names of employees of Lessee who occupy office
space within the Premises, such entries may be allowed by Lessor in its
reasonable discretion, and Lessor may require that Lessee pay a reasonable fee
for each such additional entry. All entries upon the Project directory shall be
in uniform print of a size, style and format selected by Lessor.
21. The sashes, sash doors, skylights, windows and doors that reflect or admit
light or air into the Common Areas shall not be covered or obstructed by Lessee,
through placement of objects upon window sills or otherwise. Lessee shall
cooperate with Lessor in obtaining maximum effectiveness of the cooling system
of the Project by closing drapes and other window coverings when the sun's rays
fall upon windows of the Premises. Lessee shall not obstruct, alter, or in any
way impair the efficient operation of Lessor's heating, ventilating, air
conditioning, electrical, fire, safety or lighting systems, nor shall Lessee
tamper with or change the setting of any thermostat or temperature control
valves in the Project.
22. Subject to applicable fire or other safety regulations, all doors opening
onto Common Areas and all doors upon the perimeter of the Premises shall be kept
closed and, during non-business hours, locked, except when in use for ingress or
egress. If Lessee uses the Premises after regular business hours or on
non-business days, Lessee shall lock any entrance doors to the Project or to the
Premises used by Lessee immediately after using such doors.
23. Employees of Lessor shall not receive or carry messages for or to Lessee or
any other person, nor contract with nor render free or paid services to Lessee
or Lessee's servants, employees, contractors, jobbers, agents, invitees,
licensees, guests or visitors. In the event that any of Lessor's employees
perform any such services, such employees shall be deemed to be the agents of
Lessee regardless of whether or how payment is arranged for such services and
Lessee hereby indemnifies and holds Lessor harmless from any and all liability
in connection with any such services and any associated injury or damage to
property or injury or death to persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained by Lessee
from Lessor, and Lessee shall pay to Lessor a reasonable deposit determined by
Lessor from time to time for such keys. Lessee shall not make duplicate copies
of such keys. Lessee shall not install additional locks or bolts of any kind
upon any of the doors or windows of, or within, the Project, nor shall Lessee
make any changes in existing locks or the mechanisms thereof. Lessee shall, upon
the termination of its tenancy, provide Lessor with the combinations to all
combination locks on safes, safe cabinets and vaults and deliver to Lessor all
keys to the Project, the Premises, and all interior doors, cabinets, and other
key- controlled mechanisms therein, whether or not such keys were furnished to
Lessee by Lessor. In the event of the loss of any key furnished to Lessee by
Lessor, Lessee shall pay to Lessor the cost of replacing the same or of changing
the lock or locks opened by such last key if Lessor shall deem it necessary to
make such a change.
25. Access may be had by Lessee to the Common Areas and to the Premises at any
time. At other times access to the Project may be refused unless the person
seeking admission is known to the watchman in charge, if any, and/or has a pass
or is properly identified. Lessee shall be responsible for all persons for whom
Lessee requests passes and shall be liable to Lessor for all acts of such
persons. Lessor shall in no case be liable for damages for the admission or
exclusion of any person from the Project. In case of
Page 3 of 4 Pages
<PAGE>
invasion, mob, riot, public excitement, or other commotion, Lessor reserves the
right to prevent access to the Project for the safety of lessees and protection
of property in the Project.
26. Lessor shall not be responsible for, and Lessee hereby indemnifies and holds
Lessor harmless from any liability in connection with, the loss, theft,
misappropriation or other disappearance of furniture, furnishings, fixtures,
machinery, equipment, money, jewelry or other items of personal property from
the Premises or other parts of the Project, regardless of whether the Premises
or Project are locked at the time of such loss.
27. For purposes hereof, the terms "Lessor", "Lessee", "Project" and "Premises"
are defined as those terms are defined in the Lease to which these Rules and
Regulations are attached. Wherever Lessee is obligated under these Rules and
Regulations to do or refrain from doing an act or thing, such obligation shall
include the exercise by Lessee of its best efforts to secure compliance with
such obligation by the servants, employees, contractors, jobbers, agents,
invitees, licensees, guests and visitors of Lessee. The term "Project" shall
include the Premises, and any obligations of Lessee hereunder with regard to the
Project shall apply with equal force to the Premises and to other parts of the
Project.
Page 4 of 4 Pages
<PAGE>
EXHIBIT "F"
Storage and Use of
Permitted Hazardous Material/Wastes
Landlord will allow the use and storage of the following hazardous
materials/wastes at the Premises, so long as Tenant complies with all terms of
the Lease regarding Hazardous Materials:
Isopropyl Alcohol
Solder Flux
Wipes
Tips
Gloves
Finger Cots
and such other Hazardous Material required and used in the
production of Tenant's Products, provided their use and
disposal adheres to federal and state laws.
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment"), dated as of February
12, 1998, is entered into by and between Stanford Ranch I, LLC, a Delaware
limited liability company ("Landlord"), and Spectrian Corporation, a Delaware
corporation ("Tenant"), and is made with reference to the following recitals of
fact:
RECITALS
A. Landlord and Tenant entered into that certain Lease dated December
19, 1997 (the "Lease"), for certain office space commonly known as Suite 500
(referred to in the Lease as the "Premises" and referred to herein as the
"Original Premises") in a building (the "Building") containing approximately
40,000 square feet to be constructed within Atherton Tech Center, Lot 10,
Rocklin, California 95765 (the "Project"). The Lease includes the First Addendum
to Lease dated December 19, 1997 (the "First Addendum").
B. Tenant agrees to lease from Landlord additional space within the
Building and otherwise modify the Lease on all of the terms and conditions set
forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. Lease of Additional Space.
(a) Additional Space. As of the Term Commencement Date,
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that
certain space in the Building depicted on the Amended Exhibit "A" attached
hereto and incorporated herein by this reference (the "Additional Space"), on
all of the terms, provisions and conditions of the Lease as modified hereby. The
Amended Exhibit "A" also depicts the Original Premises, and the Amended Exhibit
"A" shall supersede and replace Exhibit "A" attached to the Lease. The
Additional Space contains approximately 19,142 square feet, and such Additional
Space and the Original Premises together constitute the entire Building. As of
the Term Commencement Date, the term "Premises," as used in the Lease and this
Amendment, shall be modified to mean the Original Premises and the Additional
Space.
(b) Term for Additional Space. The Term of the Lease with
respect to the Additional Space shall commence on the date on which the
conditions set forth in Section 2B of the Lease have been satisfied as they
relate to the Additional Space. The parties hereto anticipate that the Term of
the Lease relating to the Additional Space will occur on the Term Commencement
Date. As such, the provisions of this Amendment pertaining to the Additional
Space reflect commencement of obligations thereto occurring on the Term
Commencement Date. However, if the Tenant Improvements for the Additional Space
are not substantially completed by the Term Commencement Date, then,
notwithstanding anything contained herein to the contrary, the Term of the Lease
as it relates to the Additional Space shall commence upon substantial completion
of the Tenant Improvements for the Additional Space and delivery to Tenant of a
copy of a temporary or permanent occupancy permit for the Additional Space
(sometimes referred to herein as the "Additional Space Commencement Date"). The
term "Tenant Improvements for the Additional Space" shall mean the improvements
depicted on the Schematic Drawing prepared by Calpo/Hom/Macaulay/Dong, dated
February 12, 1998, a copy of which is attached hereto as the Amended Exhibit "A"
(sometimes also referred to herein as the "Schematic Drawing"). The Lease for
the entire Premises (i.e., the Original Premises and the Additional Space) shall
be coterminous, such that the Term of the Lease with respect to the Additional
Space shall end on the expiration or earlier termination of the Term of the
Lease with respect to the Original Premises, as it may be extended or renewed.
(c) Base Rent for Additional Space. As of the Term
Commencement Date, the Base Rent for the Additional Space shall be as follows:
(i) The Base Rent for the first two (2) months after
the Term Commencement Date shall be fully abated. For the period following the
first two (2) months of the abated Base Rent through the next 9 months of the
Term (the day after the last day of the last of such months is referred to
herein as the "Additional Space Base Rent Increase Date"), subject to the
provisions of Section 1(c)(iii) below, Base Rent for the Additional Space shall
be $8,613.90 per month ($0.45 per square foot of the Additional Space per month)
(it is understood that, if the Additional Space Commencement Date occurs after
the Term Commencement Date, the first two months after the Additional Space
Commencement Date shall be free of Base Rent for the Additional Space);
<PAGE>
(ii) From the Additional Space Base Rent Increase
Date through the end of the Term, Base Rent for the Additional Space shall be
$16,270.70 per month ($0.85 per square foot of the Additional Space per month)
(sometimes referred to herein as the "Increased Base Rent for the Additional
Space");
(iii) The Additional Space Base Rent Increase Date
shall be lengthened or shortened to the extent the Construction Costs for the
Additional Space are less or greater, respectively, than Landlord's Additional
Construction Allowance (as defined in Section 1(g) below);
(iv) Base Rent for the Additional Space (i.e., the
initial Base Rent and the Increased Base Rent for the Additional Space) shall be
added to the Base Rent for the Original Premises (as the Base Rent for the
Original Premises may be increased to the extent the Tenant Improvement
Allowance is greater than the Fixed Allowance, as provided in Section 5 of the
First Addendum), and the combined Base Rent for the Additional Space and the
Original Premises shall be the Base Rent for the entire Premises under the
Lease;
(v) The combined Base Rent for the entire Premises
shall be increased on the 19th, 37th and 54th months of the Term of the Lease
(as calculated from the Term Commencement Date) by three and one-half percent
(3-1/2%) of the then existing combined Base Rent (as it may have been previously
increased). If the Increased Base Rent for the Additional Space is not effective
on the 19th month of the Term, then the Increased Base Rent for the Additional
Space shall be deemed to be effective for purposes of calculating the increase
in Base Rent for the 19th month of the Term. If the Additional Space
Commencement Date occurs more than sixty (60) days after the Term Commencement
Date, then the three and one-half percent (3-1/2%) increases in Base Rent for
the Additional Space shall be delayed by the number of days following the Term
Commencement Date until the Additional Space Commencement Date; however, this
delay shall not affect the occurrence of the three and one-half percent (3-1/2%)
increases in Base Rent for the Original Premises as described above.
(d) Tenant's Proportionate Share. As of the Term Commencement
Date, Tenant's Proportionate Share, as set forth in the Basic Lease Information
of the Lease, shall be increased to 100%, since, as of the Term Commencement
Date, Tenant shall be leasing the entire Building.
(e) Parking Density. As of the Term Commencement Date, the
number of parking spaces available for use by Tenant shall be modified to be all
of the parking spaces located on the Project.
(f) Tenant Improvements for Additional Space. Landlord shall
alter and improve the Additional Space with the Tenant Improvements as depicted
in the Schematic Drawing and in accordance with the terms and conditions of the
Lease (including, without limitation, all attachments thereto); provided,
however, that for purposes of determining the scope of the parties' obligations
with respect to the Tenant Improvements for the Additional Space, the following
shall apply:
(i) Landlord shall act reasonably and diligently in
the commencement and substantial completion of the Tenant Improvements for the
Additional Space, and Tenant shall act reasonably and cooperatively with
Landlord to enable the substantial completion of the Tenant Improvements for the
Additional Space to occur at the earliest date practicable. The first sentence
of Section 2.2 of the Work Letter attached as Exhibit "B" to the Lease (i.e.,
the Commencement Date shall occur by June 1, 1998) shall, subject to Section 35
of the Lease, be applicable to the Tenant Improvements for the Original Premises
and the Additional Space. In no event, subject to Section 35 of the Lease, shall
the Additional Space Commencement Date occur later than December 31, 1998.
(ii) The following provisions of the Lease shall not
be applicable to the construction of the Tenant Improvements for the Additional
Space: (i) the last sentence of Section 1 of the Work Letter and (ii) Section 5
of the First Addendum.
(iii) References in the Lease (including, without
limitation, the Work Letter) to the Tenant Improvements shall mean the Tenant
Improvements for the Additional Space, and references to the Commencement Date
shall mean the Term Commencement Date.
If Tenant wishes to make any changes to the Tenant Improvements for the
Additional Space from those depicted on the Schematic Drawing, and such changes
are approved in writing by Landlord (Landlord's approval shall not be
unreasonably withheld, except that Landlord's approval may be withheld in
Landlord's sole discretion as to any changes which materially diminish the
construction costs of the Tenant Improvements for the Additional Space below
$17.00 per square foot), then Tenant shall bear the entire cost of such changes
(including, without limitation, all architectural fees and costs, permit fees
and cost and all additional costs to construct and install the Tenant
Improvements for the Additional Space [including the 4% construction fee to
Landlord] related to such changes), and the date of substantial completion of
the Tenant Improvements for the Additional Space shall be deemed to have
occurred on the date same would have occurred but for such changes. The costs of
such changes that are to be borne by Tenant shall be paid by shortening the
Additional Space Base Rent Increase Date as described in Section 1(g) below.
2
<PAGE>
(g) Payment of Construction Costs. Landlord's construction
allowance for the Tenant Improvements for the Additional Space shall be
$339,210.00 ($17.67 per square foot of the Additional Space) ("Landlord's
Additional Construction Allowance"), based upon construction costs of $______,
plus a construction fee to Landlord of 4% of such costs pertaining to the Tenant
Improvements for the Additional Space (which Tenant Improvements shall not
include the Landlord's Work (Landlord's Work shall be all work for the Building
that is not Tenant Improvements, whether such Tenant Improvements are to the
Original Premises or the Additional Space], but shall include the architectural
fees and costs of Calpo/Hom/Macaulay/Dong for the Project). It is intended that
the monthly Base Rent shall not be increased if the increase in the construction
costs is simply because construction costs for the Tenant Improvements for the
Additional Space were higher than expected, and the monthly Base Rent shall not
be decreased if there is a decrease in the construction costs simply because
construction costs for the Tenant Improvements for the Additional Space were
lower than expected. In the event the actual construction costs of the Tenant
Improvements for the Additional Space exceeds or is less than Landlord's
Additional Construction Allowance solely due to Tenant changes in the Tenant
Improvements for the Additional Space, Landlord shall pay such actual
construction costs; provided, however, that there shall be an adjustment in the
occurrence of the Additional Space Base Rent Increase Date (either to lengthen
or shorten the time period before which the Increased Base Rent for the
Additional Space becomes effective and payable) as follows:
(i) If the actual Construction Costs for the Tenant
Improvements for the Additional Space are greater than Landlord's Additional
Construction Allowance due solely to Tenant's changes, then the amount of such
excess shall be paid by Tenant to Landlord in the form of a shortening of the
time period before which the Additional Space Base Rent Increase Date occurs.
For example, if such excess is $30,000.00, then the Additional Space Base Rent
Increase Date shall occur sooner by four (4) months (and the $627.20 remainder
shall be paid by Tenant to Landlord as additional Base Rent for the Additional
Space in the month preceding the Additional Space Base Rent Increase Date).
(ii) Alternatively, if the actual Construction Costs
for the Tenant Improvements for the Additional Space are less than Landlord's
Additional Construction Allowance due solely to Tenant's changes, then the
shortfall shall be recaptured by Tenant in the form of a lengthening of the time
period before which the Additional Space Base Rent Increase Date occurs. For
example, if the shortfall is $30,000.00, then the Additional Space Base Rent
Increase Date shall occur later by four (4) months (and the $627.20 remainder
shall be a credit against the Base Rent for the Additional Space in the month in
which the Additional Space Base Rent Increase Date occurs).
(iii) Notwithstanding anything to the contrary
contained in this Section 1(g), if as a result of Tenant changes in the Tenant
Improvements for the Additional Space, the construction costs for the Tenant
Improvements for the Additional Space exceed $406,001.82 ($21.21 per square foot
of the Additional Space), then Tenant shall pay the excess costs to Landlord
within ten (10) days after written request therefor from Landlord, and in any
event prior to the date Landlord incurs such costs.
(h) Evidence of Insurance Coverage. On the Term Commencement
Date, Tenant shall cause the insurance which Tenant is obligated to obtain under
the Lease to be revised such that it shall also be applicable to and cover the
Original Premises and the Additional Space, and Tenant shall deliver a
Certificate of Insurance therefor to Landlord on the Term Commencement Date.
2. Exercise of Right of First Refusal. The execution of this Amendment
shall be considered as Tenant's exercise of its First Refusal Right contained in
Paragraph 3 of the First Addendum. Therefore, said Paragraph 3 of the First
Addendum is hereby deleted in its entirety and shall have no further force or
effect. Furthermore, as a result of the exercise by Tenant of its First Refusal
Right, same automatically terminated Tenant's Cancellation Option, and as such,
Paragraph 4 of the First Addendum is also hereby deleted in its entirety and
shall have no further force or effect.
3. Tenant Estoppel Statement. Tenant hereby certifies and agrees that
the Lease is in full force and effect, Landlord is not currently in default
under the Lease, and, to the best of Tenant's knowledge, no event has occurred
which, with the giving of notice or the passage of time, or both, would ripen
into Landlord's default under the Lease. Tenant further acknowledges that the
Lease has not been modified or amended in any way prior to the date of this
Amendment.
4. Defined Terms; Captions. All terms in this Amendment not otherwise
defined herein shall have the same definitions as are provided therefor in the
Lease. The captions used in this Amendment are for convenience of reference only
and shall have no effect upon the interpretation of this Amendment.
5. Authorization to Sign. Landlord and Tenant hereby warrant and
represent to each other that the persons signing the Lease and this Amendment
have the authority to sign such documents on behalf of such party and that such
documents are binding upon such party in accordance with their terms. Upon
request by either party hereto, the other party shall provide reasonable
evidence of the authority of the signatories on its behalf to the Lease and this
Amendment.
3
<PAGE>
6. Ratification of Lease. Except as expressly amended and modified
herein, the Lease shall remain in full force and effect and, as hereby amended,
is ratified and confirmed by the parties hereto. In the event of a conflict
between the provisions of this Amendment and those of the Lease, the provisions
of this Amendment shall control.
7. Brokers. The provisions of Paragraph 36 of the Lease dealing with
the brokerage commission payable to Cornish & Carey Commercial and the
representation, warranty and indemnity by Tenant contained therein shall also be
applicable to the lease of the Additional Space.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
"LANDLORD" "TENANT"
STANFORD RANCH I, LLC, SPECTRIAN CORPORATION,
a Delaware limited liability company a Delaware corporation
By: ______________________________ By: ______________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
By: ______________________________ By: ______________________________
Name:_______________________ Name:_________________________
Title:______________________ Title:________________________
4
<PAGE>
AMENDED EXHIBIT "A"
SCHEMATIC DRAWING SHOWING ORIGINAL PREMISES AND ADDITIONAL SPACE
[TO BE ATTACHED]
5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Spectrian Corporation:
We consent to incorporation by reference in the registration statements (Nos.
333-38561, 333-25435, 333-49081, and 333-53079) on Form S-8 of Spectrian
Corporation of our report dated April 22, 1998, relating to the consolidated
balance sheets of Spectrian Corporation and subsidiaries as of March 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1998, and the related schedule, which report appears in the March 31,
1998, annual report on Form 10-K of Spectrian Corporation.
/s/ KPMG Peat Marwick LLP
Mountain View, California
May 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925054
<NAME> SPECTRIAN CORP /DE/
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 31,460
<SECURITIES> 68,128
<RECEIVABLES> 21,499
<ALLOWANCES> 376
<INVENTORY> 15,362
<CURRENT-ASSETS> 6,202
<PP&E> 56,935
<DEPRECIATION> 24,159
<TOTAL-ASSETS> 175,051
<CURRENT-LIABILITIES> 24,797
<BONDS> 5,912
0
0
<COMMON> 146,228
<OTHER-SE> (1,886)
<TOTAL-LIABILITY-AND-EQUITY> 175,051
<SALES> 168,798
<TOTAL-REVENUES> 168,798
<CGS> 132,684
<TOTAL-COSTS> 132,684
<OTHER-EXPENSES> 31,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,865)
<INCOME-PRETAX> 9,321
<INCOME-TAX> 399
<INCOME-CONTINUING> 8,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,922
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.83
</TABLE>
