<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANADIGICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 22-2582106
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
------------------------
35 TECHNOLOGY DRIVE
WARREN, NEW JERSEY 07059
(908) 668-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
RONALD ROSENZWEIG
CHIEF EXECUTIVE OFFICER AND PRESIDENT
ANADIGICS, INC.
35 TECHNOLOGY DRIVE
WARREN, NEW JERSEY 07059
(908) 668-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service) with copies of all orders, notices and communications to:
<TABLE>
<S> <C>
STEPHEN A. GREENE, ESQ. ROBERT S. RISOLEO, ESQ.
CAHILL GORDON & REINDEL SULLIVAN & CROMWELL
80 PINE STREET 125 BROAD STREET
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10004
(212) 701-3000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share.................. 2,347,739 shares $44.50 $104,474,386 $31,659
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee on the basis of the average of the high and low prices of
the Registrant's Common Stock reported on the Nasdaq National Market on
January 24, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 31, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,041,513 SHARES
ANADIGICS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 2,041,513 shares of Common Stock offered hereby, 1,875,000 shares are
being sold by the Company and 166,513 shares are being sold by the Selling
Stockholders. See "Selling Stockholders". The Company will not receive any of
the proceeds from the sale of the shares being sold by the Selling Stockholders.
The last reported sale price of the Common Stock, which is quoted under the
symbol "ANAD", on the Nasdaq National Market on January 28, 1997 was $30.17 per
share, as adjusted for the three-for-two stock split of the Common Stock by
declaration of a stock dividend on January 30, 1997. See "Prospectus Summary"
and "Price Range of Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (3)........................... $ $ $ $
</TABLE>
- ---------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 306,226 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting".
-------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
OPPENHEIMER & CO., INC.
NEEDHAM & COMPANY, INC.
------------
The date of this Prospectus is , 1997.
<PAGE>
[Graphics of products in which the Company's integrated circuits are used]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO), APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE NOTED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND REFLECTS THE
THREE-FOR-TWO STOCK SPLIT BY DECLARATION ON JANUARY 30, 1997 OF A STOCK DIVIDEND
OF ONE SHARE OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), FOR EACH TWO SHARES OF COMMON STOCK OUTSTANDING (THE "STOCK
SPLIT"). THE DIVIDEND IS PAYABLE ON FEBRUARY 20, 1997 TO HOLDERS OF RECORD ON
FEBRUARY 10, 1997.
THE COMPANY
ANADIGICS, Inc. ("ANADIGICS" or the "Company") is a leading supplier of
radio frequency ("RF") and microwave gallium arsenide ("GaAs") integrated
circuits. The Company's products are used to receive and transmit signals in a
variety of high volume communications applications in cellular telephone systems
and personal communication systems ("PCS"), in fiber optic communication systems
and in cable ("CATV") and direct broadcast satellite ("DBS") television systems.
The Company designs, develops and manufactures its integrated circuits in GaAs
semiconductor material that allows the integration of numerous RF/microwave
functions which cannot be easily integrated in silicon-based circuits. The
Company's high frequency integrated circuits can typically replace 30 to 100
discrete components, permitting manufacturers of end products to reduce the size
and weight of their products, increase power efficiency, improve reliability,
reduce manufacturing time and cost and enhance overall system performance.
The Company's objective is to be the leading supplier of high volume GaAs
integrated circuits for RF/microwave receiver and transmitter applications. To
date, the Company has delivered over 60 million GaAs integrated circuits,
including over 21 million in 1996. Unlike some other manufacturers of GaAs
integrated circuits who have focused on low volume applications for industries
such as aerospace and defense, the Company has developed high volume
manufacturing capabilities geared toward achieving higher yields and lower
costs. The Company has made a significant investment in proprietary processes,
including design, wafer fabrication and testing, which the Company believes
gives it a competitive advantage. The Company manufactures integrated circuits
at its existing facility in Warren, New Jersey and is in the process of
constructing a new production facility in order to increase capacity. See
"Business--Manufacturing, Assembly and Testing".
ANADIGICS believes that the market for high frequency integrated circuits
for receiver and transmitter applications will grow significantly as demand for
broadband, high frequency end products grows in the communications, information
and video entertainment markets. The Company believes that it is currently one
of the few sources of RF/microwave GaAs integrated circuits for high volume
communications applications.
In the cellular and PCS market, which according to Kagan World Media grew
(based on the estimated number of subscribers) by over 50% worldwide during the
first eleven months of 1996, the Company's products are used primarily as power
amplifiers in telephone handsets, where they replace more traditional hybrid or
discrete component solutions containing 30 to 50 chip components. The Company's
integrated circuit power amplifiers provide a smaller footprint, lower parts
count and lower power consumption compared to traditional hybrid or discrete
solutions. The Company currently is producing GaAs integrated circuit power
amplifiers for the analog Advanced Mobile Phone Service ("AMPS") and Expanded
Total Access Communication System ("ETACS") standards, and for the newer,
digital Global System Mobile ("GSM"), Time Division Multiple Access ("TDMA") and
Code Division Multiple Access ("CDMA") standards. In addition to power amplifier
integrated circuits for telephone handsets, the Company is also producing
receiver integrated circuits for cellular handsets, base stations and fixed
wireless local loop applications.
3
<PAGE>
The Company's principal products for fiber optic systems are transimpedance
amplifiers that are used primarily in Synchronous Optical Network ("SONET") and
Synchronous Digital Hierarchy ("SDH") fiber optic transmission at rates from 155
megabits per second ("Mbps") to 2480 Mbps. Increasingly, these products are also
being used in higher bit rate data communication applications. In the cable
television market, the Company's products are used primarily in wide band tuners
for set top converters operating at the older 500 megahertz ("MHz") bandwidth
and the new 800 MHz bandwidth. The new 800 MHz bandwidth provides increased
analog channel capacity, digital cable television capability and internet access
via cable modems. The Company also offers wide band linear amplifier products
operating at frequencies of up to 860 MHz for hybrid fiber/coaxial
infrastructure applications. In the DBS market, the Company's products are used
as down converters primarily in satellite dishes, as well as in set top DBS
tuners. The Company's products are utilized in DBS services using analog
modulation such as BSkyB in Europe, as well as DBS services using digital
modulation such as DirectTV in the United States.
The Company has developed working relationships with leading companies in
each of its target markets. The Company's principal customers include LM
Ericsson AB ("Ericsson"), General Instrument Corp. ("General Instrument"),
Lucent Technologies, Inc. ("Lucent"), Nokia Corp. ("Nokia"), Nortel Ltd.
("Nortel"), Philips Electronics N.V., and Qualcomm Personal Electronics
("Qualcomm PE"), a partnership between Qualcomm, Inc. and Sony Corp. The
Company's five largest customers in each of the past three years together
accounted for 61%, 67% and 60% of net sales for 1994, 1995 and 1996,
respectively. The Company's net sales have grown from $20.2 million in 1992 to
$68.9 million in 1996.
The Company was incorporated in Delaware on April 24, 1984. The executive
offices of the Company are located at 35 Technology Drive, Warren, New Jersey
07059. The Company's telephone number is (908) 668-5000. The Company's Website
is http://www.anadigics.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 1,875,000 shares
Common Stock offered by the Selling
Stockholders........................... 166,513 shares
Common Stock to be outstanding after the
Offering............................... 14,439,678 shares(1)
Use of proceeds.......................... The Company will use approximately $50 million
of its net proceeds from this Offering to
purchase capital equipment and make leasehold
improvements and will use the remainder for
general corporate purposes, including working
capital. The Company will receive no proceeds
from the sale of shares of Common Stock by the
Selling Stockholders. See "Use of Proceeds".
Nasdaq National Market symbol............ ANAD
</TABLE>
- --------------
(1) Based on shares outstanding as of January 28, 1997. Excludes 3,002,696
shares of Common Stock reserved for issuance under the Company's stock
purchase and stock option plans and warrants outstanding on January 28,
1997, of which 1,661,672 shares of Common Stock are issuable upon exercise
of options and warrants outstanding on January 28, 1997. See
"Capitalization" and Notes 1, 7, 8 and 11 to the Financial Statements.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 20,224 $ 29,024 $ 34,832 $ 51,460 $ 68,864
Gross profit....................... 7,613 13,701 16,378 26,465 29,977
Income (loss) from operations...... (803) 2,831 2,653 8,092 9,735
Net income (loss)(1)............... (2,159) 1,936 1,865 7,293 11,991
Net income (loss) per
share(1)(2)...................... $ (11.15) $ 0.28 $ 0.23 $ 0.64 $ 0.93
Common and common equivalent shares
used in computing per share
amounts(2)....................... 193,587 6,940,401 8,260,430 11,374,745 12,907,851
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- ---------------
BALANCE SHEET DATA:
Working capital................................................... $ 37,825 $ 40,882
Total assets...................................................... 86,996 140,053
Current maturities of capital lease obligations................... 1,292 1,292
Capital lease obligations, less current portion................... 627 627
Stockholders' equity.............................................. 70,557 123,614
</TABLE>
- --------------
(1) Includes recognition of a net deferred tax benefit of approximately $1.2
million (or $0.11 per share) and $3.6 million (or $0.28 per share) in 1995
and 1996, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--1996
Compared to 1995--Provision (Benefit) for Income Taxes" and Note 5 to the
Financial Statements.
(2) Common stock equivalents are not included in 1992 as their effect was
anti-dilutive.
(3) Adjusted to reflect the sale by the Company of 1,875,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $30.17
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds".
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. CERTAIN STATEMENTS IN
THIS PROSPECTUS, SUCH AS STATEMENTS CONCERNING THE DEVELOPMENT OF NEW
COMMUNICATION TECHNOLOGIES AND SERVICES, THE TREND IN COMMUNICATION SYSTEMS
TOWARD HIGHER OPERATING FREQUENCIES, THE EVOLUTION OF COMMUNICATION SYSTEMS FROM
ANALOG TO DIGITAL MODULATION, THE GROWTH OPPORTUNITIES OF CERTAIN MARKETS FOR
THE COMPANY'S PRODUCTS, THE COMPANY'S PLANS WITH RESPECT TO, AMONG OTHER THINGS,
CAPITAL EXPENDITURES, PRODUCTION CAPACITY, REVENUES, EARNINGS, LIQUIDITY AND
CAPITAL RESOURCES, ACCOUNTING AND TAX MATTERS AND REGULATORY MATTERS, AND OTHER
STATEMENTS REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS, ARE FORWARD-LOOKING
STATEMENTS (AS THAT TERM IS DEFINED IN THE SECURITIES ACT OF 1933, AS AMENDED)
THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN
GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT WILL
INCLUDE WORDS SUCH AS THE COMPANY "BELIEVES", "ANTICIPATES", "EXPECTS" OR WORDS
OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE
PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE FORWARD-LOOKING STATEMENTS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS AND DEVELOPMENTS
TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH STATEMENTS
INCLUDE THOSE FACTORS DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE
HEREIN.
DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS
The Company receives most of its revenues from a few significant customers.
Sales to the Company's five largest customers in each of the past three years
accounted for 61%, 67% and 60% of net sales in 1994, 1995 and 1996,
respectively. General Instrument, Ericsson, Qualcomm PE, Nokia and Nortel
accounted for 16%, 16%, 12%, 10% and 6% of 1996 net sales, respectively. The
Company's operating results have been materially and adversely affected in the
past by the failure of anticipated orders to be realized and by deferrals or
cancellations of orders as a result of changes in customer requirements. If the
Company were to lose a major customer, or if sales to a major customer were to
decrease materially, the Company's results of operations would be materially and
adversely affected. See "Business--Target Markets and Products".
VARIABILITY OF MANUFACTURING YIELDS
The Company's manufacturing yields vary significantly among products,
depending on the complexity of a particular GaAs integrated circuit's design and
the Company's experience in manufacturing such integrated circuit. Historically,
the Company has experienced difficulties in achieving planned yields on certain
new GaAs integrated circuits, which have adversely affected gross margins.
Although the Company's process technology utilizes standard silicon
semiconductor manufacturing equipment, aggregate production quantities of GaAs
integrated circuits manufactured by the Company and the GaAs integrated circuit
industry in general have been relatively low compared with silicon integrated
circuit production volumes, and the process technology is significantly less
mature than silicon process technologies.
Regardless of the process technology used, the fabrication of integrated
circuits is a highly complex and precise process. Defects in masks, impurities
in the materials used, contamination of the manufacturing environment, equipment
failure and other difficulties in the fabrication process can cause a
substantial percentage of wafers to be rejected or numerous integrated circuits
on each wafer to be nonfunctional, thereby reducing yields.
Because a large portion of the Company's costs of manufacturing are
relatively fixed and average selling prices tend to decline over time,
improvements in the number of shippable integrated circuits per wafer and
increases in the production volume of wafers are critical to maintaining and
improving the
6
<PAGE>
Company's results of operations. Yield decreases can result in substantially
higher unit costs, which could materially and adversely affect operating
results. There can be no assurance that the Company will be able to continue to
improve its yields in the future or that the Company will not suffer periodic
yield problems, particularly during the early production of new products, such
as those experienced by the Company in the third quarter of 1996. In either
case, the Company's results of operations could be materially and adversely
affected. See "Business--Manufacturing, Assembly and Testing".
POSSIBLE DELAYS IN DEVELOPMENT OF PCS OR OTHER NEW MARKETS; UNCERTAINTY OF
ACCEPTANCE OF NEW PRODUCTS
The Company supplies GaAs integrated circuits for mass market applications
related to communication, information and video entertainment systems. The
extent of the Company's success will depend to a considerable extent upon the
continued worldwide growth and increased availability of cellular and other
wireless communications applications and services, in particular PCS. No
assurance can be given regarding the rate at which the markets for such
applications will develop or the Company's ability to produce competitive
products for such applications and systems as they develop. The success of new
product introductions is dependent upon several factors, including timely
completion of new product designs, achievement of acceptable manufacturing
yields and market acceptance. No assurance can be given that the Company's
product and process development efforts will be successful or that its new
products will achieve market acceptance.
POSSIBLE PRODUCTION CAPACITY CONSTRAINTS; POSSIBLE DELAY IN CONSTRUCTION OF NEW
PRODUCTION FACILITY
The Company currently manufactures all of its integrated circuits at its
four-inch wafer fabrication facility located at 35 Technology Drive in Warren,
New Jersey. In October 1996, the Company began conversion from three-inch to
four-inch diameter wafer manufacturing at this facility. The technological and
manufacturing changes associated with these changes may, at least for an initial
period, affect manufacturing yields adversely and could adversely affect
operating results. The Company believes that this facility should be able to
satisfy its production needs through the end of 1997, assuming that the Company
successfully completes planned incremental increases in production and
electrical test capacity at the facility through such date. In addition to the
purchase of equipment, the Company will be required to successfully hire, train
and manage additional production personnel in order to successfully increase
production capacity at this facility. There can be no assurance that the Company
will be able to implement these changes successfully. If the expansion is
delayed for any reason, the Company will be limited in its ability to increase
sales volumes. In addition, a failure to increase production could adversely
affect relationships with customers if the Company does not have sufficient
capacity to satisfy the demand for its products.
The Company has leased an additional manufacturing facility located at 141
Mt. Bethel Road in Warren, New Jersey from United States Land Resources, L.P.
("USLR"), which USLR currently is in the process of refurbishing. The Company
plans to complete the approximately 131,000 square foot facility to create
manufacturing areas, including a 12,000 square foot Class 100 four-inch wafer
fabrication clean room, electrical test areas and office space. The Company
expects to be able to begin occupying the new facility late in the second
quarter or early in the third quarter of 1997. Following the completion of the
physical plant, the Company must install equipment and perform necessary testing
prior to commencing commercial production at the new facility, a process which
the Company anticipates will take at least three months. Accordingly, the
Company believes that the new facility will not begin commercial production
prior to the fourth quarter of 1997.
The construction of the new facility entails significant risks, including
possible shortages of materials and skilled labor, unavailability or late
delivery of process equipment, unforeseen environmental or engineering problems,
work stoppages, weather interferences and unanticipated cost increases, any of
7
<PAGE>
which could delay the production start-up at the new facility or increase its
cost. In addition, unexpected changes or concessions required by local, state or
federal regulatory agencies with respect to necessary licenses, land use
permits, site approvals and building permits or delays in the receipt of these
licenses, permits and approvals could involve significant additional costs and
delay the scheduled opening of the facility. There can be no assurance that the
project will be successfully completed within its current budget or on schedule.
The failure by the Company to successfully complete the new facility as
currently budgeted and scheduled could have a material and adverse effect on its
results of operations.
The successful operation of the new facility, once completed, as well as the
Company's overall production operations, will also be subject to numerous risks.
The Company will be required to hire, train and manage production personnel
successfully in order to operate effectively the new facility. The Company does
not have excess production capacity at its 35 Technology Drive facility to
offset any failure of the new facility to meet planned production goals. The
failure of the Company to successfully operate the new facility would have a
material and adverse effect on its results of operations.
The Company will also have to effectively coordinate and manage both
facilities to successfully meet its overall production goals. The Company has no
experience in coordinating and managing full scale production facilities which
are located at different sites. The failure to successfully coordinate and
manage the two sites would adversely affect the Company's overall production and
could have a material and adverse effect on its results of operations. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
RAPID PRODUCT AND PROCESS DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGES
The markets for the Company's products are characterized by rapid changes in
both product and process technologies. Because of continual improvements in
these technologies, the Company believes that its future success will depend in
part upon its ability to continue to improve its product and process
technologies and develop new products and process technologies. If a competing
technology develops that is superior to the Company's existing technology and
the Company is unable to implement successfully such technology or to develop a
competitive and economic alternative technology, the Company's operations would
be materially and adversely affected. See "Business--Competition" and
"--Research and Development".
In each of the markets in which the Company competes, prices of established
products tend to decline significantly over time. Accordingly, in order to
remain competitive, the Company believes that it must continue to develop
product enhancements and new technologies that will either slow the price
declines of its products or reduce the cost of producing and delivering its
products. Developing these enhancements and technologies requires investment by
the Company, and there can be no assurance that funds for such investments will
be available or that such enhancements and technologies will be successful.
SIGNIFICANT VARIABILITY OF OPERATING RESULTS
The Company participates in a highly dynamic industry and future results
could be subject to significant volatility, particularly on a quarterly basis.
The Company may experience substantial period-to-period fluctuations in future
operating results due to numerous factors, including general industry and global
economic conditions, the timing and success of new product introductions,
changes in selling prices for the Company's integrated circuits due to
competitive or currency exchange rate pressures, changes in product mix,
availability of raw materials, availability of manufacturing capacity,
fluctuations in manufacturing yields, the size and timing of shipments, market
acceptance of end-user products, the pattern of end-user or customer purchasing
cycles, the processes and technologies used by the Company and its competitors
and seasonality.
8
<PAGE>
The semiconductor industry has been characterized by cyclicality. The
industry has experienced significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and production over-capacity. Although the semiconductor industry
in general, and the portion of such industry serving the communications industry
in particular, are currently experiencing a period of increased demand, there
can be no assurance that these conditions will continue.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological change. To date, the Company has competed primarily with
manufacturers of discrete GaAs and silicon semiconductors. The Company expects
increased competition from discrete semiconductor manufacturers, as well as
other GaAs integrated circuit manufacturers, silicon analog integrated circuit
manufacturers and a number of companies which may enter the GaAs integrated
circuit market. In addition, certain of the Company's customers are competitors
of the Company.
Increased competition could result in decreased prices of GaAs integrated
circuits, reduced demand for the Company's products and a reduction in the
Company's ability to recover development engineering costs. Any of these
developments could materially and adversely affect the Company's results of
operations. Most of the Company's current and potential competitors, including
Fujitsu Microelectronics Inc., ITT Corp., Motorola Inc., Raytheon Co. and
Rockwell International Corp., have significantly greater financial, technical,
manufacturing and marketing resources than the Company. There can be no
assurance that the Company will be able to compete successfully with its
existing or new competitors. See "Business--Competition".
RELUCTANCE OF MANUFACTURERS TO ADOPT GAAS COMPONENTS
Silicon semiconductor technologies are the dominant process technologies for
integrated circuits. The Company's prospective customers are typically systems
designers and manufacturers who use such silicon technologies in their existing
systems and who are evaluating GaAs integrated circuits for use in their next
generation systems. Some potential customers may be reluctant to adopt the
Company's GaAs products because of perceived risks relating to GaAs technology
generally. Such perceived risks include the unfamiliarity of designing systems
with GaAs products as compared with silicon products, novel design, unfamiliar
manufacturing processes and uncertainties about the relative cost effectiveness
of GaAs products compared to high performance silicon-based integrated circuits.
In addition, customers may be reluctant to rely on a smaller company such as
ANADIGICS for critical components. There can be no assurance that additional
systems manufacturers will design the Company's products into their respective
systems, that the companies that have utilized the Company's products will
continue to do so in the future or that GaAs integrated circuit technology will
achieve widespread market acceptance. See "Business--Industry Overview" and
"--Competition".
LIMITED SOURCES FOR CERTAIN COMPONENTS, MATERIALS AND EQUIPMENT
The Company does not manufacture any of the blank wafers or packaging
components used in the production of its GaAs integrated circuits. Blank wafers
and packaging components are available from a limited number of sources. The
inability of the Company to obtain these wafers or components in the required
quantities could result in delays or reductions in product shipments which would
materially and adversely affect the Company's operating results. Although the
Company has not to date experienced any significant difficulty in obtaining
wafers or components, no assurance can be given that shortages will not arise in
the future.
The Company is dependent on a limited number of vendors to supply equipment
used in its manufacturing processes. At times of high demand for semiconductor
manufacturing equipment, lead
9
<PAGE>
times for delivery of such equipment can be substantial. No assurance can be
given that the Company would not lose potential sales if it were unable to
maintain or increase capacity due to the unavailability of manufacturing
equipment. See "--Possible Production Capacity Constraints; Possible Delay in
Construction of New Production Facility".
DEPENDENCE ON KEY MANAGERIAL AND TECHNICAL PERSONNEL
The Company's success depends in part upon attracting and retaining the
services of its managerial and technical personnel. The Company's expansion
plans will require the Company to hire an increasing number of such personnel.
The competition for qualified personnel is intense. There can be no assurance
that the Company will be able to retain its key managerial and technical
employees or that it will be able to attract, assimilate or retain other
managerial and skilled technical personnel in the future. The Company does not
maintain "key person" life insurance policies on any of its key personnel. See
"Business--Employees" and "Management".
DEPENDENCE ON SEMICONDUCTOR ASSEMBLY CONTRACTORS
The Company does not assemble its integrated circuits; instead it provides
the GaAs integrated circuit dice and, in some cases, packaging components to
various integrated circuit assembly vendors, all of which are located in Asia.
The Company attempts to maintain more than one qualified service supplier for
each assembly process, but at times is unable to achieve this goal because of
minimum volume requirements, service quality issues or other factors. The
Company's inability to obtain sufficient high quality and timely assembly
service, or the loss of any of its current assembly vendors, would result in
delays or reductions in product shipment, and/or reduced product yields that
could materially and adversely affect its results of operations.
INTERNATIONAL SALES AND OPERATIONS
Sales to customers located outside North America (based on shipping
addresses and not on the locations of ultimate end users) accounted for
approximately 80%, 68% and 65% of total net sales for 1994, 1995 and 1996,
respectively. The Company expects that revenues derived from international sales
will continue to represent a significant portion of its total net sales.
International sales are subject to a variety of risks, including those arising
from currency fluctuations and restrictions, tariffs, trade barriers, taxes and
export license requirements. Because all of the Company's foreign sales are
currently denominated in U.S. dollars, the Company's products become less price
competitive in countries with currencies that are low or are declining in value
against the U.S. dollar. In addition, there can be no assurance that the
Company's international customers will continue to accept orders denominated in
U.S. dollars. If such customers do not continue to accept orders denominated in
U.S. dollars, the Company's reported sales and earnings would become more
directly subject to foreign exchange fluctuations.
Substantially all of the Company's blank wafers and packaging components
used in the production of GaAs integrated circuits are supplied by, and
substantially all of the Company's products are assembled by, independent third
parties in Asia. Due to its reliance on such foreign suppliers and assemblers,
the Company is subject to the risks of conducting business outside of the United
States. These risks include unexpected changes in, or impositions of,
legislative or regulatory requirements, delays resulting from difficulty in
obtaining export licenses, tariffs and other trade barriers and restrictions,
and the burdens of complying with a variety of foreign laws and other factors
beyond the Company's control. The Company is also subject to general
geopolitical risks in connection with its international operations, such as
political, social and economic instability, potential hostilities and changes in
diplomatic and trade relationships. Although the Company has not to date
experienced any material adverse effect on its operations as a result of such
regulatory, geopolitical and other factors, there can be no assurance that such
factors will not adversely affect the Company's operations in the future or
require the Company
10
<PAGE>
to modify its current business practices. The Company currently transacts
business with its foreign suppliers and assemblers in U.S. dollars and
consequently the cost of the Company's blank wafers and packaging components, as
well as assembly costs, would increase in countries with currencies that are
increasing in value against the U.S. dollar. In addition, there can be no
assurance that the Company's international suppliers and assemblers will
continue to accept orders denominated in U.S. dollars. If such suppliers and
assemblers do not continue to accept orders denominated in U.S. dollars, the
Company's costs would become more directly subject to foreign exchange
fluctuations.
INTELLECTUAL PROPERTY CLAIMS
The Company's success depends in part on its ability to obtain patents and
copyrights, maintain trade secret protection and operate without infringing on
the proprietary rights of third parties.
As is typical in the semiconductor industry, the Company may be notified in
the future that it is infringing certain patent and/or other intellectual
property rights of others, although there are no such pending lawsuits against
the Company or unresolved notices that the Company is infringing intellectual
property rights of others. No assurance can be given that in the event of such
infringement, licenses could be obtained on commercially reasonably terms or
that litigation will not occur. The failure to obtain necessary licenses or
other rights or the occurrence of litigation arising out of such claims could
have a material adverse effect on the Company's business.
In addition to patent and copyright protection, the Company also relies on
trade secrets, technical know-how and other unpatented proprietary information
relating to its product development and manufacturing activities which it seeks
to protect, in part, by confidentiality agreements with its collaborators and
employees. There can be no assurance that these agreements will not be breached,
that the Company would have adequate remedies for any breach or that the
Company's trade secrets and proprietary know-how will not otherwise become known
or independently discovered by others. See "Business--Patents, Licenses and
Proprietary Rights".
GOVERNMENT REGULATION OF COMMUNICATIONS INDUSTRY
The sale of products by customers who purchase the Company's GaAs integrated
circuits may be materially and adversely affected by governmental regulatory
policies, the imposition of common carrier tariffs or taxation of
telecommunications services.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of extensive and changing
federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations or ordinances may impose liability for
the cost of remediating, and for certain damages resulting from, sites of past
releases of hazardous materials. The Company believes that it currently
conducts, and in the past has conducted, its activities and operations in
substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur significant costs in the future
in order to comply with such laws. See "Business--Environmental Matters".
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,875,000 shares of
Common Stock being offered by the Company hereby, after deducting the estimated
underwriting discount and estimated offering expenses payable by the Company,
are estimated to be $53,057,000 ($61,788,000 if the Underwriters' over-allotment
option is exercised in full), at an assumed initial public offering price of
$30.17 per share. Of these net proceeds, approximately $50 million is expected
to be used during 1997 for the purchase of capital equipment and to make
leasehold improvements, including the purchase of equipment relating to the
Company's new wafer fabrication and electrical test facility currently being
constructed in Warren, New Jersey, and additional fabrication, testing and
research and development equipment. See "Business--Manufacturing, Assembly and
Testing". Remaining proceeds will be used for general corporate purposes,
including working capital. Pending such uses, the net proceeds to the Company
from this Offering will be invested in investment-grade, income-producing
securities. The Company will receive no proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The
Company's bank credit agreement prohibits the payment of cash dividends without
the consent of the lender thereunder. See Note 6 to the Financial Statements.
The Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business, and does not anticipate
paying any cash dividends in the foreseeable future.
On January 30, 1997, the Company declared a stock dividend of one share of
Common Stock for each two shares of Common Stock outstanding. The dividend is
payable on February 20, 1997 to holders of record on February 10, 1997.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
ANADIGICS' Common Stock has been quoted on the Nasdaq National Market under
the symbol "ANAD" since the commencement of trading on April 21, 1995 following
the initial public offering of the Common Stock. The following table sets forth
for the periods indicated the high and low sale prices for the Company's Common
Stock.
<TABLE>
<CAPTION>
1997 HIGH(1) LOW(1)
- -------------------------------------------------------- ----------- ---------
<S> <C> <C>
First Quarter (through January 28, 1997)................ $ 31.50 $ 24.50
1996
Fourth Quarter.......................................... $ 27.00 $ 16.33
Third Quarter........................................... 23.50 13.92
Second Quarter.......................................... 20.50 13.92
First Quarter........................................... 15.17 11.83
1995
Fourth Quarter.......................................... $ 18.67 $ 9.92
Third Quarter........................................... 22.33 12.17
Second Quarter (commencing April 21, 1995).............. 16.50 8.83
</TABLE>
- --------------
(1) As adjusted for the Stock Split. See Note 11 to the Financial Statements.
On January 28, 1997, the last reported sale price of the Company's Common
Stock as reported by the Nasdaq National Market was $30.17 per share. As of
December 31, 1996, there were 267 holders of record of the Common Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on an actual basis and (ii) as adjusted to give effect to
the sale of 1,875,000 shares of Common Stock offered by the Company in this
Offering at an assumed initial public offering price of $30.17 per share, after
deducting the estimated underwriting discount and estimated offering expenses.
This table should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current maturities of capital lease obligations.................... $ 1,292 $ 1,292
--------- ------------
--------- ------------
Capital lease obligations, less current portion.................... $ 627 $ 627
Stockholders' equity(1)(2):
Preferred Stock, par value $.01 per share, 5,000,000 shares
authorized; none issued and outstanding........................
Common Stock, par value $.01 per share, 34,000,000 shares
authorized; 12,564,678 shares issued and outstanding;
14,439,678 shares issued and shares outstanding as adjusted.... 126 144
Non-Voting Common Stock, par value $.01 per share, 1,000,000
shares authorized; none issued and outstanding.................
Additional paid-in capital....................................... 98,800 151,839
Accumulated deficit................................................ (28,369) (28,369)
--------- ------------
Total stockholders' equity................................... 70,557 123,614
Total capitalization............................................... $ 71,184 $ 124,241
--------- ------------
--------- ------------
</TABLE>
- --------------
(1) See Note 11 to the Financial Statements.
(2) Excludes 3,002,696 shares of Common Stock reserved for issuance under the
Company's stock purchase and stock option plans and warrants outstanding on
January 28, 1997, of which 1,661,672 shares of Common Stock are issuable
upon exercise of options and warrants outstanding on January 28, 1997. See
Notes 1, 7, 8 and 11 to the Financial Statements.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the Financial
Statements of ANADIGICS which have been audited by Ernst & Young LLP,
independent auditors. See "Experts". The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, related Notes and other financial
information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- ---------- ---------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 20,224 $ 29,024 $ 34,832 $ 51,460 $ 68,864
Cost of sales...................... 12,611 15,323 18,454 24,995 38,887
--------- ---------- ---------- ----------- -----------
Gross profit....................... 7,613 13,701 16,378 26,465 29,977
Research and development........... 5,367 6,699 9,195 11,733 12,036
Selling and administrative
expense.......................... 3,049 4,171 4,530 6,640 8,206
--------- ---------- ---------- ----------- -----------
Operating income (loss)............ (803) 2,831 2,653 8,092 9,735
Interest expense................... 1,456 1,009 831 573 371
Interest income.................... 100 166 343 1,301 1,739
--------- ---------- ---------- ----------- -----------
Income (loss) before income
taxes............................ (2,159) 1,988 2,165 8,820 11,103
Provision (benefit) for
income taxes(1).................. -- 52 300 1,527 (888)
Net income (loss)(1)............... $ (2,159) $ 1,936 $ 1,865 $ 7,293 $ 11,991
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Net income (loss) per
share(1)(2)...................... $ (11.15) $ 0.28 $ 0.23 $ 0.64 $ 0.93
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Common and common equivalent shares
used in computing per share
amounts(2)....................... 193,587 6,940,401 8,260,430 11,374,745 12,907,851
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 2,453 $ 5,469 $ 11,349 $ 35,953 $ 37,825
Total assets................................ 18,378 21,850 30,885 66,250 86,996
Current maturities of capital lease
obligations............................... 4,240 4,510 3,829 1,718 1,292
Capital lease obligations, less current
portion................................... 4,394 3,475 2,807 1,919 627
Total stockholders' equity.................. 6,275 10,394 20,520 53,823 70,557
</TABLE>
- --------------
(1) Includes recognition of a net deferred tax benefit of approximately $1.2
million (or $0.11 per share) and $3.6 million (or $0.28 per share) in 1995
and 1996, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--1996
Compared to 1995--Provision (Benefit) for Income Taxes" and Note 5 to the
Financial Statements.
(2) Common stock equivalents are not included in 1992 as their effect was
anti-dilutive.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in 1984 and initially focused on the development
and manufacture of GaAs integrated circuits for low volume defense and aerospace
applications. In 1988 the Company began shifting its strategy to focus on
RF/microwave communications systems for high volume applications, and began
production for these applications in 1989. The first high volume application for
its technology was in DBS systems. Product sales in 1990 and 1991 were chiefly
DBS television integrated circuits, and fiber optic integrated circuits which
were sold primarily to telecommunication infrastructure manufacturers. In 1992
the Company introduced integrated circuits for cable television and expanded its
DBS product offerings. In late 1994 the Company entered the wireless
communications market with the introduction of cellular telephone integrated
circuits. The Company's net sales have grown from $20.2 million in 1992 to $68.9
million in 1996. To date, the Company has delivered over 60 million GaAs
integrated circuits, including over 21 million in 1996.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- -----------
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................. 53.0 48.6 56.5
----- ----- -----
Gross profit................................................... 47.0 51.4 43.5
Research and development....................................... 26.4 22.8 17.5
Selling and administrative expense............................. 13.0 12.9 11.9
----- ----- -----
Operating income............................................... 7.6 15.7 14.1
Interest expense............................................... 2.4 1.1 0.5
Interest income................................................ 1.0 2.5 2.5
----- ----- -----
Income before income taxes..................................... 6.2 17.1 16.1
Provision (benefit) for income taxes........................... 0.8 2.9 (1.3)
----- ----- -----
Net income..................................................... 5.4% 14.2% 17.4%
----- ----- -----
----- ----- -----
</TABLE>
1996 COMPARED TO 1995
NET SALES. Net sales during 1996 increased 34% to $68.9 million from $51.5
million in 1995. Net sales includes both product sales and engineering service
sales. Net product sales during 1996 increased by 32% to $65.7 million from
$49.7 million during 1995. Sales of integrated circuits for cellular and PCS
applications increased by 62% during 1996 to $24.5 million from $15.1 million in
1995 as a result of higher volumes. During 1996, the Company sold power
amplifier integrated circuits for almost all of the major standards, including
AMPS, DAMPS, ETACS, GSM and CDMA. New products introduced during 1996 for the
digital GSM and CDMA standards accounted for 60% of the cellular and PCS sales.
Sales of integrated circuits for analog standards (AMPS and ETACS) declined
during 1996 as the market shifted to digital standards. Net product sales of
integrated circuits for cable television applications in 1996 increased by 29%
to $13.8 million from $10.7 million in 1995 as demand for integrated circuits
used to produce set top converters increased. Net product sales of integrated
circuits for fiber optic SONET
16
<PAGE>
and ATM telecommunication applications increased 19% during 1996 to $11.6
million from $9.8 million in 1995 as a result of increased unit volume. Net
product sales of integrated circuits for DBS television applications increased
12% during 1996 to $15.8 million from $14.1 million in 1995. Generally, selling
prices for same product sales were lower in 1996 compared to 1995. Engineering
service sales, which reflect customers' contributions to the Company's research
and development efforts, increased by 71% during 1996 to $3.2 million from $1.8
million in 1995.
GROSS MARGIN. Gross margin during 1996 decreased to 43.5% from 51.4% in
1995. The decrease was due in part to significant sales volumes of new cellular
integrated circuits and other new products for which production yields were not
up to desired levels, and generally lower selling prices. Gross margins improved
significantly in the fourth quarter of 1996 to 43.5% from 34.5% in the third
quarter of 1996 as yields improved on the newer products, certain of which
experienced production start-up problems in the third quarter.
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased by 3% during 1996 to $12.0 million from $11.7 million during
1995. As a percentage of sales, these expenses declined to 17.5% during 1996
from 22.8% during 1995. The Company's focus on meeting customer demands for
products in the third and fourth quarters of 1996 temporarily reduced the amount
of engineering resources normally applied to research and development. The
Company expects that research and development expense, as a percentage of sales,
will increase in 1997 compared to 1996.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by 24% during 1996 to $8.2 million from $6.6 million during 1995. As a
percentage of sales, these expenses declined during 1996 to 11.9% from 12.9%
during 1995. Selling expenses increased by 33% in 1996 due to higher commissions
paid to sales representatives and staffing increases associated with the
expansion of the Company's wireless integrated circuit sales efforts.
Administrative expenses increased by 15% in 1996 due in part to higher
consulting and legal costs.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased by 34%
during 1996 to $1.7 million from $1.3 million during 1995 as a result of higher
average cash balances. Interest expense decreased by 37% during 1996 to $0.4
million from $0.6 million during 1995 on lower levels of indebtedness.
PROVISION (BENEFIT) FOR INCOME TAXES. The benefit for income taxes during
1996 was $0.9 million, or 8% of pre-tax income. The provision for income taxes
in 1995 was $1.5 million, or 17% of pre-tax income. The benefit for income taxes
in 1996 arose from a reduction in a valuation allowance which had been recorded
prior to 1996 with respect to deferred tax assets (primarily net operating loss
("NOL") carryforwards).
Deferred tax assets of approximately $15.6 million less a valuation
allowance of $10.8 million were recorded as of December 31, 1996. Deferred tax
assets of approximately $17.4 million, less a valuation allowance of $16.2
million, were recorded as of December 31, 1995. At December 31, 1996, the
Company reduced its valuation allowance associated with its deferred tax assets
by $5.2 million based upon the level of historical taxable income and current
projections for future taxable income over the periods in which the deferred tax
assets would be realized. Additionally, the Company considered the expiration of
and limitation on the annual use of the Company's federal NOL carryforwards.
Excluding federal NOLs generated in years prior to 1989, which are severely
restricted and, therefore, are fully reserved, the remaining federal NOL
carryforwards will expire as follows: $0.3 million in 2004, $6.9 million in
2005, $5.0 million in 2006 and $1.0 million in 2007. In assessing the
realizability of deferred tax assets, the Company considered whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets will depend on whether
an ownership change occurred subsequent to January 1989 and prior to April 1995,
the value of the
17
<PAGE>
Company prior to any such change, future generation of taxable income and
prevailing statutory tax rates.
If an ownership change occurred after January 1989 but before April 1995,
the federal NOL carryforwards generated after January 1989 may be subject to
more restrictive limitations on use than would otherwise apply. The Company
believes that no ownership change occurred during that period. However, the
calculations required by the applicable federal income tax regulations are
complex. Accordingly, the provision (benefit) for income taxes in 1994, 1995 and
1996 has been computed as if such a change occurred in mid-1992, the point in
time at which the Company's computations show that it was closest to an
ownership change during the period from January 1989 until April 1995, resulting
in an annual limitation of approximately $1.4 million on the federal NOL
carryforwards generated between 1989 and the middle of 1992. See Note 5 to the
Financial Statements.
As a result of the reduction of the valuation allowance for deferred tax
assets in 1996, the Company expects that the effective tax rate on its earnings
in 1997 will be approximately 36%.
1995 COMPARED TO 1994
NET SALES. Net sales during 1995 increased by 48% to $51.5 from $34.8
million during 1994. Net sales includes both product sales and engineering
service sales. Net product sales during 1995 increased by 44% to $49.7 million
from $34.4 million during 1994. Net product sales of integrated circuits for
cellular telephone applications increased during 1995 to $15.1 million from $1.6
million during 1994. The Company began selling integrated circuits for cellular
telephony in late 1994, and during 1995, the Company sold three power amplifier
integrated circuits for the AMPS, DAMPS, and ETACS cellular standards and one
receiver circuit for the AMPS standard. Net product sales of fiber optic
integrated circuits for SONET and ATM telecommunication applications increased
56% during 1995 to $9.8 million from $6.3 million during 1994 on an 83% increase
in unit volume. Net product sales of integrated circuits for cable television
tuning and transmission applications increased 33% on higher volumes to $10.7
million during 1995 from $8.0 million in 1994. Net product sales of integrated
circuits for DBS television applications declined 24% during 1995 to $14.1
million from $18.5 million in 1994. Engineering service sales, which reflect
customers' contributions to the Company's research and development, increased
during 1995 to $1.8 million from $0.4 million during 1994.
GROSS MARGIN. Gross margin during 1995 increased to 51.4% from 47.0% during
1994. Although selling prices of integrated circuits were generally lower in
1995 than 1994, the Company experienced higher average selling prices in 1995 as
the mix of integrated circuits sold moved toward units with higher selling
prices and manufacturing unit costs declined on higher volumes and improved
productivity. Gross margin declined to 49.1% during the fourth quarter of 1995
from 52.6% in the third quarter of 1995 primarily due to lower selling prices
partially offset by favorable cost leverages on higher unit volumes. Gross
margin was also unfavorably impacted by increased assembly cost associated with
start up of a new assembly contractor for the Company's DBS integrated circuits.
RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased 28% during 1995 to $11.7 million from $9.2 million during
1994. As a percentage of sales, these expenses declined to 22.8% during 1995
from 26.4% during 1994. The increase was attributable primarily to increased
research into integrated circuits for cellular and PCS applications.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
47% during 1995 to $6.6 million from $4.5 million during 1994. As a percentage
of sales, these expenses declined slightly during 1995 to 12.9% from 13.0%
during 1994. Selling expenses increased 48%, reflecting in part, a staffing
increase associated with expanding wireless integrated circuit sales, higher
commissions paid to sales representatives, and higher selling and advertising
expenses. Administrative expenses increased 45%, reflecting in part higher
compensation, insurance, and investor relations expenses.
18
<PAGE>
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased to $1.3
million during 1995 from $0.3 million during 1994 on substantially higher
invested cash balances following the Company's initial public offering of common
stock in April 1995. Interest expense decreased to $0.6 million during 1995 from
$0.8 million during 1994 on lower levels of indebtedness.
PROVISION FOR INCOME TAXES. The provision for income taxes during 1995 was
$1.5 million or 17% of pre-tax income. The 1994 provision for income taxes was
$0.3 million or 14% of pre-tax income. The $1.2 million increase in the
provision was primarily due to the increase in pre-tax income of approximately
$6.7 million, net of a reduction of the valuation allowance related to deferred
tax assets of $1.2 million associated with the Company's NOL carryforwards.
SELECTED QUARTERLY OPERATING RESULTS
The following tables present the Company's unaudited results of operations
expressed in dollars and as a percentage of net sales for the eight most
recently ended fiscal quarters. The Company believes that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts below to present fairly the selected quarterly information when
read in conjunction with the Financial Statements and Notes thereto included
herein. Results from operations may vary substantially from quarter to quarter;
accordingly, the operating results for a quarter are not necessarily indicative
of results for any subsequent quarter or for the full year. See "Risk
Factors--Significant Variability of Operating Results".
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------------ ------------- ------------- ------------- ------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 10,970 $ 12,465 $ 13,555 $ 14,470 $ 13,574 $ 15,862
Cost of sales....................... 5,440 5,767 6,429 7,359 6,835 8,254
------------ ------------- ------------- ------------- ------------- -------------
Gross profit........................ 5,530 6,698 7,126 7,111 6,739 7,608
Research and development............ 2,729 3,182 2,825 2,997 2,878 3,284
Selling and administrative
expense........................... 1,399 1,658 1,849 1,734 1,968 2,063
------------ ------------- ------------- ------------- ------------- -------------
Operating income.................... 1,402 1,858 2,452 2,380 1,893 2,261
Interest expense.................... 223 184 121 45 105 90
Interest income..................... 86 330 437 448 418 411
------------ ------------- ------------- ------------- ------------- -------------
Income before income taxes.......... 1,265 2,004 2,768 2,783 2,206 2,582
Provision (benefit) for income
taxes............................. 367 581 441 138 441 516
------------ ------------- ------------- ------------- ------------- -------------
Net income.......................... $ 898 $ 1,423 $ 2,327 $ 2,645 $ 1,765 $ 2,066
------------ ------------- ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- ------------- -------------
Net income per share................ $ 0.10 $ 0.12 $ 0.18 $ 0.21 $ 0.14 $ 0.16
------------ ------------- ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- ------------- -------------
Common and common equivalent shares
used in computing per share
amounts........................... 8,701,775 11,596,805 12,645,876 12,501,452 12,562,331 12,895,889
------------ ------------- ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- ------------- -------------
<CAPTION>
<S> <C> <C>
SEPT. 29, DEC. 31,
1996 1996
------------- -------------
<S> <C> <C>
Net sales........................... $ 17,005 $ 22,423
Cost of sales....................... 11,136 12,662
------------- -------------
Gross profit........................ 5,869 9,761
Research and development............ 2,756 3,118
Selling and administrative
expense........................... 1,619 2,557
------------- -------------
Operating income.................... 1,494 4,086
Interest expense.................... 84 92
Interest income..................... 432 479
------------- -------------
Income before income taxes.......... 1,842 4,473
Provision (benefit) for income
taxes............................. 369 (2,214)
------------- -------------
Net income.......................... $ 1,473 $ 6,687
------------- -------------
------------- -------------
Net income per share................ $ 0.11 $ 0.51
------------- -------------
------------- -------------
Common and common equivalent shares
used in computing per share
amounts........................... 13,045,769 13,121,558
------------- -------------
------------- -------------
</TABLE>
19
<PAGE>
AS A PERCENTAGE OF NET SALES:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 29,
1995 1995 1995 1995 1996 1996 1996
------------- ----------- ----------- ----------- ------------- ----------- -----------
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 49.6 46.3 47.4 50.9 50.4 52.0 65.5
----- ----- ----- ----- ----- ----- -----
Gross profit................... 50.4 53.7 52.6 49.1 49.6 48.0 34.5
Research and development....... 24.9 25.5 20.8 20.7 21.2 20.7 16.2
Selling and administrative
expense...................... 12.8 13.3 13.6 12.0 14.5 13.0 9.5
----- ----- ----- ----- ----- ----- -----
Operating income............... 12.7 14.9 18.2 16.4 13.9 14.3 8.8
Interest expense............... 2.0 1.4 0.9 0.3 0.8 0.6 0.5
Interest income................ 0.8 2.6 3.2 3.1 3.1 2.6 2.5
----- ----- ----- ----- ----- ----- -----
Income before income taxes..... 11.5 16.1 20.5 19.2 16.2 16.3 10.8
Provision (benefit) for income
taxes........................ 3.3 4.7 3.3 0.9 3.2 3.3 2.1
----- ----- ----- ----- ----- ----- -----
Net income..................... 8.2% 11.4% 17.2% 18.3% 13.0% 13.0% 8.7%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
<S> <C>
DEC. 31,
1996
-----------
Net sales...................... 100.0%
Cost of sales.................. 56.5
-----
Gross profit................... 43.5
Research and development....... 13.9
Selling and administrative
expense...................... 11.4
-----
Operating income............... 18.2
Interest expense............... 0.4
Interest income................ 2.1
-----
Income before income taxes..... 19.9
Provision (benefit) for income
taxes........................ (9.9)
-----
Net income..................... 29.8%
-----
-----
</TABLE>
The markets for the Company's integrated circuits exhibit seasonal trends or
cyclical sales patterns. Sales of cellular telephone and PCS, cable television
and fiber optic integrated circuits tend to exhibit cyclical fluctuations based
on factors such as capital expenditure cycles of customers and new product
introductions, while DBS integrated circuits exhibit seasonal sales patterns,
with increased sales in the second half of the calendar year as the Company's
customers manufacture products for the holiday season.
Net sales increased in each quarter presented, except for the quarter ended
March 31, 1996. The decline in net sales in the first quarter of 1996 was
primarily due to the seasonal slowdown in sales of integrated circuits for DBS
applications and softness in sales of integrated circuits in the United States
for cellular applications. Gross margin percentages ranged from 53.7% to 49.1%
in 1995 and 49.6% to 34.5% in 1996. The lower gross margins experienced in 1996,
particularly in the third quarter, were due in part to significant sales volumes
of new integrated circuits for cellular applications and other integrated
circuits for which production yields were not up to desired levels, and to
generally lower selling prices. Research and development expenses, as a
percentage of sales, decreased during 1996. The Company's focus on meeting
customer demands for products in the third and fourth quarters of 1996
temporarily reduced the amount of engineering resources normally applied to
research and development below the Company's desired level.
Future quarters' operating results will depend on a number of factors,
including general industry and global economic conditions, the timing and
success of new product introductions, changes in selling prices for the
Company's integrated circuits due to competitive or currency exchange rate
pressures, changes in product mix, availability of raw materials, availability
of manufacturing capacity, fluctuations in manufacturing yields, the size and
timing of shipments, market acceptance of end-user products, the pattern of
end-user or customer purchasing cycles, the processes and technologies used by
the Company and its competitors and seasonality. See "Risk Factors--Significant
Variability of Operating Results".
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company had $23.1 million of cash and cash
equivalents on hand and $9.0 million in marketable securities. There were no
borrowings outstanding under the Company's credit facilities at December 31,
1996.
20
<PAGE>
The Company's $20.0 million revolving bank credit facility provides for
interest at the bank's base rate minus 50 basis points or, at the Company's
discretion, other market-based rates. The Company also has the option to swap
floating rate for fixed rate loans at the time of draw down. The draw down
period expires on December 31, 1997. Any draw downs may be paid over a term of
up to five years. Its availability is subject to a number of financial
covenants. Under this facility, the payment of dividends, among other things,
requires approval by the bank. Substantially all of the assets of the Company
are pledged as security for the repayment of amounts drawn under this revolving
bank credit facility. The Company also obtained a $10.0 million line of credit
from the same bank. This facility expires on July 1, 1997 and provides for
interest at the bank's base rate minus 75 basis points. Its availability is
subject to the approval by the bank. Substantially all of the assets of the
Company are pledged as security for the repayments of amounts drawn on this bank
line of credit.
Operations generated $16.4 million in cash during 1996 and investing
activities used $2.7 million of cash during 1996. Net sales of marketable
securities generated $13.8 million in cash during 1996. Capital expenditures of
$16.4 million were made during 1996. The capital expended was used to expand the
Company's existing wafer fabrication facility, increase assembly, test and
research and development capacities and to begin construction of the Company's
new 12,000 square foot clean room and other manufacturing facilities at 141 Mt.
Bethel Road. At December 31, 1996 the Company had committed to purchase
approximately $25 million of equipment and leasehold improvements. During 1997
the Company expects to spend approximately $40 million on equipment and
approximately $15 million on leasehold improvements.
Net cash generated by financing activities was $3.0 million during 1996.
Warrants to purchase 313,905 shares of Common Stock were exercised during 1996,
resulting in cash proceeds of $3.6 million.
In 1996, income taxes paid were approximately $1.1 million, while the
benefit for income taxes was approximately $0.9 million.
The Company believes that its sources of capital, including internally
generated funds and $30 million available under existing credit arrangements,
will be adequate to satisfy anticipated capital needs for the next twelve
months. However, the Company may nevertheless elect to finance all or part of
its future capital requirements through additional equity or debt financing.
There can be no assurance that such additional financing would be available on
satisfactory terms.
21
<PAGE>
BUSINESS
ANADIGICS is a leading supplier of RF and microwave GaAs integrated
circuits. The Company's products are used to receive and transmit signals in a
variety of high volume communications applications in cellular telephone systems
and PCS, in fiber optic communication systems and in cable and DBS television
systems. The Company designs, develops and manufactures its integrated circuits
in GaAs semiconductor material that allows the integration of numerous
RF/microwave functions which cannot be easily integrated in silicon-based
circuits. The Company's high frequency integrated circuits can typically replace
30 to 100 discrete components, permitting manufacturers of end products to
reduce the size and weight of their products, increase power efficiency, improve
reliability, reduce manufacturing time and cost and enhance overall system
performance.
The Company's objective is to be the leading supplier of high volume GaAs
integrated circuits for RF/microwave receiver and transmitter applications. To
date, the Company has delivered over 60 million GaAs integrated circuits,
including over 21 million in 1996. Unlike many other manufacturers of GaAs
integrated circuits who have focused on low volume applications for industries
such as aerospace and defense, the Company has developed high volume
manufacturing capabilities geared toward achieving higher yields and lower
costs. The Company has made a significant investment in proprietary processes,
including design, wafer fabrication and testing, which the Company believes
gives it a competitive advantage. The Company manufactures integrated circuits
at its existing facility in Warren, New Jersey and is in the process of
constructing a new production facility in order to increase capacity. See
"--Manufacturing, Assembly and Testing".
ANADIGICS believes that the market for high frequency integrated circuits
for receiver and transmitter applications will grow significantly as demand for
broadband, high frequency end products grows in the communications, information
and video entertainment markets. The Company believes that it is currently one
of the few sources of RF/microwave GaAs integrated circuits for high volume
communications applications.
In the cellular and PCS market, which according to Kagan World Media grew
(based on the estimated number of subscribers) by over 50% worldwide during the
first eleven months of 1996, the Company's products are used primarily as power
amplifiers in telephone handsets, where they replace more traditional hybrid or
discrete component solutions containing 30 to 50 chip components. The Company's
integrated circuit power amplifiers provide a smaller footprint, lower parts
count and lower power consumption compared to traditional hybrid or discrete
solutions. The Company currently is producing GaAs integrated circuit power
amplifiers for the analog AMPS and ETACS standards, and for the newer, digital
GSM, TDMA and CDMA standards. In addition to power amplifier integrated circuits
for telephone handsets, the Company is also producing receiver integrated
circuits for cellular handsets, base stations and fixed wireless local loop
applications.
The Company's principal products for fiber optic systems are transimpedance
amplifiers that are used primarily in SONET and SDH fiber optic transmission at
rates from 155 Mbps to 2480 Mbps. Increasingly, these products are also being
used in higher bit rate data communication applications. In the cable television
market, the Company's products are used primarily in wide band tuners for set
top converters operating at the older 500 MHz bandwidth and the new 800 MHz
bandwidth. The new 800 MHz bandwidth provides increased analog channel capacity,
digital cable television capability and internet access via cable modems. The
Company also offers wide band linear amplifier products operating at frequencies
of up to 860 MHz for hybrid fiber/coaxial infrastructure applications. In the
DBS market, the Company's products are used as down converters primarily in
satellite dishes, as well as in set top DBS tuners. The Company's products are
utilized in DBS services using analog modulation such as BskyB in Europe, as
well as DBS services using digital modulation such as DirectTV in the United
States.
22
<PAGE>
The Company has developed working relationships with leading companies in
each of its target markets. The Company's principal customers include Ericsson,
General Instrument, Lucent, Nokia, Nortel, Philips Electronics N.V. and Qualcomm
PE. The Company's five largest customers in each of the past three years
together accounted for 61%, 67%, and 60% of net sales for 1994, 1995 and 1996,
respectively. The Company's net sales have grown from $20.2 million in 1992 to
$68.9 million in 1996.
INDUSTRY OVERVIEW
Over the last decade, there has been a continuous trend toward delivering
various forms of electronic information at faster rates and in greater quantity.
New technologies such as wireless, fiber optic and satellite communication have
continued to evolve, providing greater capacity and improved performance at
decreasing cost. Markets for wireless products such as cellular and PCS
telephones continue to grow rapidly and new services such as wireless computing,
cable modems, fixed personal wireless telephones and satellite telephone
services are emerging. Fiber optic technology, capable of transmitting extremely
large bandwidth (or data rates) over long distances without reamplification, is
being used to replace copper, coaxial cable or microwave links for many
applications, including cable television systems. Satellite communications
technology is evolving into a low cost method for distributing information over
wide geographic areas to fixed and mobile users. Satellites are now used to
cost-effectively transmit multiple channels of television to cable headends as
well as directly to the home. Increased availability of multichannel video
services and demand for more portable and more visually rich means of
communication have hastened the development of broadband and mobile
communication services.
Occurring in parallel with the development of new communications
technologies and services is the transition from analog to digital modulation of
sound and video images. Digital modulation, enabled by improved performance of
digital circuitry, provides improved quality, security and increased capacity at
lower costs. The combination of greater bandwidth and digital modulation
facilitates the development of enhanced multimedia communication.
THE TREND TOWARD HIGHER FREQUENCIES
The need to transmit increasing amounts of multimedia information through
wired and wireless communications systems has resulted in the requirements for
both more bandwidth and higher operating frequencies. The new high frequency and
broadband communication systems described above require receivers and
transmitters capable of operating at very high frequencies. For example,
cellular telephones and cellular base stations require receivers and
transmitters operating in frequencies ranging from 800 to 900 MHz, while cable
television systems require broadband receivers operating in frequencies ranging
from 50 to 860 MHz. PCS operates at even higher frequencies, in the 1800 to 2000
MHz range. The high frequency portion of a communication system, sometimes
called the radio frequency or microwave frequency front end, operates as the
"bridge" between the outside world (antenna or cable) and the electronic
components that process the information and, as such, is an important element in
establishing the performance and cost of the system. The RF/microwave front end,
in addition to operating at very high frequencies, must be sensitive, have low
distortion and, in battery operated portable systems, be power efficient.
TRANSITION FROM ANALOG TO DIGITAL MODULATION
Information, whether modulated in analog or digital form, is embedded at the
transmission site in a high frequency analog wave which carries the signal over
the air or through a cable to a receiving station. The same type of RF/microwave
front end is required whether the information is transmitted by means of analog
modulation or digital modulation. As communication systems evolve from analog to
digital modulation, RF/microwave front ends must be able to handle both types of
modulation simultaneously
23
<PAGE>
in order to accommodate both the existing analog user base and the new digital
user base (as in the case of dual mode cellular telephones).
UTILIZATION OF DISCRETE COMPONENTS AND SILICON-BASED INTEGRATED CIRCUITS
Circuits using discrete components such as transistors, diodes, capacitors,
inductors and resistors have been used for most RF/microwave applications
because, until recently, there have been no cost effective integrated circuit
solutions available. Integrated circuits generally offer better reliability and,
by replacing many discrete components with a single integrated circuit, reduced
size and costs. These cost reductions can take the form of simplified
manufacturing processes, more efficient parts management and reduced warranty
expenses.
While silicon-based integrated circuits have replaced discrete components in
most digital electronics and low frequency analog applications, their use has
been limited in RF/microwave applications due to silicon's inability to meet
basic performance requirements at higher frequencies. The highest frequency
silicon integrated circuits are not efficient and have relatively high noise
figures and distortion. In addition, it is very difficult to integrate the
passive components (inductors, capacitors and resistors) on silicon substrates
that are required to complete RF/microwave integrated circuits. Because of these
limitations, silicon integrated circuits operating at higher frequencies have
failed to replace discrete components in most RF/microwave functions, even
though discrete components do not offer an optimal solution for many
RF/microwave applications.
Although GaAs technology offers an alternative means of producing integrated
circuits for high-frequency applications, some manufacturers have been reluctant
to adopt GaAs integrated circuits for use in high volume commercial applications
because of perceived risks relating to GaAs technology in general. Such
perceived risks include the unfamiliarity of designing commercial systems with
GaAs integrated circuits, unfamiliar manufacturing processes and uncertainties
about the cost effectiveness of GaAs integrated circuits.
THE ANADIGICS SOLUTION
Over the past twelve years, the Company, through its research and
development efforts, has developed expertise in producing cost-effective
GaAs-based integrated circuits for high-volume commercial applications which
offer many of the performance attributes required for RF/microwave applications
that are not easily obtainable with silicon-based integrated circuits. GaAs
transistors can operate at frequencies up to three to five times greater than
those possible with silicon and therefore can handle the requirements of
RF/microwave applications. GaAs integrated circuits have a lower noise figure
than silicon-based integrated circuits, providing increased sensitivity,
significantly better linearity, less distortion and interference and better
dynamic range, thereby enabling systems to handle a wide range of signal
strengths. GaAs is a semi-insulating material which facilitates integration of
the passive components required in RF/microwave applications. Finally, GaAs
integrated circuits used in transmitter applications are also more
power-efficient than silicon-based circuits, allowing for longer battery life or
use of smaller batteries.
ANADIGICS' STRATEGY
The Company's objective is to be the leading supplier of high volume GaAs
integrated circuits for RF/microwave receiver and transmitter applications. The
following elements, all of which are interrelated, form the basis of ANADIGICS'
strategy:
FOCUS ON GROWING, HIGH VOLUME MARKETS
ANADIGICS focuses on a few diverse high volume markets--wireless and fiber
optic communications and cable and satellite television receivers--that it
believes will provide both significant growth
24
<PAGE>
opportunities and increasing stability through product and geographic diversity.
Each of the Company's target markets is characterized by a transition to broader
bandwidths, to higher operating frequencies and, in many cases, from analog to
digital modulation, as well as by competing standards (e.g., AMPS, TDMA, CDMA
and GSM in cellular telephony) and communications methods (e.g., cable versus
DBS in television). The Company believes that these market trends offer
opportunities for ANADIGICS integrated circuit solutions that can add value by
lowering costs, improving reliability and reducing the size of customers'
products. Moreover, the Company is capable of providing integrated circuit
solutions for each of the competing communications methods and standards in its
target markets and, as a result, believes that it has positioned itself to
compete effectively regardless of which method or standard ultimately prevails.
LOW COST, HIGH VOLUME MANUFACTURER
ANADIGICS believes that its success depends on its ability to be a low cost
manufacturer for high volume applications. The Company believes that a low cost
manufacturer must control all of the critical phases of production in order to
maintain high manufacturing yields. ANADIGICS uses the same basic manufacturing
processes to produce all of its GaAs integrated circuits, thereby deriving
economies of scale and gaining manufacturing experience applicable across all
product lines. ANADIGICS has been continually improving its manufacturing
process and, since 1989, has delivered over 60 million GaAs integrated circuits,
including over 21 million in 1996. ANADIGICS has also developed high volume
circuit testing systems that permit testing of 100% of its packaged products in
an environment designed to simulate customer usage. Such high speed testing
allows the Company to identify production problems quickly and to maintain the
quality of integrated circuits shipped to the Company's customers on a cost-
effective basis.
RAPID DESIGN CYCLE TIME
ANADIGICS has developed an experienced engineering staff that can rapidly
design cost-effective integrated circuit solutions for its target markets. The
combination of design experience and a "quick-turn" wafer fabrication and
assembly capability allows the Company to develop prototypes that can be ready
for testing in less than one month. This design efficiency contributes to
customer satisfaction and allows the Company to improve rapidly product designs
for manufacturing efficiency.
PARTNER WITH WORLDWIDE INDUSTRY LEADERS
ANADIGICS believes that in order to create products which have the potential
to become industry standards it must develop working relationships with leading
companies in each target market. This strategy provides ANADIGICS with rapid
feedback from customers during the product design process and increases the
likelihood that products will meet customers' cost and performance requirements
for high volume applications. ANADIGICS' working relationships with customers
worldwide have ranged from guaranteed purchase orders to partially or fully
funded development programs, in most cases with a limited exclusivity period
granted to the customer with respect to the developed circuit. Examples of the
Company's strategy to focus on worldwide industry leaders are the development of
cellular telephone power amplifiers and receivers with Ericsson in the United
States and Sweden and the development of cable television converter integrated
circuits with General Instrument in the United States and Taiwan.
TARGET MARKETS AND PRODUCTS
TELECOMMUNICATIONS SYSTEMS
ANADIGICS has developed GaAs integrated circuits for use in both wireless
and fiber optic telecommunications systems. ANADIGICS' GaAs integrated circuits
are used in wireless telephony equipment,
25
<PAGE>
such as cellular and PCS telephone handsets, cellular base stations and fixed
wireless systems, and in fiber optics transmission systems.
WIRELESS COMMUNICATIONS MARKET. The Company believes that the need for
compact, high-efficiency transmitters and sensitive, low power consumption
receivers in the rapidly developing wireless communications market has the
potential to provide numerous opportunities for ANADIGICS.
CELLULAR TELEPHONY. Cellular telephony began service in 1982 and has grown
rapidly in the past 15 years. Worldwide cellular subscribers at November 30,
1996 totaled approximately 133 million, according to Kagan World Media, with
approximately 42 million subscribers resident in the United States and
approximately 35 million in Europe. According to Kagan World Media, subscriber
growth for the cellular and PCS market in the first eleven months of 1996 was
over 50% worldwide.
Cellular telephone systems consist of cellular base stations which are
connected to the public switched telephone network which transmit and receive
telephone signals via radio frequency waves in a 50 MHz bandwidth in the 800-900
MHz frequency range. Using either a portable or mobile telephone, a subscriber
can communicate through a cellular base station and can move seamlessly from one
cell to another. Each caller is connected to a cell through a dedicated wireless
channel.
Until recently all cellular telephony used analog modulation. In the United
States analog modulation uses the AMPS standard while in Europe ETACS is the
predominant analog standard. In the analog mode, system capacity is increased by
increasing the density of cells.
In order to increase capacity at a lower cost, and to improve voice quality
and increase security, digital modulation standards have been developed and are
now beginning to be deployed. In the United States there are two competing
digital standards, which are defined below:
TDMA (IS-136): TIME DIVISION MULTIPLE ACCESS increases capacity by
placing three or more calls in the same channel separated by time.
CDMA (IS-96): CODE DIVISION MULTIPLE ACCESS increases capacity by coding
voice messages and spreading information over many channels.
Telephones operating on the TDMA standard are also called DAMPS (for digital
AMPS) telephones because they can transmit on either analog AMPS or digital TDMA
signals. DAMPS service began in 1994 and is being adopted by several U.S.
operators, including the AT&T Wireless Cellular unit of AT&T. CDMA telephones,
which are dual mode with AMPS, were introduced in the second half of 1995 and
are currently being offered in parts of the United States and Asia.
The European digital standard, called GSM, which was introduced in 1991, was
developed and standardized by the European Union. According to GSM World Focus
1996, a publication of Mobile Communications International, GSM networks have
begun operations in 86 countries, including several Asian countries. According
to Kagan World Media, GSM subscribers in Europe totalled approximately 9 million
at December 31, 1995 and approximately 19 million at November 30, 1996.
PERSONAL COMMUNICATIONS SERVICES (PCS). In order to provide increased
wireless communication capacity, the European Union and the U.S. Federal
Communications Commission (the "FCC") have opened additional frequency spectrums
in the 1800 MHz to 2000 MHz range for cellular type services. Digital modulation
standards are being used exclusively in these new frequency bands with the
intention of providing new value-added services, such as caller identification
and paging. The European service, referred to as DCS-1800, is GSM-based and
operates in the frequency band from 1700 MHz to 1800 MHz. The service is
referred to as PCS in the United States, where the FCC has allocated 120 MHz of
spectrum in the frequency band from 1800 MHz to 2000 MHz. The FCC has allowed
licensees to choose
26
<PAGE>
among three different digital standards that are not currently compatible. The
three PCS standards and the primary services providers are set forth below:
<TABLE>
<CAPTION>
NAME STANDARD SERVICE PROVIDER
- --------------- ------------------------------------------- -------------------------------------------
<S> <C> <C>
PCS-1900 GSM Omnipoint Corporation,
Sprint Spectrum L.P.,
BellSouth Mobile Systems, Inc.
DAMPS-1900 TDMA AT&T Wireless Services, Inc.
CDMA-1900 CDMA Primeco, Inc., Sprint Corporation
</TABLE>
PCS licenses were auctioned by the FCC in 1995 and 1996. The "A" block and
"B" block of the PCS spectrum were auctioned in 1995, and the "C" block in 1996.
The winners of the "A" and "B" block auctions in 1995 have been building PCS
infrastructure and the first services became operational in 1996. Operators such
as Sprint Spectrum L.P., Omnipoint Corporation, Primeco, Inc. and Sprint
Corporation began offering PCS digital telephone services in the 1800 to 2000
MHz frequency band in selected cities during 1996. The "C" block auction was
held in 1996.
The European DCS-1800 standard began operation in 1994 and, according to
Kagan World Media, had approximately 1.8 million subscribers at November 30,
1996. Japan has developed its own digital standard called Personal Digital
Cellular ("PDC") which is similar to TDMA. PDC has a 1500 MHz band to augment
its cellular band at 900 MHz.
The following table lists the major global standards being used for cellular
and PCS systems:
<TABLE>
<CAPTION>
SERVICE
----------------------------------
<S> <C> <C> <C> <C>
CELLULAR PCS/DCS PREDOMINANT
STANDARD MODULATION 800-900 MHZ 1800-2000 MHZ MARKETS
- ----------- -------------- ----------------- --------------- ---------------------------------------------------
AMPS ANALOG Yes No North America, South America
ETACS ANALOG Yes No Europe, China
GSM DIGITAL Yes Yes Europe, Asia, North America,
South America
TDMA DIGITAL Yes Yes North America, South America
CDMA DIGITAL Yes Yes North America, South America, Korea, Hong Kong,
China
PDC DIGITAL Yes 1500 MHz Japan
</TABLE>
WIRELESS COMMUNICATIONS PRODUCTS. ANADIGICS' products are used in
transmitters and receivers of cellular handsets where small size and low power
consumption are key parameters. The Company offers products for both the
traditional analog cellular market and all the emerging digital and PCS
applications.
POWER AMPLIFIERS. Until recently the power amplifiers in portable cellular
handset transmitters were constructed exclusively with hybrid solutions such as
silicon bipolar transistors and silicon metal oxide semiconductor field effect
transistors ("MOSFET") or with discrete GaAs field effect transistors ("FETs").
Hybrid solutions are relatively inexpensive to manufacture but have low power
efficiency, while more costly GaAs FET power amplifiers have better performance
characteristics. ANADIGICS has developed low cost GaAs integrated circuit power
amplifiers that are smaller than discrete component and hybrid module solutions
and which the Company believes perform as well as GaAs FET discrete solutions.
RECEIVERS. ANADIGICS has developed and initiated production of GaAs
integrated circuit front ends for cellular handset receivers and for use in
wireless local loop applications. The Company has also developed linear receiver
front ends for use in cellular base stations.
27
<PAGE>
The following is a list of some of the Company's cellular telephony and PCS
products currently in production:
<TABLE>
<CAPTION>
PRODUCTION
PRODUCT LINE FREQUENCY STATUS
- ----------------------------------------------------------------------- -------------- -------------------------
<S> <C> <C>
POWER AMPLIFIERS
AMPS................................................................. 800 MHz Produced since 1994
DAMPS................................................................ 800 MHz Produced since 1994
ETACS................................................................ 800 MHz Produced since 1995
GSM.................................................................. 800 MHz Produced since 1996
CDMA................................................................. 1900 MHz Produced since 1996
RECEIVERS/DRIVERS
Wireless Local Loop Receiver......................................... 900 MHz Produced since 1995
AMPS Receiver........................................................ 900 MHz Produced since 1995
Base Station Receiver................................................ 900 MHz Produced since 1996
CDMA Driver.......................................................... 1900 MHz Produced since 1996
</TABLE>
In addition, the Company is in various stages of planning, development or
production start-up for the following products for the cellular telephony and
PCS market: DCS cellular power amplifiers, PDC cellular power amplifiers, PCS
cellular power amplifiers and receivers, 800 MHz/1900 MHz dual mode power
amplifiers and cellular base station receivers and power amplifiers.
The Company's major customers for wireless communications products are
Ericsson, Nokia, Nortel and Qualcomm PE.
FIBER OPTIC MARKET. The capacity of the global telecommunications
infrastructure is currently being upgraded with fiber optic communication
systems in order to handle the demand for increasing amounts of information,
driven in part by the rapid growth of the internet community. High data rate
fiber optic receivers are therefore in increasing demand for telecommunications,
data communications and cable television applications. In order to facilitate
this upgrade process, the United States and Japan have adopted the SONET
standard and Europe has adopted the similar SDH standard for telecommunications
systems.
A fiber optic transmission system uses low loss fiber optic cable to link
central office switches with one another and to connect the central office to
the serving area. Fiber optic transceivers are used as repeaters and at
terminations to send and receive high data rate information. The transceiver
consists of a laser transmitter and a fiber optic receiver. The front end of any
fiber optic receiver contains a detector diode and a transimpedance amplifier
("TIA") which provides current to voltage conversion and low noise signal
amplification. ANADIGICS began producing TIAs in 1989 and currently produces and
sells GaAs integrated circuit TIAs that operate at SONET standards ranging from
52 Mbps to 2480 Mbps. The primary applications of ANADIGICS' TIAs are in
long-haul systems at 2480 Mbps (OC-48) and for fiber in the local loop
applications at 622 Mbps (OC-12) and at 155 Mbps (OC-3). In addition, demand for
ANADIGICS' TIAs emerged in 1996 for other applications, including cable
television distribution, asynchronous transfer mode (ATM) data communication,
and data transmission and related products.
The Company's major customers for fiber optic products include AMP Inc.,
Hewlett-Packard Co., Lucent and Nortel.
28
<PAGE>
FIBER OPTIC PRODUCTS. The following is a list of some of the Company's
products for fiber optic networks currently in production:
<TABLE>
<CAPTION>
PRODUCTION
PRODUCT LINE FREQUENCY STATUS
- ----------------------------------------------------------------------- -------------- -------------------------
<S> <C> <C>
OC-3 TIA............................................................... 155 Mbps Produced since 1990
OC-12 TIAs............................................................. 622 Mbps Produced since 1990
OC-48 TIAs............................................................. 2480 Mbps Produced since 1990
250 Mbps Datacom....................................................... 250 Mbps Produced since 1996
155 Mbps Datacom....................................................... 155 Mbps Produced since 1996
</TABLE>
TELEVISION SYSTEMS
ANADIGICS has developed GaAs integrated circuits for both cable television
and DBS television receivers.
CABLE TELEVISION/MULTIMEDIA MARKET. Cable television is evolving from an
industry that has traditionally delivered multichannel one-way analog television
programming over a coaxial cable system to a multimedia industry delivering up
to 500 channels of interactive video and other services such as telephony,
games, shopping and on-line information in both analog and digital form over a
hybrid fiber optic and coaxial cable system. The large bandwidth available from
cable television systems is now being used in some systems to provide high speed
internet access via cable modems, thereby overcoming the congestion frequently
experienced by users who access the internet by telephone lines. In a
conventional analog cable television system, the programmer's signal is first
scrambled and then transmitted to a C-Band satellite. A cable system "headend"
facility receives television signals from satellites and other sources and
retransmits them to subscribers through a distribution network composed of
coaxial and fiber optic cable and distribution electronics which boost the
signal level. The final component of the cable television system, the subscriber
equipment, is comprised of a "dropwire" and, in some cases, a "drop amplifier"
which extend from the distribution network to the subscriber's home and connect
either directly to the subscriber's television set or to a set-top converter
box. Addressable set-top converter boxes permit the efficient delivery of
premium cable television services, including pay-per-view programming. In the
multimedia environment, the hybrid fiber/coaxial cable ("HFC") distribution
system delivers digitally compressed video to the home, has a return path to the
headend and contains switching functions. In such an environment, the set-top
converter box is essentially a special purpose computer, handling compressed
video and interactive services.
CABLE TELEVISION/MULTIMEDIA PRODUCTS. ANADIGICS' 50-550 MHz upconverter
integrated circuit is capable of receiving an incoming block of up to 80 cable
television channels and enabling selection of a particular desired channel. This
integrated circuit replaces approximately 30 discrete components. In addition,
products made with discrete components typically require manual tuning in the
manufacturing process. Use of GaAs integrated circuits significantly reduces
manual tuning requirements, thereby reducing manufacturing costs and enhancing
reliability.
In response to the requirement for broader bandwidth and the presence of
analog and digital modulation, ANADIGICS has introduced a 50-860 MHz integrated
circuit chip set comprised of an upconverter and downconverter for the tuner
used in analog and digital 50-860 MHz set-top converters and in cable modems.
The Company believes that this chip set meets the performance requirements of
the set-top converter application at a lower cost than alternative discrete
component solutions. The chip set has been designed into tuners by General
Instrument and Komatsu Murata Manufacturing Company, Limited and in cable modems
by Intel Corp., Bay Networks Inc. and 3COM Corp. and is being evaluated by other
tuner manufacturers. Full scale production of the 860 MHz chip set commenced in
the first quarter of 1995.
29
<PAGE>
The Company has also developed a GaAs integrated circuit line amplifier to
be used as a repeater in 50-750 MHz HFC distribution networks. The Company
commenced full scale production of this amplifier in 1996. These integrated
circuits are replacing silicon bipolar hybrid circuits used in this application.
The Company's principal customer for this amplifier is Scientific-Atlanta, Inc.
General Instrument is the Company's principal customer for cable television
set-top products. Since 1989, the Company has had a strategic relationship with
General Instrument for the development of GaAs-based chip sets used in set-top
converters.
The following is a list of some of the Company's products for the cable
television market currently in production:
<TABLE>
<CAPTION>
PRODUCT LINE BANDWIDTH PRODUCTION STATUS
- ----------------------------------------------------------------------- -------------- -------------------------
<S> <C> <C>
SET-TOP CONVERTER PRODUCTS
550 MHz Converter.................................................... 50-550 MHz Produced since 1991
860 MHz Converter Chip Set........................................... 50-860 MHz Produced since 1995
NETWORK PRODUCTS
Drop Amplifier....................................................... 50-860 MHz Produced since 1994
Line Amplifier....................................................... 50-750 MHz Produced since 1995
</TABLE>
DBS MARKET. DBS television is an alternative method to cable television for
delivering multiple channel television programming to the home. In a DBS system,
programming is uplinked to a series of collocated satellites, which then
downlink the programming at Ku-Band (10.7-12.7 GHz) to the satellite dish
antenna with an attached low noise block converter ("LNB") serving the
customer's home. The Ku-Band LNB amplifies and converts the signal to a lower
frequency and sends the signal via coaxial cable to a set-top converter, where
the channel is selected by a broadcast satellite tuner ("BS Tuner") and
displayed on television sets. The retail price of reception systems in the
United States currently start at approximately $200. Subscriber service costs
are evolving and vary by location, but are typically comparable to those for
cable television.
In Europe, the major satellite system, Astra, has six satellites collocated
over Europe. Societe Europeenne des Satellites ("SES") and Hughes Aircraft Co.
("Hughes") have announced plans for an additional Astra launch to occur in 1997.
The newest Astra satellites are delivering compressed digital video, greatly
increasing channel capacity. According to "Cable and Satellite Europe", as of
December 31, 1996 approximately 23 million homes were receiving DBS television
in Europe. This market has developed in the seven years since DBS service was
first inaugurated in Europe in 1989.
In the United States, DirecTV, the first large-scale deployment of digitally
compressed video (and audio) television programming, launched the first high
powered DBS service in June 1994. DirecTV offers 150 channels with a large
variety of additional sports and niche programs and approximately 50
pay-per-view channels. The reception equipment currently being marketed under
RCA, Sony Corp. and other brands consists of an 18-inch satellite dish with a
Ku-Band LNB and a state-of-the-art set-top converter which is specifically
designed for digital video and CD-quality audio reception. In the United States,
Primestar Partners, L.P. and Echostar Satellite Broadcasting Corp. have also
introduced DBS television. According to DBS Digest, as of December 30, 1996
approximately 4.4 million home subscribers are estimated to have been signed up
by DBS providers in the United States. In Latin America, Galaxy, a joint venture
between Hughes Communications, Inc. and three Latin American media companies,
began DBS service to selected areas of Mexico and Central and South America in
the fall of 1996. In addition, NetSat, a joint venture among Globo, News
Corporation and TINTA, launched DBS service in Brazil in the fall of 1996.
DBS PRODUCTS. ANADIGICS designs and manufactures GaAs integrated circuits
for both the LNB and the BS Tuner. GaAs devices are suitable for the LNB
function because of their low noise and broad bandwidth characteristics. This
functionality would typically require 30 to 50 components if implemented
30
<PAGE>
using a discrete component alternative. ANADIGICS' BS Tuner integrated circuit
is used in the set-top converter, which enables selection of a specific
frequency (i.e., a particular channel) within the block of frequencies
downconverted by the outdoor LNB.
ANADIGICS' customers for DBS products include Continental Microwave
Technology, Inc., Grundig Microwave Technology Ltd., Pace Micro Technology plc,
Philips Electronics N.V. and Smile Communications, Inc.
The following is a list of some of the Company's products for the DBS
television market currently in production:
<TABLE>
<CAPTION>
PRODUCTION
PRODUCT LINE REGION FREQUENCY STATUS
- ----------------------------------------------- ------------------ ------------------ -------------------------
<S> <C> <C> <C>
KU-BAND LNB
ASTRA Band................................... Europe 10.7-11.8 GHz Produced since 1989
Universal/ASTRA.............................. Europe, Asia, 10.7-12.75 GHz Produced since 1995
Middle East,
South America,
DirecTV USA 12.2-12.7 GHz Produced since 1995
B.S. TUNER
Universal/ASTRA.............................. Europe, Asia, 950-2050 MHz Produced since 1992
Middle East,
South America
</TABLE>
MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT
The Company sells its products directly to customers worldwide. The Company
also selectively utilizes independent manufacturers' representatives and
distributors to complement its direct sales and customer support efforts.
ANADIGICS believes that the technical nature of its products and markets
demands an extraordinary commitment to close relationships with its customers.
The sales and marketing staff, assisted by the technical staff and senior
management, visit prospective and existing customers worldwide on a regular
basis, and between visits both field and factory sales personnel stay in close
contact with customers. The Company believes that these contacts are vital to
the development of a close long-term working relationship with its customers,
and in obtaining regular forecasts, market updates, and information regarding
technical and market trends.
The ANADIGICS design and applications engineering staff is actively involved
with a customer during all phases of design and production by publishing and
providing the customer with engineering data, up-to-date product application
notes, following up with the customer's engineers on a regular basis, and
assisting in resolving technical problems by working with the customer's
engineers both on and off site. In most cases the design and applications
engineers obtain prototypes from the customer in order to debug and identify
potential improvements to the design in parallel with the customer's effort.
This strategy helps customers speed up the their design process, achieve
cost-effective and manufacturable design, and ensure a smooth transition into
high volume production.
ANADIGICS' policy is to provide its customers with applications engineering
support at its customers' factories throughout the world, generally within 48
hours of a customer request. The Company's sales are typically made pursuant to
customer purchase orders, and such orders may be canceled without significant
penalty.
31
<PAGE>
MANUFACTURING, ASSEMBLY AND TESTING
The Company fabricates integrated circuits on four-inch diameter wafers at
its plant in Warren, New Jersey in an 8,000 square foot, Class 100 cleanroom.
Present production capacity is approximately 26,000 four-inch diameter wafers
per year, and the Company delivered more than 21 million GaAs integrated
circuits during the year ended December 31, 1996.
The Company currently manufactures all of its integrated circuits at its
four-inch wafer fabrication facility located at 35 Technology Drive in Warren,
New Jersey. In October 1996, the Company began conversion from three-inch to
four-inch diameter wafer manufacturing at the facility. The technological and
manufacturing changes associated with these changes may, at least for an initial
period, affect manufacturing yields adversely and could adversely affect
operating results. The Company believes that this facility should be able to
satisfy its production needs through the end of 1997, assuming that the Company
successfully completes planned incremental increases in production and
electrical test capacity at the facility through such date. In addition to the
purchase of equipment, the Company will be required to successfully hire, train
and manage additional production personnel in order to successfully increase
production capacity at this facility. See "Risk Factors--Possible Production
Capacity Constraints; Possible Delay in Construction of New Production
Facility".
The Company plans to complete an approximately 131,000 square foot facility
at 141 Mt. Bethel Road in Warren, New Jersey to create manufacturing areas,
including a 12,000 square foot Class 100 four-inch wafer fabrication clean room,
electrical test areas and office space, to supplement its existing facility. The
Company expects to be able to begin occupying the facility late in the second
quarter or early in the third quarter of 1997. Following the completion of the
physical plant, the Company must install equipment and perform necessary testing
prior to commencing commercial production at the facility, a process which the
Company anticipates will take at least three months. Accordingly, the Company
believes the new facility will not begin commercial production prior to the
fourth quarter of 1997. The Company expects that the new facility as it is
initially being equipped, assuming it becomes fully operational as currently
planned, will enable the Company to approximately double its current production
levels. The new facility will have additional space in which the Company expects
to add more manufacturing capacity in the future. The Company believes that it
could increase its production capacity further if necessary by upgrading its
facilities for the production of six-inch diameter wafers.
ANADIGICS' wafer processing technology has been developed for reliable high
volume manufacturing. The Company has developed a GaAs depletion metal
semiconductor field effect transistor ("D-MESFET") process that it uses to
produce all of its products. By using ion implant variations, the Company can
optimize performance and yield, allowing it to produce, for example, high
linearity, low-noise, receiver integrated circuits or transmitter integrated
circuits with high power and efficiency.
Completed wafers are shipped to contractors in Asia for assembly in
packages. Once assembled by the contractor, packaged integrated circuits are
shipped to the Company's Warren, New Jersey facility for final testing. The
Company believes that its automated test systems give it a significant
competitive advantage and are important to its ability to manufacture high
quality integrated circuits at low cost. ANADIGICS has a staff of test engineers
that designs and builds custom test systems and modifies commercially available
test systems to facilitate rapid testing of its GaAs integrated circuits at high
frequencies. See "Risk Factors--Possible Production Capacity Constraints;
Possible Delay in Construction of New Production Facility" and "--Dependence on
Semiconductor Assembly Contractors".
The Company's design and manufacturing processes were certified as ISO 9001
compliant in December 1993. Since that date, the Company has maintained
compliance with this standard.
RESEARCH AND DEVELOPMENT
The Company's research and development has been focused on developing low
cost, high volume production of GaAs integrated circuit products for the
telecommunication and television industries. Of
32
<PAGE>
the Company's total research and development expenditures incurred during 1996,
approximately 75% and 25% were for the purpose of developing telecommunication
products and television products, respectively. The Company has approximately 55
engineers assigned primarily to research and development. In 1994, 1995 and
1996, the Company expended $9.2 million, $11.7 million and $12.0 million,
respectively, for Company-sponsored research and development and $0.4 million,
$1.8 million and $3.2 million, respectively, for customer sponsored research and
development.
The ability to simulate and model circuits is a critical technology for
analog integrated circuit design, especially at high frequencies. The Company
has developed a set of simulation tools and device models which are custom-fit
to the Company's process and, in many areas the Company believes, exceed the
capability of commercially available computer aided design products. These tools
and models allow the Company to efficiently design products for RF/microwave
front-ends.
RAW MATERIALS
Blank wafers and other raw materials and equipment used in the production of
the Company's GaAs integrated circuits are available from several suppliers. The
Company currently has two qualified blank wafer suppliers, both located in
Japan. Although the Company has not experienced any significant delay in
obtaining wafers or components, no assurances can be given that shortage will
not arise in the future. See "Risk Factors--Limited Sources for Certain
Components, Materials and Equipment".
COMPETITION
While competition in all of the markets for the Company's current products
is intense, the basis on which the Company competes varies by product.
Competitors in the wireless market are entrenched suppliers of discrete receiver
front-end devices such as Fujitsu Microelectronics Inc., Mitsubishi Electric
Corp., Motorola, Inc., Philips Electronics N.V. and Siemens AG; discrete hybrid
power amplifiers suppliers such as Fujitsu Microelectronics Inc., Hitachi, Ltd.,
Matsushita Electric Industrial Co. Ltd., Mitsubishi Electric Corp. and Philips
Electronics N.V.; and GaAs integrated circuit manufacturers for receiver
front-end or power amplifiers such as Raytheon Co., Rockwell International Inc.
and TriQuint Semiconductor, Inc. The Company competes in the wireless market
generally on the basis of product performance, size and price.
In the fiber optic markets, ANADIGICS competes with other GaAs and silicon
integrated circuit manufacturers, generally on the basis of product performance,
reliability and price. Principal competitors in this market are Analog Devices,
Inc., Philips Electronics N.V., TriQuint Semiconductor, Inc. and Vitesse
Semiconductor Corp. as well as many end-user product manufacturers who design
and fabricate their own systems. In the cable television and DBS markets,
ANADIGICS' integrated circuits compete primarily with manufacturers of discrete
components. In these markets, the Company competes on the basis of price and
product performance, specifically as they relate to the ability of its GaAs
integrated circuits to replace a large number of discrete components. In many
cases, discrete components are designed into the end products, and many
potential customers may therefore be reluctant to adopt the Company's products.
Manufacturers of discrete components include Fujitsu Microelectronics Inc.,
Mitsubishi Electric Corp., NEC Corp., Philips Electronics N.V. and Siemens AG.
Competition from other GaAs integrated circuit manufacturers which include
Raytheon Co. and Fujitsu Microelectronics Inc., has begun to emerge in the DBS
market.
Most of the Company's competitors have significantly greater financial,
technical, manufacturing and marketing resources than the Company. Increased
competition could adversely affect the Company's revenue and profitability by
causing it to reduce prices or by reducing demand for the Company's products.
33
<PAGE>
EMPLOYEES
At December 31, 1996, the Company had approximately 430 employees, none of
whom was a member of a labor union. The Company believes its labor relations to
be good and has never experienced a work stoppage.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
It is the Company's practice to seek U.S. and foreign patent and copyright
protection on its products and developments where appropriate and to protect its
valuable technology under U.S. and foreign laws affording protection for trade
secrets and for semiconductor chip designs. The Company owns nine U.S. patents
and has 11 pending U.S. patent applications and two pending international patent
applications filed under the Patent Cooperation Treaty. The U.S. patents were
issued between 1988 to 1996 and will expire between 2006 to 2014.
The Company relies primarily upon trade secrets, technical know-how and
other unpatented proprietary information relating to its product development and
manufacturing activities. To protect its trade secrets, technical know-how and
other proprietary information, the Company's employees are required to enter
into agreements providing for maintenance of confidentiality and the assignment
of rights to inventions made by them while in the employ of the Company. The
Company also has entered into non-disclosure agreements to protect its
confidential information delivered to third parties in conjunction with possible
corporate collaborations and for other purposes. However, there can be no
assurance that these type of agreements will effectively prevent unauthorized
disclosure of the Company's confidential information, that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or independently discovered by others.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a variety of extensive and changing
federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations or ordinances may impose liability for
the cost of remediating, and for certain damages resulting from, sites of past
releases of hazardous materials. The Company believes that it currently
conducts, and in the past has conducted, its activities and operations in
substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial position or results of operations. There can
be no assurance, however, that the environmental laws will not become more
stringent in the future or that the Company will not incur significant costs in
the future in order to comply with such laws.
PROPERTIES
The Company's executive office and research, development and fabrication
facility are located in Warren, New Jersey. The Company currently occupies
approximately 72,000 square feet in the building under a lease expiring on May
1, 2005, the terms of which may be extended for an additional ten year period
and two additional five year periods, and approximately 20,000 square feet of
additional space in the same industrial park under a short-term rental
arrangement. A long-term lease for an additional approximately 131,000 square
feet currently being refurbished was entered into in 1996 and expires in 2016.
The terms of the lease may be extended for an additional ten years. See "Risk
Factors--Possible Production Capacity Constraints; Possible Delay in
Construction of New Production Facility".
LEGAL PROCEEDINGS
The Company is not involved in any litigation which is expected to have a
material effect on its financial position.
34
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ronald Rosenzweig 59 President, Chief Executive Officer and Director
George Gilbert 61 Executive Vice President, Chief Operating Officer and
Director
Charles Huang 49 Executive Vice President Marketing Research and
Business Development and Director
John F. Lyons 50 Senior Vice President and Chief Financial Officer
Robert Bayruns 39 Vice President Research and Technology
Sheo Khetan 47 Vice President Manufacturing
Javed S. Patel 41 Vice President Sales and Marketing
Phillip Wallace 40 Vice President Product Development
Paul S. Bachow 45 Director
Charles A. Burton 51 Director
David M. Fellows 44 Director
Bruns Grayson 49 Director
Harry T. Rein 52 Director
Lewis Solomon 63 Director
</TABLE>
Mr. Rosenzweig, a co-founder of ANADIGICS in 1985, has served as President,
Chief Executive Officer and a director of the Company since its inception. He
was co-founder of Microwave Semiconductor Corporation ("MSC"), a manufacturer of
microwave silicon and GaAs transistors and amplifiers. He served as President
and CEO of MSC from 1968 to 1983. Mr. Rosenzweig received his B.Ch.E degree from
City College of New York.
Mr. Gilbert, a co-founder of ANADIGICS in 1985, has served as Executive Vice
President, Chief Operating Officer and a director of the Company since its
inception. He was co-founder of MSC with Mr. Rosenzweig and served as Executive
Vice President of Semiconductor Operations of MSC from 1968 to 1983. Mr. Gilbert
has a B.S. in Physics from Georgia Tech.
Dr. Huang, a co-founder of ANADIGICS in 1985, has served as Executive Vice
President and a director of the Company since its inception. He was director of
GaAs research and development and wafer fabrication services at Avantek, Inc.
from 1980 to 1984. Dr. Huang received his Ph.D.E.E. at the University of
California, Berkeley.
Mr. Lyons joined ANADIGICS in 1987 as Director of Finance, was elected a
Vice President in 1989 and currently serves as Senior Vice President and Chief
Financial Officer. Prior to joining the Company, he served as Manager-Finance
Section for General Electric Co.'s ("GE") Power Electronic Semiconductor
Department from 1984 to 1987. Mr. Lyons is a graduate of GE's Financial
Management Program and has a B.A. in Economics from Hamline University.
35
<PAGE>
Mr. Bayruns joined ANADIGICS in 1985 and currently serves as Vice President
Research and Technology. Prior to joining ANADIGICS, Mr. Bayruns was employed by
AT&T Bell Laboratories. Mr. Bayruns received his M.S.E.E. from Rutgers
University.
Mr. Khetan joined ANADIGICS in 1985 and currently serves as Vice President
of Manufacturing. Prior to joining ANADIGICS, Mr. Khetan was at Sprague Solid
State Scientific and, prior to that, at General Instrument. Mr. Khetan received
his Bachelor of Science Degree in Engineering from the Indian Institute of
Technology, a Masters of Science from State University of New York and a Masters
Degree in Business Administration from Temple University.
Mr. Patel joined ANADIGICS in 1986 and currently serves as Vice President of
Sales and Marketing. Prior to joining ANADIGICS, Mr. Patel was employed by Alpha
Industries, Inc. From 1979 to 1984, Mr. Patel was a member of the Technical
Staff of RCA-Astroelectronics. Mr. Patel received his Bachelor of Science Degree
and Masters of Science Degree in Engineering from the University of Kansas and a
Masters Degree in Business Administration from Drexel University.
Mr. Wallace joined ANADIGICS in 1985 and currently serves as Vice President
Product Development. Prior to joining ANADIGICS, Mr. Wallace was at the
Westinghouse R&D Center in Pittsburgh, Pennsylvania, and, prior to that, he was
with MSC. Mr. Wallace received his B.S.E.E. and M.Eng. (Electrical) from Cornell
University.
Mr. Bachow has served as a director of the Company since January 1993. He
has been President of Bachow & Associates, Inc. since its formation in December
1989, and its predecessors, Bachow and Elkin Co., Inc. and Paul S. Bachow
Company from December 1985 to December 1989. Mr. Bachow also acts as President
of the general partner of each of Paul S. Bachow Co-Investment Fund, L.P.,
Bachow Investment Partners III, L.P. and Bachtel Cellular Liquidity, L.P. He has
a B.A. from American University, a J.D. from Rutgers University and a Masters
Degree in tax law from New York University, and is a C.P.A. Mr. Bachow serves as
director of Deb Shops, Inc., a publicly traded company, and several private
companies.
Mr. Burton has served as a director of the Company since 1990. He is
Managing Director of Philadelphia Ventures, Inc., which he joined in 1984. Prior
to 1984 he was a Vice President of CIGNA Corporation. Mr. Burton graduated from
Gettysburg College and received an MBA from the Wharton Graduate School at the
University of Pennsylvania. He is also a director of Membrex, Inc., Microsource,
Inc., Visual Edge Technology, Inc. and several private companies.
Mr. Fellows has served as a director of the Company since September 1994.
Mr. Fellows has served as Senior Vice President of Engineering and Technology at
Continental Cablevision, Inc., a division of US West Media Group, since 1992.
From 1987 until 1992, Mr. Fellows was employed by Scientific Atlanta's
Transmission Systems Business Division, where he served as President. Mr.
Fellows received his Bachelor Degree in Engineering and Applied Physics from
Harvard College and a Masters Degree in Electrical Engineering from Northeastern
University.
Mr. Grayson has served as a director of the Company since 1985. He is
managing General Partner of Calvert Capital Management Co., which manages ABS
Ventures. Before joining Calvert Capital Management Co., Mr. Grayson was an
associate of Adler & Co. and McKinsey & Co. in New York. He is a director of
Cascade Communications Corp. and several private companies. He has a B.A. from
Harvard, an M.A. from Oxford University and a J.D. from the University of
Virginia.
Mr. Rein has served as a director of the Company since 1985. He was a
principal founder of Canaan Partners in 1987 and has served as Managing General
Partner since its inception. From 1979 to 1987, Mr. Rein held various positions
at GE, directing several of GE's lighting businesses as general manager before
becoming President and CEO of GE Venture Capital Corporation. He is a director
of Perceptron, Inc. and several private companies.
36
<PAGE>
Mr. Solomon has served as a director of the Company since September 1994
and, previously, from 1985 to 1989. Mr. Solomon has been Chairman of G&L
Investments since 1990 in addition to serving as a director on the boards of
Microelectronics Packaging Inc., ICTV Inc., Anacomp Inc., Computer Products Inc.
and Terayon Corporation. Prior to joining G&L Investments, Mr. Solomon was an
Executive Vice President with Alan Patricof Associates from 1983 to 1986 and a
Senior Vice President of General Instrument from 1967 to 1983. Mr. Solomon
received a Bachelor Degree in Physics from St. Joseph's College and a Masters
Degree in Industrial Engineering from Temple University.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at December 31, 1996 by each of the
Selling Stockholders. Except as indicated in the footnotes to the table, the
persons named therein have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
<S> <C> <C> <C> <C> <C>
OWNED PRIOR TO OWNED FOLLOWING THE
OFFERING(1) NUMBER OF OFFERING(1)
------------------------------ SHARES TO ------------------------------
NAME NUMBER PERCENTAGE BE SOLD NUMBER PERCENTAGE
- --------------------------------------------------- --------- ------------------- ----------- ----------- -----------------
Century IV Partners L.P.(2)........................ 31,582 * 31,582 -- --
Commonwealth Venture Partners I, L.P.(2)........... 66,056 * 21,389 44,667 *
J.P. Morgan Capital Corporation.................... 104,346 * 104,346 -- --
Metropolitan Life Insurance Co..................... 8,695 * 8,695 -- --
Pennsylvania Venture Partners(2)................... 501 * 501 -- --
</TABLE>
- --------------
* Less than 1%.
(1) Applicable percentage of ownership prior to consummation of this Offering is
based on 12,564,678 shares of Common Stock outstanding as of December 31,
1996. Applicable percentage of ownership after consummation of this Offering
also includes 1,875,000 shares of Common Stock offered hereby. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting and investment power with respect
to shares. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days after December 31, 1996 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage of any other person.
(2) This entity is affiliated with Philadelphia Ventures, Inc. Charles A.
Burton, a director of the Company, is Managing Director of Philadelphia
Ventures, Inc. as well as a General Partner of this entity, and, therefore,
may be deemed to beneficially own such shares of Common Stock. However, Mr.
Burton disclaims beneficial ownership of all such shares except those to
which he has a pecuniary interest, if any.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York and for the Underwriters by Sullivan &
Cromwell, New York, New York.
EXPERTS
The Financial Statements (including the schedule in the Registration
Statement) of ANADIGICS, Inc. at December 31, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-3
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and such Common Stock, reference is made to the
Registration Statement and the
38
<PAGE>
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information filed by the Company as well as the Registration
Statement, including exhibits, of which this Prospectus is a part may be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the following Regional Offices: 7 World Trade Center, 13th Floor, New
York, New York 10048, and 500 West Madison Street -- Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Commission by
mail at prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials which have been filed electronically by
the Company may be obtained at the Commission's Website at (http://www.sec.gov).
The Common Stock is quoted on the Nasdaq National Market, Material filed by the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(File No. 0-25662) pursuant to the Exchange Act are incorporated and made a part
of this Prospectus by reference, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995 and Amendment No. 1 thereto on Form 10-K/A;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 and Amendment No. 1 thereto on Form 10-Q/A and the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996;
3. The Company's Current Report on Form 8-K dated January 31, 1997; and
4. The Company's description of the Common Stock in its Registration
Statement on Form 8-A, as amended.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Offering
made hereby shall be deemed to be incorporated by reference in this Prospectus
and shall be part hereof from the date of filing of such documents. Any
statement contained herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modified or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
herein (not including exhibits to those documents unless such exhibits are
incorporated by reference into the information incorporated into this
Prospectus). Requests for such copies should be directed to ANADIGICS, Inc., 35
Technology Drive, Warren, New Jersey 07059, Attention: Investor Relations, (908)
668-5000.
39
<PAGE>
ANADIGICS, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1995 and 1996....................................... F-3
Statements of Income for the years ended December 31, 1994, 1995 and 1996............. F-4
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996................................................................................ F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ANADIGICS, Inc.
We have audited the accompanying balance sheets of ANADIGICS, Inc. as of
December 31, 1995 and 1996, and the related statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ANADIGICS, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Princeton, New Jersey
January 30, 1997
F-2
<PAGE>
ANADIGICS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 6,394 $ 23,112
Marketable securities................................................ 22,788 9,008
Accounts receivable, net of allowance for doubtful accounts of $482
and $340 in 1995 and 1996, respectively............................ 7,379 10,696
Inventory............................................................ 8,735 8,901
Prepaid expenses and other current assets............................ 981 1,221
Deferred taxes....................................................... 184 699
--------- ---------
Total current assets................................................... 46,461 53,637
Plant and equipment:
Equipment and furniture.............................................. 31,951 46,853
Leasehold improvements............................................... 2,586 3,710
--------- ---------
34,537 50,563
Less accumulated depreciation and amortization....................... 16,060 21,830
--------- ---------
18,477 28,733
Deferred taxes......................................................... 1,032 4,131
Deposits............................................................... 280 495
--------- ---------
$ 66,250 $ 86,996
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable..................................................... $ 2,671 $ 7,173
Accrued liabilities.................................................. 4,027 3,671
Income taxes payable................................................. 2,092 3,676
Current maturities of capital lease obligations...................... 1,718 1,292
--------- ---------
Total current liabilities.............................................. 10,508 15,812
Capital lease obligations, less current portion........................ 1,919 627
Commitments............................................................
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, none
issued or outstanding..............................................
Common stock, $0.01 par value, 34,000,000 shares authorized,
11,603,936 and 12,564,678 issued and outstanding at December 31,
1995 and 1996, respectively........................................ 116 126
Common stock, convertible, non-voting, $0.01 par value, 1,000,000
shares authorized, 521,672 and no shares issued and outstanding at
December 31, 1995 and 1996, respectively........................... 5
Common stock subscribed.............................................. (3)
Additional paid-in capital........................................... 94,065 98,800
Accumulated deficit.................................................. (40,360) (28,369)
--------- ---------
Total stockholders' equity............................................. 53,823 70,557
--------- ---------
$ 66,250 $ 86,996
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ANADIGICS, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- ---------- ----------
Net sales............................................... $ 34,832 $ 51,460 $ 68,864
Cost of sales........................................... 18,454 24,995 38,887
--------- ---------- ----------
Gross profit............................................ 16,378 26,465 29,977
Research and development expenses....................... 9,195 11,733 12,036
Selling and administrative expenses..................... 4,530 6,640 8,206
--------- ---------- ----------
13,725 18,373 20,242
--------- ---------- ----------
Operating income........................................ 2,653 8,092 9,735
Interest expense........................................ 831 573 371
Interest income......................................... 343 1,301 1,739
--------- ---------- ----------
Income before income taxes.............................. 2,165 8,820 11,103
Provision (benefit) for income taxes.................... 300 1,527 (888)
--------- ---------- ----------
Net income.............................................. $ 1,865 $ 7,293 $ 11,991
--------- ---------- ----------
--------- ---------- ----------
Net income per share of common stock.................... $ .23 $ .64 $ .93
--------- ---------- ----------
--------- ---------- ----------
Weighted average common and common equivalent shares
outstanding........................................... 8,260,430 11,374,745 12,907,851
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ANADIGICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK,
JUNIOR CONVERTIBLE COMMON ADDITIONAL
PREFERRED PREFERRED COMMON NON- STOCK PAID-IN
STOCK STOCK STOCK VOTING SUBSCRIBED CAPITAL
----------- --------------- ------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993...................... $ 880 $ 3 $ 12 $ (38) $ 59,055
Exercise of warrant....... 4 96
Issuance of Preferred
Stock, Series P and Q..... 227 7,926
Repayment of employee
receivables............. 6 2
Net income................
----------- --- ----- ----- -----------
Balance, December 31,
1994...................... 1,111 3 12 (32) 67,079
Mandatory conversion of
Preferred Stock to
Common Stock............ (1,111) (3) 63 $ 5 1,046
Issuance of Common Stock
in initial public
offering, net of
expenses................ 35 25,073
Stock options exercised... 5 171
Repayment of employee
receivables............. 29 (10)
Shares issued under
employee stock purchase
plan.................... 1 706
Net income................
----------- --- ----- --- ----- -----------
Balance, December 31,
1995...................... 116 5 (3) 94,065
Exercise of warrants...... 3 3,607
Conversion of non-voting
Common Stock to Common
Stock................... 5 (5)
Stock options exercised... 1 348
Repayment of employee
receivables............. 3
Shares issued under
employee stock purchase
plan.................... 1 780
Net income................
----------- --- ----- --- ----- -----------
Balance, December 31,
1996...................... -- -- $ 126 -- -- $ 98,800
----------- --- ----- --- ----- -----------
----------- --- ----- --- ----- -----------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
-------------- ---------------
<S> <C> <C>
Balance, December 31,
1993...................... $ (49,518) $ 10,394
Exercise of warrant....... 100
Issuance of Preferred
Stock, Series P and Q..... 8,153
Repayment of employee
receivables............. 8
Net income................ 1,865 1,865
-------------- ---------------
Balance, December 31,
1994...................... (47,653) 20,520
Mandatory conversion of
Preferred Stock to
Common Stock............
Issuance of Common Stock
in initial public
offering, net of
expenses................ 25,108
Stock options exercised... 176
Repayment of employee
receivables............. 19
Shares issued under
employee stock purchase
plan.................... 707
Net income................ 7,293 7,293
-------------- ---------------
Balance, December 31,
1995...................... (40,360) 53,823
Exercise of warrants...... 3,610
Conversion of non-voting
Common Stock to Common
Stock...................
Stock options exercised... 349
Repayment of employee
receivables............. 3
Shares issued under
employee stock purchase
plan.................... 781
Net income................ 11,991 11,991
-------------- ---------------
Balance, December 31,
1996...................... $ (28,369) $ 70,557
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ANADIGICS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................... $ 1,865 $ 7,293 $ 11,991
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 1,239 2,317 3,865
Amortization................................................ 1,827 2,227 2,323
Changes in operating assets and liabilities:
Accounts receivable....................................... (1,719) (1,515) (3,317)
Inventory................................................. (2,702) (752) (166)
Prepaid expenses and other current assets................. 172 (485) (240)
Deposits.................................................. (53) 180 (215)
Deferred taxes............................................ (1,216) (3,614)
Accounts payable.......................................... 415 1,083 4,502
Income taxes payable...................................... 93 1,993 1,584
Accrued liabilities....................................... 50 1,985 (356)
--------- --------- ---------
Net cash provided by operating activities..................... 1,187 13,110 16,357
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment............................... (5,097) (9,488) (16,444)
Purchase of marketable securities............................. (39,116) (15,453)
Proceeds from sales of marketable securities.................. 16,337 29,233
--------- --------- ---------
Net cash used in investing activities......................... (5,097) (32,267) (2,664)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of obligations under capital leases................... (1,845) (1,931) (1,718)
Proceeds from notes payable................................... 1,396
Repayment of notes payable and debt........................... (2,394) (3,083)
Repayment of contingent warrant............................... (300)
Exercise of warrants.......................................... 100 3,610
Issuance of common stock...................................... 25,982 1,130
Issuance of preferred stock................................... 8,153
Proceeds of common stock subscribed........................... 8 19 3
--------- --------- ---------
Net cash provided by financing activities..................... 5,188 20,987 3,025
--------- --------- ---------
Net increase in cash and cash equivalents..................... 1,208 1,830 16,718
Cash and cash equivalents at beginning of period.............. 3,356 4,564 6,394
--------- --------- ---------
Cash and cash equivalents at end of period.................... $ 4,564 $ 6,394 $ 23,112
--------- --------- ---------
--------- --------- ---------
Non-cash investing and financing activities:
Acquisition of plant and equipment under financing leases..... $ 1,494 $ 957
Conversion of operating leases to capital leases.............. 1,056
--------- ---------
$ 1,494 $ 2,013
--------- ---------
--------- ---------
Interest paid................................................. $ 825 $ 579 $ 343
--------- --------- ---------
--------- --------- ---------
Taxes paid.................................................... $ 207 $ 750 $ 1,142
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
ANADIGICS, Inc. (the "Company") is a leading supplier of radio frequency
("RF") and microwave frequency gallium arsenide ("GaAs") integrated circuits.
The Company's products are used to receive and transmit signals in a variety of
high volume communications applications in cellular telephone systems and
personal communication systems ("PCS"), in fiber optic communications systems
and in cable ("CATV") and direct broadcast satellite ("DBS") television systems.
The Company designs, develops and manufactures integrated circuits in GaAs
semiconductor material that allows the integration of numerous RF/microwave
functions which cannot be easily integrated in silicon-based circuits. The
Company's high frequency integrated circuits can typically replace 30 to 100
discrete components, permitting manufacturers of end products to reduce the size
and weight of their products, improve reliability, reduce manufacturing time and
cost and enhance system performance.
The financial statements and Notes thereto reflect a three-for-two stock
split by declaration on January 30, 1997 of a stock dividend of one share of
common stock for each two shares of common stock outstanding. See Note 11.
CONCENTRATION OF CREDIT RISK
The Company grants trade credit to its customers which are primarily foreign
manufacturers of DBS television receivers, cable television receivers, and fiber
optic and wireless communication devices. The Company performs continuing credit
evaluations of its customers and generally does not require collateral. The
Company has not experienced significant losses related to receivables from
individual customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Production revenue is recorded when products are shipped to customers.
Revenues under customer-funded research and development contracts, which are
recorded relative to the deliverables and other contractual obligations were
$419 in 1994, $1,863 in 1995, and $3,193 in 1996, and are included in net sales
on the statements of income.
Approximately 44% of the Company's net sales in 1994 were to three
customers, accounting for 21%, 13% and 10% of net sales. Approximately 48% of
the Company's net sales in 1995 were to two customers, accounting for 30% and
18% of net sales; accounts receivable from these customers accounted for 36% of
total accounts receivable at December 31, 1995. Approximately 44% of the
Company's net sales in 1996 were to three customers, accounting for 16%, 16%,
and 12% of net sales;
F-7
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounts receivable from these customers accounted for 55% of total accounts
receivable at December 31, 1996.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation of plant and equipment
has been provided on the straight-line method over 3-5 years.
The cost of equipment acquired under capital leases was $13,718 and $13,339
at December 31, 1995 and 1996, respectively, and accumulated amortization was
$9,243 and $10,996 at December 31, 1995 and 1996, respectively. Equipment
acquired under capital leases, which contain a bargain purchase option, are
amortized over the useful life of the leased equipment. All other equipment
acquired under capital leases are amortized over the life of the lease.
INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, principally relating to
net operating loss carryforwards.
RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs associated with the
development of new products to expense when incurred. Engineering and design
costs related to customer-funded research and development contracts are
classified as cost of sales.
CASH EQUIVALENTS
The Company considers as cash equivalents all highly-liquid marketable
securities with an original maturity of three months or less.
MARKETABLE SECURITIES
Marketable securities consist of fixed income investments (U.S. Government
obligations and short-term commercial paper) with maturities of two months to 16
months as of December 31, 1996 which can be readily purchased or sold using
established markets. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Such securities are classified as available for sale
and, accordingly, are carried at fair value which approximates cost at December
31, 1995 and 1996. The amortized cost of debt securities is adjusted for
amortization of premium and accretion of discounts to maturity. Such
amortization, realized gains and losses, interest and dividends are included in
interest income.
STOCK BASED COMPENSATION
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting Principal
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock
F-8
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
option plans. Under APB 25, no compensation expense is recognized at the time of
option grant because the exercise price of the Company's employee stock option
equals the fair market value of the underlying common stock on the date of
grant.
NET INCOME PER SHARE
The net income per share of common stock includes common stock equivalents
computed by application of the treasury stock method and is based upon the
weighted average number of common and common equivalent shares outstanding
during each year.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations or expected to be disposed when events and circumstances indicate
that the assets are less than the carrying amounts of those assets.
2. INVENTORIES
Inventories are stated at the lower of cost (first in-first out method) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Raw materials.............................................. $ 882 $ 1,278
Work in process............................................ 6,137 6,291
Finished goods............................................. 1,716 1,332
--------- ---------
$ 8,735 $ 8,901
--------- ---------
--------- ---------
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Accrued compensation....................................... $ 2,659 $ 2,516
Warranty reserve........................................... 525 225
Other...................................................... 843 930
--------- ---------
$ 4,027 $ 3,671
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. LEASES
The Company leases manufacturing, warehousing and office space under
noncancelable operating leases that expire through 2016. The Company also leases
certain equipment under capital leases that expire through 2000 and under
noncancelable operating leases that expire through 1998. Rent expense was
$1,671, $1,546 and $1,810 in 1994, 1995 and 1996, respectively.
The future minimum lease payments under the noncancelable operating leases
and the present value of the minimum capital lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997................................................... $ 1,417 $ 1,727
1998................................................... 296 1,914
1999................................................... 208 1,976
2000................................................... 196 2,131
2001................................................... 2,177
Thereafter............................................. 26,556
----------- -----------
Total minimum lease payments........................... 2,117 $ 36,481
----------- -----------
-----------
Less amount representing interest...................... 198
-----------
Present value of net minimum lease payments............ $ 1,919
-----------
-----------
</TABLE>
At December 31, 1996, the Company had committed to purchase approximately
$25,000 of equipment and furniture, and leasehold improvements.
5. INCOME TAXES
At December 31, 1996, the Company's federal net operating loss ("NOL") and
general business credit carryforwards of $37,000 (tax effect of $12,600) and
$800, respectively, were subject to limitation due to ownership changes as
defined in Section 382 of the Internal Revenue Code ("Section 382"). In
addition, at December 31, 1996 the Company had a $10,000 NOL carryforward for
state tax purposes.
An ownership change, pursuant to Section 382, occurred in January 1989 as a
result of financing and capital restructuring transactions. Accordingly, the
annual utilization of the Company's pre-change federal NOL and general business
credit carryforwards of approximately $23,800 (tax effect of approximately
$8,100) and $500, respectively, is severely restricted. A valuation allowance of
$8,600 has been provided for all of these federal NOLs and general business
credits as of December 31, 1996.
Another ownership change, pursuant to Section 382, occurred in April 1995 as
a result of the initial public offering of the Company's stock. Accordingly,
utilization of the federal NOL carryforwards and general business credits
generated subsequent to January 1989 is subject to an annual limitation of
$5,100.
If an ownership change occurred subsequent to January 1989 but before April
1995, the federal NOL carryforwards generated after January 1989 may be subject
to more restrictive limitations on use than would otherwise apply. The Company
believes that no ownership change occurred during that
F-10
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. INCOME TAXES (CONTINUED)
period. However, the calculations required by the applicable federal income tax
regulations are complex. Accordingly, the provision (benefit) for income taxes
in 1994, 1995 and 1996 has been computed as if such a change occurred in
mid-1992, the point in time at which the Company's computations show that it was
closest to an ownership change during the period from January 1989 until April
1995, resulting in an annual limitation of approximately $1,400 on the federal
NOL carryforwards generated between 1989 and the middle of 1992. Federal NOL
carryforwards potentially subject to this limitation at December 31, 1996 were
approximately $13,200, exclusive of the pre-January 1989 carryforward noted
above. These carryforwards will expire as follows: $300 in 2004, $6,900 in 2005,
$5,000 in 2006 and $1,000 in 2007. A valuation allowance of $2,300 has been
recorded against the post-January 1989 federal NOL and general business credits
as of December 31, 1996.
At December 31, 1996, the Company reduced its valuation allowance associated
with its deferred tax assets (primarily federal NOL carryforwards) by $5,200
based upon the level of historical taxable income and current projections for
future taxable income over the periods in which the deferred tax assets would be
realized. Additionally, the Company considered the expiration of and limitation
on the annual use of the Company's federal NOL carryforwards. In assessing the
realizability of deferred tax assets, the Company considered whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets will depend on whether
an ownership change occurred subsequent to January 1989 and prior to April 1995,
the value of the Company prior to any such change, future generation of taxable
income and prevailing statutory tax rates.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
<S> <C> <C> <C> <C>
1994 1995 1996
----- --------- ---------
Current
provision Federal................... $ 300 $ 2,743 $ 2,726
Deferred benefit Federal................... -- (503) (3,214)
State..................... -- (713) (400)
----- --------- ---------
Total....................................... $ 300 $ 1,527 $ (888)
----- --------- ---------
----- --------- ---------
</TABLE>
The reconciliation of income tax expense computed at the U.S. federal
statutory rate to the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996
-------------------- -------------------- --------------------
Tax at U.S. statutory rate................ $ 736 34.0% $ 2,999 34.0% $ 3,775 34.0%
Change in federal valuation allowance..... (447) (20.6) (1,288) (14.6) (4,673) (42.1)
General business credit................... (195) (2.2)
Other..................................... 11 0.5 11 0.1 10 0.1
--------- --------- --------- --------- --------- ---------
Provision (benefit) for income taxes...... $ 300 13.9% $ 1,527 17.3% $ (888) (8.0)%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-11
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Current:
Accruals/reserves..................................... $ 1,510 $ 1,610
Net operating loss carryforwards...................... 1,121 592
--------- ---------
2,631 2,202
Valuation allowance for current deferred tax assets..... (2,447) (1,503)
--------- ---------
Net current deferred tax asset.......................... 184 699
Long-term:
Net operating loss carryforwards...................... 13,578 12,584
General business credit............................... 919 1,079
Difference in basis of plant and equipment............ 258 (204)
--------- ---------
14,755 13,459
Valuation allowance for long-term deferred tax assets... (13,723) (9,328)
--------- ---------
Net long-term deferred tax assets....................... 1,032 4,131
--------- ---------
Net deferred tax assets................................. $ 1,216 $ 4,830
--------- ---------
--------- ---------
</TABLE>
6. CREDIT FACILITIES
The Company has a secured $20,000 revolving credit facility and a $10,000
uncommitted bank line of credit.
The $20,000 revolving bank credit facility provides for interest at the
bank's base rate minus 50 basis points or, at the Company's discretion, other
market-based rates. The Company also has the option to swap floating rate for
fixed rate loans at the time of drawdown. The drawdown period expires on
December 31, 1997. Any drawdowns may be paid over a term of up to five years.
Its availability is subject to a number of financial covenants. Under this
facility, the payment of dividends, among other things, requires approval by the
bank. The weighted average interest rate was 7.69% in 1995 and the interest rate
was 7.75% at December 31, 1996. Substantially all assets of the Company are
pledged as security for the repayment of amounts drawn under this credit
facility. On a quarterly basis, the Company pays an annual commitment fee equal
to 0.125% of the daily unused line of credit.
The $10,000 bank line of credit provides for interest at the bank's base
rate minus 75 basis points. Its availability is subject to the approval by the
bank. The interest rate was 7.50% at December 31, 1996. Substantially all assets
of the Company are pledged as security for the repayment of amounts drawn under
this bank line of credit, which expires on July 1, 1997.
As of December 31, 1995 and 1996, there were no borrowings outstanding under
these credit facilities.
F-12
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY
During 1996, warrants to purchase 313,905 shares of common stock were
exercised at an exercise price of $11.50 per share. The Company has warrants
outstanding which entitle the holder to purchase 15,000 shares of common stock
at exercise prices ranging from $21.50 to $22.67 per share, of which one warrant
to purchase 7,500 shares of common stock was exercisable at December 31, 1996
and the remaining warrant to purchase 7,500 shares of Common Stock becomes
exercisable on September 6, 1997. The warrants expire in September of 2001 and
2002. In addition, in 1996, 521,672 shares of non-voting common stock were
converted on a one-to-one basis into common stock.
8. EMPLOYEE BENEFIT PLANS
In 1995, the Company adopted an employee stock purchase plan ("ESP Plan")
under Section 423 of the Internal Revenue Code. All full-time employees of the
Company and "part-time" employees, as defined in the ESP Plan, are eligible to
participate in the ESP Plan. An aggregate of 562,500 shares of common stock are
reserved for offering under the ESP Plan. Offerings are made at the commencement
of each calendar year and must be purchased by the end of that calendar year. In
1995, 103,970 shares of common stock were purchased at a price of $6.80 per
share, as determined by the ESP Plan, which approximates fair value. During
1996, 65,501 shares of common stock were purchased at a price of $11.92 per
share, as determined by the ESP Plan, which approximates fair value.
Certain executives and key employees have been granted options to purchase
shares of common stock under stock option plans adopted in 1994 and 1995. An
aggregate of 326,087 and 1,275,000 shares of common stock were reserved for
issuance under the 1994 Long-Term Incentive Share and Award Plan and the 1995
Long-Term Incentive Share Award Plan (the "Plans"), respectively. The Plans
provide for the granting of stock options, stock appreciation rights, restricted
shares, or other share based awards to eligible employees and directors, as
defined in the Plans. Options granted under the Plans become exercisable in
varying amounts over periods of up to three years.
Options to purchase 180 shares of common shares granted under previous plans
are fully exercisable at December 31, 1996.
FASB 123 requires pro forma information regarding net income and earnings
per share as if the Company has accounted for its employee stock options and
warrants granted subsequent to December 31, 1994 and shares of common stock
purchased by employees in connection with the ESP Plan ("equity awards") under
the fair value method of FASB 123. The fair value of these equity awards was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1995 and 1996, respectively:
risk-free interest rates of 6.57% and 5.17%; expected volatility of 0.50;
expected option life of one year from vesting and an expected dividend yield of
0.0%.
For purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Pro forma net income...................................... $ 6,504 $ 10,555
Pro forma net income per share of common stock............ $ .59 $ .85
</TABLE>
F-13
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
Because Statement 123 is applicable only to equity awards granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1997.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1995 and 1996 follows:
<TABLE>
<CAPTION>
1995 1996
------------------------ ----------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
COMMON AVERAGE COMMON AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
----------- ----------- --------- -----------
Outstanding at beginning of year............... 204,001 $ .57 686,565 $ 6.13
Granted...................................... 524,277 8.28 484,575 14.64
Exercised.................................... (22,939) 4.43 (59,068) 6.14
Forfeited.................................... (18,774) 7.57 (23,851) 13.14
----------- ---------
Outstanding at end of year..................... 686,565 6.13 1,088,221 9.77
----------- ---------
----------- ---------
Exercisable at end of year..................... 262,878 481,426
----------- ---------
----------- ---------
Weighted average fair value of options granted
during the year.............................. $ 2.67 $ 5.50
</TABLE>
Stock options outstanding at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF OPTIONS AT REMAINING EXERCISE
EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE PRICE
- ---------------- ------------------- --------------------- -------------------
<S> <C> <C> <C>
$ .15 180 .85 $ .15
$ .57 175,614 7.16 $ .57
$ 8.00 427,077 8.30 $ 8.00
$12.00 to $14.33 452,575 9.14 $ 14.28
$15.67 to $24.83 32,775 9.53 $ 19.77
----------
$ .15 to $24.83 1,088,221 8.51 $ 9.77
----------
----------
</TABLE>
F-14
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
9. SEGMENT INFORMATION
The regions to which the Company had sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Europe......................................... $ 15,038 $ 19,069 $ 24,819
Asia........................................... 12,696 15,819 19,836
North America.................................. 7,098 16,572 24,209
</TABLE>
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 29, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 10,970 $ 12,465 $ 13,555 $ 14,470 $ 13,574 $ 15,862 $ 17,005 $ 22,423
Cost of sales................. 5,440 5,767 6,429 7,359 6,835 8,254 11,136 12,662
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Gross profit.................. 5,530 6,698 7,126 7,111 6,739 7,608 5,869 9,761
Research and development...... 2,729 3,182 2,825 2,997 2,878 3,284 2,756 3,118
Selling and administrative
expense..................... 1,399 1,658 1,849 1,734 1,968 2,063 1,619 2,557
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Operating income.............. 1,402 1,858 2,452 2,380 1,893 2,261 1,494 4,086
Interest expense.............. 223 184 121 45 105 90 84 92
Interest income............... 86 330 437 448 418 411 432 479
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Income before income taxes.... 1,265 2,004 2,768 2,783 2,206 2,582 1,842 4,473
Provision (benefit) for income
taxes....................... 367 581 441 138 441 516 369 (2,214)
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Net income.................... $ 898 $ 1,423 $ 2,327 $ 2,645 $ 1,765 $ 2,066 $ 1,473 $ 6,687
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Net income per share.......... $ 0.10 $ 0.12 $ 0.18 $ 0.21 $ 0.14 $ 0.16 $ 0.11 $ 0.51
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Market price per share of
common stock:
High --....................... $ 16.50 $ 22.33 $ 18.67 $ 15.17 $ 20.50 $ 23.50 $ 27.00
Low --........................ $ 8.83 $ 12.17 $ 9.92 $ 11.83 $ 13.92 $ 13.92 $ 16.33
</TABLE>
The Company commenced trading on the Nasdaq National Market on April 21,
1995.
11. SUBSEQUENT EVENTS
On January 24, 1997, the Company adopted the 1997 Long Term Incentive and
Share Award Plan for Employees (the "1997 Plan"). The 1997 Plan provides for the
granting of stock options, stock appreciation rights, restricted shares and
other share based awards to eligible employees as defined in the 1997 Plan,
which excludes officers and directors. An aggregate of 1,200,000 shares of
common stock have been reserved for issuance under the 1997 Plan.
F-15
<PAGE>
ANADIGICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
11. SUBSEQUENT EVENTS (CONTINUED)
On January 30, 1997, the Company declared a stock dividend of one share of
common stock for each two shares of common stock outstanding. The dividend is
payable on February 20, 1997 to holders of record on February 10, 1997.
Accordingly, the financial statements have been retroactively restated to
reflect the three-for-two stock split.
On January 30, 1997, the Company also approved a public offering (the
"Offering") of an additional 1,875,000 shares of common stock (plus an
additional 306,226 shares of common stock that may be issued upon exercise of an
overallotment option by the underwriters). The Company intends to use its net
proceeds from the Offering to purchase capital equipment and make leasehold
improvements and will use the remainder for general corporate purposes,
including working capital.
F-16
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Oppenheimer & Co., Inc. and Needham & Company, Inc. are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
---------------
<S> <C>
Goldman, Sachs & Co.........................................................
Oppenheimer & Co., Inc......................................................
Needham & Company, Inc......................................................
---------------
Total................................................................. 2,041,513
---------------
---------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 306,226
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,041,513 shares of Common
Stock offered.
The Company, the Selling Stockholders and the executive officers and
directors of the Company have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 90 days after
the date of the Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any securities of the Company (other than pursuant to stock
purchase and option plans existing, or upon the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants outstanding,
on the date of this Prospectus, or pursuant to certain other limited exceptions)
which are substantially similar to the shares of Common Stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of Common Stock, without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the Offering.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 35
Selling Stockholders.................. 38
Validity of Common Stock.............. 38
Experts............................... 38
Additional Information................ 38
Incorporation of Certain Information
by Reference........................ 39
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>
2,041,513 SHARES
ANADIGICS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
[LOGO]
-------------------
GOLDMAN, SACHS & CO.
OPPENHEIMER & CO., INC.
NEEDHAM & COMPANY, INC.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the shares of Common Stock being registered hereby. All amounts are estimates
except the registration fee, the NASD filing fee and the Nasdaq NMS fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
Registration Fee............................................... $ 31,659
NASD Filing Fee................................................ 10,948
Nasdaq NMS Fees................................................ 17,500
Printing Expenses.............................................. 100,000
Legal Fees and Expenses........................................ 160,000
Accounting Fees and Expenses................................... 50,000
Blue Sky Fees and Expenses..................................... 5,000
Transfer Agent and Registrar Fees.............................. 5,000
Miscellaneous.................................................. 19,893
-----------
Total...................................................... $ 400,000
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article VI of the Registrant's
Restated Certificate of Incorporation and Section 4 of Article VII of the
Registrant's By-laws provide for indemnification of its directors, officers,
employees, and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Reference is also made to Section 8 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, which provides for the
indemnification of officers, directors, and controlling persons of the
Registrant against certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Common Stock Certificate. Filed as an exhibit to the Company's Registration
Statement (Registration No. 33-89928), and incorporated herein by reference.
4.2 Form of Registration Rights Agreement. Filed as an exhibit to the Company's
Registration Statement (Registration No. 33-89928), and incorporated herein by
reference.
4.3 Schedule to Form of Registration Rights Agreement.
5.1 Opinion of Cahill Gordon & Reindel (a partnership including a professional
corporation).
10.11 First Amendment, dated as of December 23, 1996, to the Amended and Restated Loan
Agreement, dated as of January 25, 1996, between the Company and First Union
National Bank, formerly known as First Fidelity Bank, National Association.
10.12 Lease Agreement between United States Land Resources, L.P. and the Company dated as
of April 26, 1996.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-3).
27.1 Financial Data Schedule.
</TABLE>
II-1
<PAGE>
(b) Financial Statement Schedules
Report of Independent Auditors on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
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.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Warren, State of New Jersey, on the 27th day of
January, 1997.
ANADIGICS, INC.
BY: /S/ RONALD ROSENZWEIG
-----------------------------------------
Ronald Rosenzweig
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ronald Rosenzweig and John F. Lyons, and
each of them acting individually, as his attorney-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
or a Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ RONALD ROSENZWEIG Chief Executive Officer and
- ------------------------------ President (Chief January 27, 1997
Ronald Rosenzweig Executive Officer)
Vice President and Chief
/s/ JOHN F. LYONS Financial Officer (Chief
- ------------------------------ Financial Officer and January 27, 1997
John F. Lyons Principal Accounting
Officer)
/s/ GEORGE GILBERT Director
- ------------------------------ January 27, 1997
George Gilbert
/s/ CHARLES HUANG Director
- ------------------------------ January 27, 1997
Charles Huang
/s/ PAUL S. BACHOW Director
- ------------------------------ January 27, 1997
Paul S. Bachow
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ CHARLES BURTON Director
- ------------------------------ January 27, 1997
Charles Burton
/s/ DAVID FELLOWS Director
- ------------------------------ January 28, 1997
David Fellows
/s/ BRUNS GRAYSON Director
- ------------------------------ January 27, 1997
Bruns Grayson
/s/ HARRY T. REIN Director
- ------------------------------ January 27, 1997
Harry T. Rein
/s/ LEWIS SOLOMON Director
- ------------------------------ January 27, 1997
Lewis Solomon
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ANADIGICS, Inc.
We have audited the financial statements of ANADIGICS, Inc. as of December
31, 1995 and 1996, and for each of the three years in the period ended December
31, 1996, and have issued our report thereon dated January 30, 1997 (included
elsewhere in this Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
ERNST & YOUNG LLP
Princeton, New Jersey
January 30, 1997
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ANADIGICS, INC.
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from asset account:
Allowance for doubtful accounts............................ $ 482 $ 239 $ (381)(1) $ 340
Reserve for excess and obsolete inventory.................. 1,508 1,238 (1,065)(2) 1,681
Valuation allowance for deferred tax assets................ 16,170 -- (5,339)(3) 10,831
Reserve for warranty claims.................................. 525 321 (621)(4) 225
----------- ----------- ----------- -----------
$ 17,635 $ 1,156 $ (6,164) $ 12,627
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended December 31, 1995:
Deducted from asset account:
Allowance for doubtful accounts............................ $ 226 $ 220 $ (4)(1) $ 482
Reserve for excess and obsolete inventory.................. 429 1,133 (54)(2) 1,508
Valuation allowance for deferred tax assets................ 17,389 -- (1,219)(3) 16,170
Reserve for warranty claims.................................. 280 346 (111)(4) 525
----------- ----------- ----------- -----------
$ 17,794 $ 1,007 $ (1,166) $ 17,635
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended December 31, 1994:
Deducted from asset account:
Allowance for doubtful accounts............................ $ 255 $ 85 $ (74)(1) $ 266
Reserve for excess and obsolete inventory.................. 627 50 (248)(2) 429
Valuation allowance for deferred tax assets................ 18,658 -- (1,269)(3) 17,389
Reserve for warranty claims.................................. 233 134 (77)(4) 290
----------- ----------- ----------- -----------
$ 19,307 $ 1 $ (1,514) $ 17,794
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Uncollectible accounts written-off and adjustments to the allowance account.
(2) Inventory write-offs and adjustments to the reserve account.
(3) Benefit and/or recognition of deferred tax assets.
(4) Warranty expenses incurred and other adjustments to the reserve for warranty
claims.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
EXHIBITS NO.
- ----------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
4.1 Form of Common Stock Certificate. Filed as an exhibit to the Company's Registration Statement
(Registration No. 33-89928), and incorporated herein by reference.
4.2 Form of Registration Rights Agreement. Filed as an exhibit to the Company's Registration
Statement (Registration No. 33-89928), and incorporated herein by reference.
4.3 Schedule to Form of Registration Rights Agreement.
5.1 Opinion of Cahill Gordon & Reindel (a partnership including a professional corporation).
10.11 First Amendment, dated as of December 23, 1996, to the Amended and Restated Loan Agreement,
dated as of January 25, 1996, between the Company and First Union National Bank, formerly
known as First Fidelity Bank, National Association.
10.12 Lease Agreement between United States Land Resources, L.P. and the Company dated as of April
26, 1996.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-3).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 1.1.
ANADIGICS, Inc.
Common Stock
par value $.01 per share
--------------
Underwriting Agreement
________ ___, 1997
Goldman, Sachs & Co.,
Oppenheimer & Co., Inc.,
Needham & Company, Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
ANADIGICS, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 1,875,000 shares
and, at the election of the Underwriters, up to 306,226 additional shares of
Common Stock, par value $.01 per share ("Stock"), of the Company and the
stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 166,513 shares of Stock. The aggregate
of 2,041,513 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the 306,226 additional shares to be sold by
the Company is herein called the "Optional Shares". The Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-________) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); such
Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits
thereto but including all documents incorporated by reference in the
prospectus contained therein, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Act"), which became effective
upon filing, no other document with respect to the Initial Registration
Statement or document incorporated by reference therein has
<PAGE>
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Act,
is hereinafter called a "Preliminary Prospectus"; the various parts of the
Initial Registration Statement and the Rule 462(b) Registration Statement,
if any, including all exhibits thereto and including (i) the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a)
hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective and
(ii) the documents incorporated by reference in the prospectus contained in
the registration statement at the time such part of the registration became
effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act,
is hereinafter called the "Prospectus"; any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any documents filed after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any annual report of the
Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after
the effective date of the Initial Registration Statement that is
incorporated by reference in the Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Item 7 of
Form S-3;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission
2
<PAGE>
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the Prospectus
or any further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock, short-term
debt (other than changes not in excess of $500,000 in the aggregate) or
long-term debt of the Company or any of its subsidiaries or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
to all personal property owned by them, free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not interfere with the
3
<PAGE>
use made and proposed to be made of such property and buildings by the
Company and its subsidiaries; neither the Company nor any of its
subsidiaries owns any real property;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(x) The issue and sale of the Shares to be sold by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except to the extent such
conflict, breach, violation or default would not result in a material
adverse change in or affecting the general affairs, management, financial
position, prospects, stockholders' equity or results of operations of the
Company (a "Material Adverse Effect"), nor will such action result in any
violation of the provisions of the Restated Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in
4
<PAGE>
connection with the purchase and distribution of the Shares by the
Underwriters;
(xi) Neither the Company nor any of its subsidiaries is (A) in
violation of its Certificate of Incorporation or Restated Certificate of
Incorporation, as the case may be, or By-laws or (B) in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound, except in the case of
(B) for such defaults as would not, individually or in the aggregate,
result in a Material Adverse Effect;
(xii) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiii) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xv) Ernst & Young LLP, who have certified certain financial
statements of the Company, are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder; and
(xvi) The Company has sufficient title to and ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes ("Intellectual Property")
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights or claimed rights
of others and has taken all steps necessary to secure title and ownership
to such Intellectual Property from its contractors; there are no
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property, and the Company is not a party to or bound by any
options, licenses or agreements with respect to the Intellectual Property
of any other person or entity; none of the technology employed by the
Company has been obtained or is being used by the Company in violation of
any contractual or fiduciary obligation binding on the Company or any of
its directors, employees or consultants or otherwise in violation of the
rights of any person; neither the Company nor any of its employees has
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the Intellectual
Property of any other person or entity; no employee of the Company is
obligated under any contract (including licenses, covenants or commitments
5
<PAGE>
of any nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would conflict with his
obligation to use his best efforts to promote the interests of the Company
or that would conflict with the Company's business as proposed to be
conducted; neither the execution nor delivery of this Agreement, nor the
operation of the Company's business by the employees of the Company, nor
the conduct of the Company's business as proposed, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute
a default under, any material contract, covenant or instrument under which
any of such employees is now obligated; and the Company has taken and will
maintain reasonable measures to prevent the unauthorized dissemination or
publication of its confidential information or the confidential information
of third parties in its possession.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder has
full right, power and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to the First
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold at such First Time
of Delivery by such Selling Stockholder hereunder, free and clear of all
liens, encumbrances, equities or claims; and, upon delivery of such Shares
and payment therefor pursuant hereto, good and valid title to such Shares,
free and clear of all liens, encumbrances, equities or claims, will pass to
the several Underwriters;
(iv) During the period beginning on the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any
6
<PAGE>
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities or the exercise of warrants outstanding as of,
the date of this Agreement), without your prior written consent;
(v) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares;
(vi) No written information furnished to the Company by such Selling
Stockholder expressly for use in the Preliminary Prospectus and the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to ChaseMellon Shareholder Services L.L.C., as custodian (the
"Custodian"), and such Selling Stockholder has duly executed and delivered
a Power of Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder, or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or
7
<PAGE>
trust, or in the case of a partnership or corporation, by the dissolution
of such partnership or corporation, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery of
the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Stockholders in accordance with
the terms and conditions of this Agreement and of the Custody Agreements;
and actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not
the Custodian, the Attorneys-in-Fact or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $_______, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of the
Selling Stockholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Company and all of the Selling Stockholders hereunder and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 306,226 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs &
8
<PAGE>
Co. may request upon at least forty-eight hours' prior notice to the Company and
the Selling Stockholders shall be delivered by or on behalf of the Company and
the Selling Stockholders to Goldman, Sachs & Co., for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer, payable to the order of the Company and
ChaseMellon Shareholder Services L.L.C., as their interests may appear, in
Federal (same day) funds. The Company will cause the certificates representing
the Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on _________
___, 1997 or such other time and date as Goldman, Sachs & Co., the Company and
the Selling Stockholders may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York City time, on the date specified by
Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or at such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein called the "First Time
of Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery". The
Company will notify the Custodian of the First Time of Delivery.
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 2:00 p.m., New York
City time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the
9
<PAGE>
Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may from time to time reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the Act
or the Exchange Act, to notify you and upon your request to file such
document and to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Shares at any time nine months or
more after the time of issue of the Prospectus, upon your request but at
the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to
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employee stock option or stock purchase plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities or the
exercise of warrants outstanding as of, the date of this Agreement),
without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(i) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds"; and
(j) If the Company elects to rely upon Rule 462(b), to file a Rule
462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and at the time of filing either to pay to the Commission the filing fee
for the Rule 462(b) Registration Statement or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the
Act.
6. (a) The Company covenants and agrees with the Selling Stockholders and
with the several Underwriters that the Company will pay or cause to be paid: (i)
the fees, disbursements and expenses of the Company's counsel and accountants
and the reasonable fees, expenses and disbursements of one counsel retained to
represent the Selling Stockholders, each in connection with the registration of
the Shares under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, the Blue Sky Memorandum, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey;
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(iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; and (viii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section; and (b) each Selling Stockholder
covenants and agrees with the Company and the several Underwriters that it will
pay or cause to be paid all costs and expenses incident to the performance of
such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including (i) any fees and expenses
of counsel for such Selling Stockholder (other than the reasonable fees,
expenses and disbursements of one counsel retained to represent the Selling
Stockholders), (ii) such Selling Stockholder's pro rata share of the fees and
expenses, if any, of the Attorneys-in-Fact and the Custodian, and (iii) all
expenses and taxes incident to the sale and delivery of the Shares to be sold by
such Selling Stockholder to the Underwriters hereunder. In connection with
clause (b) (iii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay
New York State stock transfer tax, and the Selling Stockholder agrees to
reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment
is not rebated on the day of payment and for any portion of such tax payment not
rebated. It is understood, however, that the Company shall bear, and the Selling
Stockholders shall not be required to pay or to reimburse the Company for, the
cost of any other matters not directly relating to the sale and purchase of the
Shares pursuant to this Agreement, and that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
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(c) Cahill Gordon & Reindel, counsel for the Company, shall have
furnished to you their written opinion (a draft of which is attached as
Annex II(a) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so qualified
in any such jurisdiction (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and certificates);
(iv) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(v) This Agreement has been duly authorized, executed and delivered
by the Company;
(vi) The issue and sale of the Shares being delivered at such Time
of Delivery to be sold by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
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constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument listed in a schedule attached
to such opinion, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or Restated Certificate of
Incorporation, as the case may be, or the By-laws of the Company or any of
its subsidiaries or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and such counsel, after due inquiry, is not aware of any
material agreements or instruments of the Company or any of its
subsidiaries other than as set forth in the schedule referred to above;
(vii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(viii) Neither the Company nor any of its subsidiaries is (A) in
violation of its Certificate of Incorporation or Restated Certificate of
Incorporation, as the case may be, or By-laws or (B) in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument listed in the schedule
referred to in clause (vii) above;
(ix) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act; and
(x) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion), when
they became effective or were filed with the Commission, as the case may
be, complied as to form in all material respects with the requirements of
the Act or the Exchange Act, as applicable and the rules and regulations
of the Commission thereunder; and they have no reason to believe that any
of such documents, when such documents became effective or were so filed,
as the case may be, contained, in the case of a registration statement
which became effective under the Act, an untrue statement of a material
fact, or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or, in the case
of other documents which were filed under the Exchange Act with the
Commission, an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such documents
were so filed, not misleading.
In addition, such counsel shall state that the Registration
Statement and the Prospectus and any further amendments and supplements
thereto made by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder. In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of the
Company,
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representatives of the independent auditors of the Company, and
representatives of the Underwriters at which the contents of the
Registration Statement and Prospectus were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise indicated
above) on the basis of the foregoing (relying as to materiality to a large
extent upon the opinions of officers and representatives of the Company),
no facts have come to the attention of such counsel which lead them to
believe that either the Registration Statement or any amendment thereto,
at the time the Registration Statement or amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date or
any further amendment or supplement thereto as of its date, or the
Registration Statement or the Prospectus or any amendment or supplement
thereto as of such Time of Delivery, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial
data included in the Registration Statement or Prospectus); and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be
incorporated by reference into the Prospectus or required to be described
in the Registration Statement or the Prospectus which are not filed or
incorporated by reference or described as required.
(d) Pennie & Edmonds, special counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that the Company owns, is
licensed or otherwise has sufficient rights to use the Intellectual
Property currently used by the Company; to the best of such counsel's
knowledge, except as described in the Registration Statement and the
Prospectus, no claims have been asserted against the Company by any person
with respect to the use of any such Intellectual Property and no person
has challenged or questioned the validity or effectiveness of any such
Intellectual Property; to the best of such counsel's knowledge, the
Company has conducted its business without infringement or claim of
infringement of any Intellectual Property of others; and, to the best of
such counsel's knowledge, the use, in connection with the business and
operations of the Company, of such Intellectual Property does not infringe
on the rights of any person.
(e) The respective counsel for certain of the Selling Stockholders,
as indicated in Schedule IV hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom
they are acting as counsel (drafts of such opinions are attached as Annex
II(c) hereto), dated the First Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid
and binding agreements of such Selling Stockholder in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
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(ii) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder; and the sale of the Shares to
be sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the provisions of this Agreement, the
Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership, or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
(iii) Such Selling Stockholder has the full right, power and
authority to enter into and perform its obligations under this Agreement
and to sell, transfer, assign and deliver the Shares pursuant to this
Agreement;
(iv) Immediately prior to the First Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at the First
Time of Delivery by such Selling Stockholder under this Agreement, free
and clear of all liens, encumbrances, equities or claims, and full right,
power and authority to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each of
the several Underwriters who have purchased such Shares in good faith and
without notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
such opinion may assume that the Shares have been duly and validly authorized
and issued and are fully paid and nonassessable; such opinion may contain
language limiting reliance thereon to the Underwriters and limiting its
circulation;
(f) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date
of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, Ernst & Young LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(g)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective
dates as of which information is given
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in the Prospectus there shall not have been any change in the capital
stock, short-term debt or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares at such Time of Delivery shall have been duly listed
for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each stockholder of the Company
listed on Schedule III hereto, substantially to the effect set forth in
Subsection 1(b)(iv) hereof in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request, and
the Company shall have furnished or caused to be furnished certificates as
to the matters set forth in subsections (a) and (g) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each
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Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each of the Selling Stockholders will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; provided, further, that the liability of each
Selling Stockholder pursuant to this subsection 8(b) shall not exceed the
product of the number of Shares sold by such Selling Stockholder and the initial
public offering price of the Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect
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thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include
19
<PAGE>
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint. The liability of each Selling Stockholder pursuant to
this subsection 8(e) shall not exceed the product of the number of Shares sold
by such Selling Stockholder and the initial public offering price of the Shares
as set forth in the Prospectus.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Stockholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Selling Stockholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
20
<PAGE>
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of Delivery, or
if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and any Selling Stockholder as provided herein, the Company and such
Selling Stockholder pro rata (based on the number of Shares to be sold by the
Company and such Selling Stockholder hereunder) will reimburse the Underwriters
through you for all out-of-pocket expenses approved in writing by you, including
fees and disbursements of counsel, reasonably incurred by the Underwriters in
making preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and the Selling Stockholders shall then be under no
further liability to any Underwriter in respect of the Shares not so delivered
except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such
21
<PAGE>
Questionnaire, which address will be supplied to the Company or the Selling
Stockholders by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
22
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us seven (7) counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters, the
Company and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters, the form of
which shall be submitted to the Company and the Selling Stockholders for
examination, upon request, but without warranty on your part as to the authority
of the signers thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
ANADIGICS, Inc.
By:_____________________________________
Name:
Title:
Century IV Partners L.P.
Commonwealth Venture Partners I, L.P.
J.P. Morgan Capital Corporation
Metropolitan Life Insurance Co.
Pennsylvania Venture Partners
By:_____________________________________
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the Selling
Stockholders named in Schedule II
to this Agreement.
Accepted as of the date hereof
Goldman, Sachs & Co.
Oppenheimer & Co., Inc.
Needham & Company, Inc.
By: ______________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
23
<PAGE>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ---------
Goldman, Sachs & Co.......................
Oppenheimer & Co., Inc....................
Needham & Company, Inc....................
--------- -------
Total....................... 2,041,513 306,226
========= =======
24
<PAGE>
SCHEDULE II
Total Number of
Firm Shares
to be Sold
----------
The Company ..................................................... 1,875,000
The Selling Stockholders(a):
Century IV Partners L.P. .................................. 31,582
Commonwealth Venture Partners I, L.P. ..................... 21,389
J.P. Morgan Capital Corporation ........................... 104,346
Metropolitan Life Insurance Co. ........................... 8,695
Pennsylvania Venture Partners ............................. 501
---------
Total ........................................................... 2,041,513
=========
(a) The Selling Stockholders have appointed Ronald Rosenzweig and John F. Lyons,
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
25
<PAGE>
SCHEDULE III
Ronald Rosenzweig
George Gilbert
Charles Huang
John F. Lyons
Robert Bayruns
Sheo Khetan
Javed S. Patel
Phillip Wallace
Paul S. Bachow
Charles A. Burton
David M. Fellows
Bruns Grayson
Harry T. Rein
Lewis Solomon
26
<PAGE>
SCHEDULE IV
Selling Stockholders Counsel
-------------------- -------
Century IV Partners L.P.
Commonwealth Ventures Partners I, L.P.
Pennsylvania Venture Partners
J.P. Morgan Capital Corporation Proskauer Rose Goetz & Mendelsohn
Metropolitan Life Insurance Co. Richard Kullen
27
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published
rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act or the Exchange
Act, as applicable, and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the interim financial statements, selected financial data,
pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are
attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed statements of income, balance sheets and
statements of cash flows included in the Prospectus and/or included in the
Company's quarterly report on Form 10-Q incorporated by reference into the
Prospectus as indicated in their reports thereon copies of which are
attached hereto; and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
financial statements referred to in paragraph (vi)(A)(i) below comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed financial statements do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to
the results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus and included or
incorporated by reference in Item 6 of the Company's Annual Report on Form
10-K for the most recent fiscal year agrees with the corresponding amounts
(after restatement where applicable) in the audited financial statements
for such five fiscal years which were included or incorporated by
reference in the Company's Annual Reports on Form 10-K for such fiscal
years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company, inspection of the minute books of the
Company since the date of the latest audited financial statements included
or incorporated by reference in the Prospectus, inquiries of officials of
the Company responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited condensed statements of income, balance
sheets and statements of cash flows included in the Prospectus
and/or included or incorporated by reference in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in the
Prospectus do not
<PAGE>
comply as to form in all material respects with the applicable
accounting requirements of the Exchange Act as it applies to Form
10-Q and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited condensed
statements of income, balance sheets and statements of cash flows
included in the Prospectus or included in the Company's Quarterly
Reports on Form 10-Q incorporated by reference in the Prospectus,
for them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with
the basis for the corresponding amounts in the audited financial
statements included or incorporated by reference in the Company's
Annual Report on Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on
a basis substantially consistent with the basis for the audited
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal
year;
(D) any unaudited pro forma condensed financial statements
included or incorporated by reference in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of
those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the capital
stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest balance sheet
included or incorporated by reference in the Prospectus) or any
increase in the long-term debt of the Company, or any decreases in
net current assets or stockholders' equity or other items specified
by the Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts shown in
the latest balance sheet included or incorporated by reference in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus
to the specified date referred to in Clause (E) there were any
decreases in net revenues or operating profit or the total or per
share amounts of net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company, which appear in the Prospectus (excluding documents
incorporated by reference) or in Part II of, or in exhibits and
2
<PAGE>
schedules to, the Registration Statement specified by the Representatives
or in documents incorporated by reference in the Prospectus specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and have found them to be in agreement.
3
<PAGE>
Exhibit 4.3
The following stockholders of the Registrant executed Registration Rights
Agreements, each dated April 20, 1995, substantially in the form filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (Registration
No. 33-89928):
Number of Registrable
Stockholder Securities
- ----------- ---------------------
ABS Ventures II Limited 170,577 (includes 14,015
Partnership shares issuable upon
exercise of warrants)
AVA Partners 87 (includes 87 shares
issuable upon exercise of
warrants)
Paul S. Bachow 135,677
Paul S. Bachow Co. Investment
Fund, L.P. 296,795
Bever Beleggingen N.V. 3,217
Bostech Associates 8
Bridge Street Fund, 1993, L.P. 61,974
Brown Technology Associates 4,911 (includes 17 shares
Limited Partners issuable upon exercise
of warrants)
Canaan Venture Limited Partnership 265,773 (includes 19,471
shares issuable upon
exercise of warrants)
Canaan Venture Offshore Limited 634,970 (includes 46,533
Partners shares issuable upon
exercise of warrants)
Century IV Partners 60,851 (includes 21,293 shares
issuable upon exercise
of warrants)
Cinder Partners 58,492
Commonwealth Venture Partners 171,146 (includes 14,421
<PAGE>
-2-
shares issuable upon
exercise of warrants)
Commonwealth Venture 58,754
Partners II, L.P.
Comsat Communications
Satellite Company 43,478
E.G.C. Limited Partnership 2,486
George Gilbert 764
George Gilbert Partners 59
Greenwood Fund 14
Greenwood Investors III 14
Michael Hankal PHD, CPA, MBA 7
Charles Huang 764
Charles Huang Partners 152
J.P. Morgan Capital Corporation 851,620 (includes 69,565
shares issuable upon
exercise of warrants)
Walter C. Johnson 4
Metropolitan Life Insurance Co. 6,099 (includes 6,099 shares
issuable upon exercise
of warrants)
MD Co. 373,927 (includes 24,214
shares issuable upon
exercise of warrants)
Pennsylvania Venture Partners 969 (includes 338 shares
issuable upon exercise of
warrants)
Philadelphia Ventures II 204,713
Philadelphia Ventures Japan II 24,863
<PAGE>
-3-
Philips Venture Capital Fund B.V. 494,890 (includes 1,200
shares issuable upon
exercise of warrants)
Ronald Rosenzweig 764
Ronald Rosenzweig Partners 107
Steuben Partners International 3,701 (includes 421 shares
Venture Fund issuable upon exercise
of warrants)
Steuben Partners, L.P. 39,351 (includes 4,481 shares
issuable upon exercise
of warrants)
Stone Street Fund 1993, L.P. 55,535
The Goldman Sachs Group, L.P. 352,526
Thomson-CSF Ventures 551,051 (includes 2,709
shares issuable upon
exercise of warrants)
<PAGE>
Cahill Gordon & Reindel
Eighty Pine Street
New York, New York 10005
January 30, 1997
Ladies and Gentlemen:
We have acted as special counsel to ANADIGICS, Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-3 (the "Registration Statement") relating to the registration pursuant to
the Securities Act of 1933, as amended (the "Act"), of 2,347,739 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), of which
2,181,226 shares are being sold by the Company and 166,513 shares are being sold
by the Selling Stockholders identified in the Registration Statement (the
"Selling Stockholders").
We advise you that in our opinion (i) the shares of Common Stock to be
sold by the Company, when issued in the manner and for the consideration
contemplated by the Registration Statement, will be validly issued, fully paid
and nonassessable and (ii) the shares of Common Stock to be sold by the Selling
Stockholders, when sold pursuant to the Registration Statement after the payment
by the Company of the stock dividend declared by its Board of Directors on
January 30, 1997, will be validly issued, fully paid and nonassessable.
<PAGE>
We hereby consent to the use of our name under the caption "Validity
of Common Stock" and to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
CAHILL GORDON & REINDEL
ANADIGICS, Inc.
35 Technology Drive
Warren, New Jersey 07059
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT (the "Amendment"), dated as of December 23, 1996 to the
Amended and Restated Loan Agreement (the "Agreement"), dated as of January 25,
1996, between ANADIGICS, INC., the (the "Borrower") and FIRST UNION NATIONAL
BANK (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank are parties to the Agreement; and
WHEREAS, the Borrower has requested the Bank to modify the Agreement, and
the Bank is agreeable to such request;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein without definition shall have the respective meanings
assigned to them in the Agreement.
1. DEFINITIONS. Except as otherwise stated, capitalized terms defined in
the Agreement and used herein without definition shall have the respective
meanings assigned to them in the Agreement.
2. AMENDMENT TO THE AGREEMENT. The Agreement is hereby amended as
follows:
(a) A new Paragraph D is added to the Background as follows:
The Borrower has requested that the Bank increase the maximum
principal amount hereunder to $20,000,000.
(b) Section 2.1 is hereby amended by deleting therefrom "Ten Million
and No/100 Dollars ($10,000,000)" and substituting in its place
"Twenty Million and No/100 Dollars ($20,000,000)".
3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Agreement, the Borrower hereby represents and warrants that:
(a) The Borrower has the power, authority and legal right to make and
enter this Amendment and to perform its obligations under the Agreement, as
amended by this Amendment, without any notice, consent, approval or
authoriza-
<PAGE>
-2-
tion not already obtained, and the Borrower has taken all necessary action
to authorize the same.
(b) The making and delivery of this Amendment and the performance of
the Agreement as amended by this Amendment do not violate any provision of
law, any regulation, the Borrower's charter or the Borrower's by-laws or
result in the breach of or constitute a default under or require any
consent under any indenture or other agreement or instrument to which the
Borrower is a party or by which the Borrower or any of its property may be
bound or affected. The Agreement as amended by this Amendment constitutes
a legal, valid and binding obligation of the Borrower, enforceable against
it in accordance with its terms, except as the enforceability thereof may
be limited by any applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally.
(c) The representations and warranties contained in Article IV of the
Agreement are true and correct on and as of the date of this Amendment and
after giving effect thereto.
(d) No Event of Default or event which, with the giving of notice or
lapse of time or both, would be an Event of Default has occurred and is
continuing under the Agreement as of the date of this Amendment and after
giving effect thereto.
4. EFFECTIVE DATE. This Amendment shall become effective when all of the
following shall have occurred:
(a) The Bank shall have received counterparta of this Amendment, duly
executed by each of the parties hereto.
(b) The Bank shall have received a copy of the resolution of the
Board of Directors of the Borrower authorizing the execution , delivery and
performance of this Amendment, certified by an appropriate officer of the
Borrower.
5. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute a single instrument with the same effect as if the signature
thereto and hereto were upon the same instrument.
<PAGE>
-3-
6. FULL FORCE AND EFFECT. Except as expressly modified by this
Amendment, all of the terms and provision of the Agreement shall continue in
full force and effect, and all parites hereto shall be entitled to the benefits
thereof.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date set forth above.
ANADIGICS, INC.
By: \s\John F. Lyons
------------------------------
Name: John F. Lyons
Title: Chief Financial Officer
FIRST UNION NATIONAL BANK
By: \s\Richard F. Neuman_
------------------------------
Name: Richard F. Neuman
Title: Senior VP
<PAGE>
EXHIBIT 10.12
LEASE
THIS LEASE is made as of the 26th day of April, 1996, by and between:
UNITED STATES LAND RESOURCES, L.P.
having an address
c/o Berger and Bornstein
237 South Street
Morristown, New Jersey 07962,
(hereinafter referred to as "Landlord")
and
ANADIGICS, INC.
a corporation of the State of Delaware
having an address at
35 Technology Drive
Warren, New Jersey 07059
(hereinafter referred to as "Tenant")
W I T N E S S E T H:
Landlord and Tenant hereby agree with each other as follows:
1. DEMISED PREMISES. Landlord hereby leases to the Tenant and
Tenant hereby rents from Landlord that certain portion of premises located in a
building known as 141 Mt. Bethel Road, Township of Warren, Somerset County, New
Jersey. Said building, together with the land on which it is situated, is
hereinafter referred to as the "Building" or "Property". The portion of the
Building being leased to Tenant hereunder is outlined in red on Exhibit A
annexed hereto and is hereinafter referred to as the "Demised Premises". The
Demised Premises contains approximately 131,000 square feet of space. Tenant
shall also have the non-exclusive right, in common with the Landlord and other
tenants at the Building (now or hereinafter existing), and their employees,
customers, visitors, guests and invitees to use the landscaped areas, common
egress and ingress, passageways, hallways and lobbies, driveways, parking areas,
walkways and roadways, and common areas which service the Building ("Common
Areas").
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2. TERM.
a. The "Initial Term" of this Lease shall be for a term which
shall commence on the "Commencement Date" and end on December 31, 2016
(hereinafter "Termination Date"). The Commencement Date shall be the latter of:
(i) October 1, 1996; or (ii) the date upon which Landlord shall substantially
complete the improvements set forth in Exhibit H annexed hereto, hereinafter
"Landlord's Work". Landlord's work shall be deemed substantially complete upon
the date that Landlord's Work is complete to the extent that any incomplete
Landlord's Work does not interfere with Tenant's obtaining a Certificate of
Occupancy for the Demised Premises nor unreasonably interfere with Tenant's
reasonable use of the demised premises. It is agreed that not completing the
top coating of the parking areas and landscaping work shall not unreasonably
interfere with Tenant's reasonable use of the premises and such work can be
postponed to the spring of 1997. Any remaining work shall be deemed "punch
list" items. Tenant shall provide Landlord a list of such items no later than
thirty (30) days from the Commencement Date and Landlord shall complete any such
work which shall be Landlord' Work within thirty (30) days of the receipt of
said list weather permitting. The first "lease year" shall be the period
beginning on the Commencement Date and ending twelve (12) calendar months
thereafter, provided, however, that if the Commencement Date is not the first
day of a calendar month, the first lease year shall commence on the Commencement
Date and end twelve (12) calendar months from the last day of the calendar month
in which the Commencement Date occurs. Each succeeding twelve (12) calendar
month period thereafter shall be a lease year. At the request of either
Landlord or Tenant, the parties shall enter into a Commencement Date Agreement
setting forth the Commencement Date of the Lease. Notwithstanding that the
Commencement Date shall not have occurred, Tenant shall have the right to access
the Demised Premises to do any work that Tenant shall wish to do, so long as
Tenant does not unreasonably interfere
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with Landlord's Work at the Demised Premises and so long as Tenant's Work does
not cause any labor disputes.
b. In the event the Commencement Date shall not occur by
December 31, 1996, or in the event that Landlord shall not receive an
affirmative vote of the planning board to prepare a resolution to approve the
site plan attached hereto as Exhibit F by August 1, 1996, Tenant may terminate
this Lease upon written notice to Landlord, hereafter "Notice to Terminate".
Landlord shall thereupon promptly return Tenant's security deposit. The Notice
to Terminate shall be delivered to Landlord on or before August 10, 1996 in the
case of the planning vote not having been received, and January 10, 1997, in the
case of failure of the Commencement Date to have occurred, time being of the
essence. Tenant's failure to deliver the Notice to Terminate on or before said
respective dates, shall be deemed a waiver by Tenant of its right to elect to
terminate this Lease pursuant to this paragraph 2b.
c. In the event that Landlord has not completed any paving work
which Landlord is obligated to do pursuant to the term of the Lease except for
"top coat" which Landlord shall not be obligated to complete until June 1, 1997,
by October 1, 1996, Tenant may by written notice to Landlord, notify Landlord
that Tenant intends to complete said work. If Landlord shall fail to complete
said work within ten (10) days of the receipt of said notice, Tenant shall have
the right to complete said work and Landlord shall no longer be obligated to
complete said work, and said work shall no longer be deemed Landlord's Work.
Landlord shall, upon receipt of reasonable evidence of the cost of said work,
reimburse Tenant for the reasonable cost of such work. In the event that
Landlord shall fail to reimburse Tenant the reasonable cost of such work within
thirty (30) days of the date of receipt of said notice and evidence of Tenant's
reasonable costs, Tenant may deduct the reasonable cost of said work from the
next sums due and owing to Landlord under this Lease.
d. In the event that Landlord has failed to perform any site
work (other than landscaping and top coat paving,
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<PAGE>
which Landlord shall not be obligated to complete until June 1, 1997) which
unreasonably interferes with Tenant's reasonable use of the Demised Premises,
and which work Landlord is required to do pursuant to the approved site plan
obtained from Warren Township, by December 31, 1996, Tenant may by written
notice to Landlord, notify Landlord, that Tenant intends to complete such work.
If Landlord shall fail to complete said work within ten (10) days of the receipt
of said notice, Tenant shall have the right to complete said work and Landlord
shall no longer be obligated to complete said work, and said work shall no
longer be deemed Landlord's Work. Landlord shall upon receipt of reasonable
evidence of the cost of said work, reimburse Tenant for the reasonable cost of
such work. In the event that Landlord shall fail to reimburse Tenant the
reasonable cost of such work within thirty (30) days of the date of receipt of
said notice and evidence of Tenant's reasonable costs, Tenant may deduct the
reasonable cost of said work from the next sums due and owing to Landlord under
this Lease.
e. In the event that Landlord has failed to commence the roof
work that Landlord is obligated to perform pursuant to the terms of the Lease by
July 1, 1996 or completed said work by August 1, 1996, Tenant may by written
notice to Landlord, notify Landlord that Tenant intends to complete such work.
If Landlord shall fail to complete said work within ten (10) days of the receipt
of said notice, Tenant shall have the right to complete said work and Landlord
shall no longer be obligated to complete said work, and said work shall no
longer be deemed Landlord's Work. Landlord shall upon receipt of reasonable
evidence of the cost of said work, reimburse Tenant for the reasonable cost of
such work. In the event that Landlord shall fail to reimburse Tenant reasonable
cost of such work within thirty (30) days of the date of receipt of said notice
and evidence of Tenant's reasonable costs, Tenant may obtain reimbursement of
said costs from the Security Deposit being held pursuant to the terms of the
Lease.
4
<PAGE>
f. In the event that Landlord has failed to substantially
complete the work on the "skin" of the building in accordance with the elevation
attached hereto as Exhibit G by December 31, 1996, Tenant may by written notice
to Landlord, notify Landlord, that Tenant intends to complete such work. If
Landlord shall fail to complete such work within ten (10) days of receipt of
said notice, Tenant shall have the right to complete said work, and Landlord
shall no longer be obligated to complete said work, and said work shall no
longer be deemed Landlord's Work. Landlord shall on reasonable evidence of the
cost of such work, reimburse Tenant for the reasonable cost of such work. In
the event that Landlord shall fail to reimburse Tenant the reasonable cost of
such work within thirty (30) days of the date of receipt of said notice and
evidence of Tenant's reasonable costs, Tenant may deduct the reasonable cost of
said work from the next sums due and owing to Landlord under this Lease.
g. In the event that Landlord has failed to substantially
complete the demolition of the interior items as set forth on Exhibit K attached
hereto, by August 1, 1996, Tenant may by written notice notify Landlord that
Tenant intends to complete such work. If Landlord shall fail to complete such
work within ten (10) days of receipt of said notice, Tenant shall have the right
to complete said work, and Landlord shall no longer be obligated to complete
said work, and said work shall no longer be deemed Landlord's Work. Landlord
shall on reasonable evidence of the cost of such work, reimburse Tenant for the
reasonable cost of such work. In the event that Landlord shall fail to
reimburse Tenant the reasonable cost of such work within thirty (30) days of the
date of receipt of said notice and evidence of Tenant's reasonable costs, Tenant
may deduct the reasonable cost of said work from the next sums due and owing to
Landlord under this Lease.
3. RENT AND OPTION.
a. Tenant's obligation to pay fixed annual rent shall commence
on the "Rent Commencement Date", which shall be the sixtieth (60th) day
following the Commencement Date. In consid-
5
<PAGE>
eration of the leasing of the Demised Premises, Tenant hereby covenants and
agrees to pay Landlord during the Initial Term of this Lease a fixed annual
rental pursuant to the following schedule:
FIXED MONTHLY
LEASE YEAR ANNUAL RENTAL INSTALLMENT
---------- ------------- -----------
Commencement Date
through
December 31, 1997 $600,000 $50,000.00
January 1, 1998
through
June 30, 1999 786,000 65,500.00
July 1, 1999
through
December 30, 2001 917,000 76,416.66
January 1, 2002
through
June 30, 2004 1,048,000 87,333.33
July 1, 2004
through
December 31, 2006 1,179,000 98,250.00
January 1, 2007
through
June 30, 2009 1,441,000 120,083.33
July 1, 2009
through
December 31, 2011 1,572,000 131,000.00
January 1, 2012
through
June 30, 2014 1,703,000 141,750.00
July 1, 2014
through
December 31, 2016 1,834,000 152,833.33
b. Tenant shall have the option to extend the Initial Term of
this Lease by ten (10) lease years, with the option period commencing on the day
immediately following the Termination Date for the Initial Term and terminating
ten (10) lease years thereafter ("First Option Period"). This option to extend,
as well as the commencement of the First Option Period, shall be expressly
conditioned upon Tenant, up to the time the First Option Period is to begin, not
then being in material default of any of its obligations under this Lease.
This option is exercisable by Tenant, if at all, only in strict
compliance of the aforesaid conditions and by giving
6
<PAGE>
Landlord written notice of its election to extend the Initial Term, together
with written notice naming an appraiser for purposes of paragraph 3c below, not
later than one hundred eighty (180) days prior to the Termination Date of the
Initial Term, hereinafter "Exercise Date". Strict compliance with the
conditions of this option and the exercise thereof is deemed material to the
parties. Tenant's failure to exercise this option, including the timely naming
of an appraiser, within ten (10) days of receiving written notice from Landlord,
time being of the essence, that Tenant has failed to exercise this option by the
Exercise Date shall be deemed a waiver of this option by Tenant, in which event
this Lease shall expire on the Termination Date for the Initial Term.
c. The fixed annual rent for the Option Period shall be determined
as follows:
(i) The fixed annual rental during the Option Period shall be
the fair market rental value for the Demised Premises for said period as
determined by an M.A.I. appraiser who shall be selected pursuant to the
following procedure: Landlord shall name, by written notice to Tenant, an M.A.I.
appraiser not later than thirty (30) days after receiving Tenant's notice,
pursuant to paragraph 3(b) above, naming Tenant's M.A.I. appraiser. The two
appraisers shall, within ten (10) days of the date Landlord names its appraiser,
submit the matter to an M.A.I. appraiser selected by them ("Independent
Appraiser") whose appraisal shall be completed within sixty (60) days of his
selection and whose appraisal shall be binding on all parties.
(ii) The Independent Appraiser shall calculate the fair net
rental value for the Demised Premises on a per square foot basis for the First
Option Period by first determining such fair net rental value for each calendar
year of the period and then determining a sum equal to the weighted average of
said rents. For example:
LEASE YEAR FAIR RENTAL VALUE WEIGHTED WEIGHTED
- ---------- ----------------- -------- --------
PER SQUARE FOOT PERCENTAGE AVERAGE
--------------- ---------- -------
21-22 $ 14.00 .2 $ 2.8
23-24 14.00 .2 2.8
25-26 15.00 .2 3.0
7
<PAGE>
LEASE YEAR FAIR RENTAL VALUE WEIGHTED WEIGHTED
- ---------- ----------------- -------- --------
PER SQUARE FOOT PERCENTAGE AVERAGE
--------------- ---------- -------
27-28 16.00 .2 3.2
29-30 16.00 .2 3.2
TOTAL $ 15.00
Thus, pursuant to this example, which example is solely for
illustrative purposes, the fair net rental value per square foot for the First
Option Period would be $15.00 per square foot.
(iii) Landlord and Tenant agree and consent that in the event
the parties' appraisers fail to elect an Independent Appraiser within ten (10)
days of the date Landlord names its appraiser, either party may apply summarily,
by order to show cause or otherwise, to the Supervisor Court of New Jersey for
the designation of an Independent Appraiser.
(iv) In the event the Independent Appraiser does not complete his
appraisal by the first day of the Option Period, then commencing as of the first
day of the First Option Period, the Tenant shall pay a fixed annual rent in an
amount equal to the fixed annual rent for the Initial Term. Upon completion of
the appraisal, Tenant shall immediately pay to Landlord any underpayment, or
Landlord shall reimburse Tenant for any overpayment.
d. Tenant shall have a second option to extend the term of this
Lease by ten (10) lease years, with this second option period commencing on the
day immediately following the Termination Date for the First Option Period and
terminating ten (10) lease years thereafter ("Second Option Period"). This
option to extend, as well as the commencement of the Second Option Period, shall
be expressly conditioned upon Tenant, up to the time the Second Option Period is
to begin, not then being in material default of any of its obligations under
this Lease.
This option is exercisable by Tenant, if at all, only in strict
compliance of the aforesaid conditions and by giving Landlord written notice of
its election to extend the First Option Period, together with written notice
naming an appraiser for purposes of paragraph 3e below, not later than one
hundred eighty (180) days prior to the Termination Date of the First Option
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<PAGE>
Period, hereinafter "Second Exercise Date". Strict compliance with the
conditions of this option and the exercise thereof is deemed material to the
parties. Tenant's failure to exercise this option, including the timely naming
of an appraiser, within ten (10) days of receiving written notice from Landlord,
time being of the essence, that Tenant has failed to exercise this option by the
Second Exercise Date, shall be deemed a waiver of this option by Tenant, in
which event this Lease shall expire on the Termination Date for the First Option
Period.
e. The fixed annual rent for the Second Option Period shall be
determined as follows:
(i) The fixed annual rental during the Second Option Period
shall be the fair market rental value for the Demised Premises for said period
as determined by an M.A.I. appraiser who shall be selected pursuant to the
following procedure: Landlord shall name, by written notice to Tenant, an M.A.I.
appraiser not later than thirty (30) days after receiving Tenant's notice,
pursuant to paragraph 3(d) above, naming Tenant's M.A.I. appraiser. The two
appraisers shall, within ten (10) days of the date Landlord names its appraiser,
submit the matter to an M.A.I. appraiser selected by them ("Independent
Appraiser") whose appraisal shall be completed within sixty (60) days of his
selection and whose appraisal shall be binding on all parties.
(ii) The Independent Appraiser shall calculate the fair net
rental value for the Demised Premises on a per square foot basis for the Second
Option Period by first determining such fair net rental value for each calendar
year of the period and then determining a sum equal to the weighted average of
said rents. For example:
LEASE YEAR FAIR RENTAL VALUE WEIGHTED WEIGHTED
- ---------- ----------------- -------- --------
PER SQUARE FOOT PERCENTAGE AVERAGE
--------------- ---------- -------
31-32 $ 15.00 .2 $ 3.00
33-34 15.00 .2 3.00
35-36 16.00 .2 3.20
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LEASE YEAR FAIR RENTAL VALUE WEIGHTED WEIGHTED
- ---------- ----------------- -------- --------
PER SQUARE FOOT PERCENTAGE AVERAGE
--------------- ---------- -------
37-38 17.00 .2 3.40
39-40 17.00 .2 3.40
TOTAL $16.00
Thus, pursuant to this example, which example is solely for
illustrative purposes, the fair net rental value per square foot for the Option
Period would be $16.00 per square foot.
(iii) Landlord and Tenant agree and consent that in the event
the parties' appraisers fail to elect an Independent Appraiser within ten (10)
days of the date Landlord names its appraiser, either party may apply summarily,
by order to show cause or otherwise, to the Supervisor Court of New Jersey for
the designation of an Independent Appraiser.
(iv) In the event the Independent Appraiser does not complete his
appraisal by the first day of the Second Option Period, then commencing as of
the first day of the Second Option Period, the Tenant shall pay a fixed annual
rent in an amount equal to the fixed annual rent for the First Option Period.
Upon completion of the appraisal, Tenant shall immediately pay to Landlord any
underpayment.
f. All payments of fixed rent and additional rent shall be made
by the Tenant to the Landlord without notice or demand in equal monthly
installments, in advance, without setoff (except as provided for herein) or
abatement, and shall be due and payable on the first day of each and every
calendar month throughout the term of this Lease commencing on the Commencement
Date (except as expressly set forth herein), or Landlord shall reimburse Tenant
for any overpayment.
g. The parties hereto agree that the fixed annual rent payable
hereunder shall be net to the Landlord so that this Lease shall yield to
Landlord the fixed rent per annum specified herein during the term of this
Lease. Tenant shall pay, as additional rent, the costs and expenses as provided
for herein so as to render the fixed annual rental net to the Landlord.
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h. Whenever under the terms of this Lease any sum of money is
required to be paid by Tenant in addition to the fixed annual rent reserved
hereunder, said additional sum shall be deemed additional rent and shall be
payable without setoff or abatement, except as provided for herein. All
payments of additional rents due in installments pursuant to paragraph 10 below
shall be made by the Tenant to the Landlord without notice or demand in equal
monthly installments, in advance, and shall be due and payable on the first day
of each and every calendar month throughout the term of this Lease commencing
on the Commencement Date. Notwithstanding the foregoing, additional rents that
are not due and payable in installments pursuant to paragraph 10 below shall be
paid by Tenant to Landlord on the tenth (10th) day following Tenant's receipt of
Landlord's written notice that such sums are due and owing. Nothing contained
in this subparagraph shall be deemed to suspend or delay the obligation of
Tenant to pay any and all other sums as and when due hereunder, nor otherwise
limit or circumscribe any other remedy of Landlord, except as provided herein.
4. PROPORTIONATE SHARE.
a. The term "Proportionate Share" shall mean the fraction, the
denominator of which is the total square feet of space in the Building (173,000)
and the numerator of which is the square feet of the Demised premises.
Notwithstanding the foregoing, for the period from the Commencement Date to
December 31, 1997 the Tenant's Proportionate Share shall be fifty-seven and
80/100 (57.80%) percent however, Tenant may occupy the entire Demised Premises
as of the Commencement Date. As of January 1, 1998 the Proportionate Share
shall be seventy-six and 00/100 (76%) percent.
b. The Proportionate Share shall be adjusted as the total
square feet of the Demised Premises or Building may increase or decrease.
5. REAL ESTATE TAXES AND ASSESSMENTS.
a. Landlord shall pay to the taxing authority all "Real Estate
Taxes" (defined below) and Tenant agrees to pay to
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Landlord monthly during the term of this Lease, as additional rent, an amount
equal to its Proportionate Share, of all the real estate taxes, assessments and
other local governmental charges, whether general or special, ordinary and
extraordinary, unforeseen as well as foreseen, of every kind and nature,
assessed against the Property of which the Demised Premises is a part,
hereinafter "Real Estate Taxes". Real Estate Taxes shall not include taxes for
income, profit, estates, inheritance, succession, transfers or franchise, or
other taxes imposed personally upon the Landlord or upon rents payable under the
Lease all of which shall be the sole obligation of Landlord. So long as Tenant
makes all payments to Landlord on a timely basis, Tenant will not be responsible
for any penalties or interest charged as a result of Landlord's failure to
timely pay.
b. Notwithstanding the foregoing, if at any time during the
term of this Lease, under the laws of the State of New Jersey or any political
subdivision thereof, a tax on rents is assessed against the Landlord as a
substitution, in whole or in part, for a real estate tax or assessment, water or
sewer charge, or other governmental imposition or charge, Tenant shall pay its
Proportionate Share of same.
c. Tenant may appeal the amount of the assessment for the
Property provided that in the event such appeal shall result in an increase in
the assessment Tenant shall be liable to pay 100% of the increase. Landlord
will, to the extent necessary, cooperate with Tenant in prosecuting any such tax
appeal. Any refunds of Real Estate Taxes received by Landlord which Real Estate
Taxes were paid by Tenant (net of the cost incurred by Landlord to obtain such
reduction in taxes, including but not limited to reasonable attorney fees and
expert fees) shall be promptly reimbursed by Landlord to Tenant.
6. UTILITIES.
a. Tenant agrees to pay monthly during the term of this Lease,
as additional rent, an amount equal to its Proportionate Share for all water and
sewer charges attributable to
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<PAGE>
the Building based on the charges billed to Landlord therefor. Notwithstanding
the foregoing, during such time that Tenant shall be the sole occupant of the
Building, Tenant shall pay 100% of such water and sewer charges (except if
separately metered in which event Tenant shall only pay the amount metered to
Tenant). Tenant shall have a right to install a submeter at Tenant's own cost
and expense. If said utilities are not separately metered or submetered and any
common users of the shared meter are extraordinary users of said utility, then
there shall be a reasonable allocation of such cost to such extraordinary users.
If Landlord leases space to another Tenant in the Building of which the Demised
Premises are a part, Landlord shall provide such Tenant with electric service
and metering which is separate from Tenant hereunder, except for common area
costs. Tenant shall only be responsible for its own electric consumption.
b. Tenant shall arrange to have the utilities that are
separately metered for the Demised Premises billed in its own name and shall pay
all charges therefor directly to the utility company furnishing the services.
Removal of Tenant's trash from the Building and Property shall be Tenant's
responsibility and shall be done at Tenant's cost.
c. Landlord reserves the right to enter upon the Demised
Premises accompanied by a Tenant representative upon reasonable notice, during
normal business hours and provided Landlord shall not unreasonably disturb
Tenant's operation, for the purpose of connecting to wires, cables conduits and
pipes and the like within the Demised Premises which supply utilities to the
Building in order to supply other tenants of the Property with gas, electric,
water and such other utilities.
d. The building of which the Demised Premises are a part is
entitled to usage of 21,000 gallons per day of sewerage capacity. Tenant shall
only be entitled to use its Proportionate Share of such capacity.
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<PAGE>
7. COMMON AREA MAINTENANCE.
a. Landlord agrees to repair, replace, manage and maintain the
Common Area and Tenant agrees to pay monthly during the term of this Lease, as
additional rent, an amount equal to its Proportionate Share of the annual cost
incurred by Landlord for the repair, replacement, management and maintenance of
such Common Area, including but not limited to, landscaping, lawn maintenance,
painting and other repairs to the exterior of buildings and other improvements,
snow and ice removal, parking lots, roads, driveways, sidewalks, utilities and
lighting ("Common Area Charges"). The following shall be excluded from Common
Areas Charges (i) debt service relating to any mortgage against the Building
and/or the Property; (ii) depreciation and amortization; (iii) allowances or
other costs and expenses of decorating, redecorating, fixturing, furnishing or
renovating space demised or intended to be demised to new or existing tenants or
for tenants renewing their leases or for other occupants of the Building; (iv)
any rent under any ground or underlying lease; (v) any costs incurred for any
service provided to one or more other tenant(s) or occupant(s) of the Building
which service shall not benefit Tenant; (vi) any amount incurred by Landlord by
reason of Landlord's negligence or intentional misconduct; (vii) any fines or
penalties incurred due to any violations by Landlord or any other tenant or
other occupant of the Building of any governmental laws, rules or regulations;
(viii) any amount incurred to a company or other entity affiliated with Landlord
to the extent the same exceeds the amount which would have been incurred on a
fair market basis in the absence of such affiliation; (ix) costs incurred by
Landlord for alterations which are considered capital improvements and
replacements under generally accepted accounting principles consistently applied
(however, the cost of capital improvements with a useful life in excess of one
year shall be amortized over the term of the Lease and Tenant shall pay its
Proportionate Share of the amortized cost); (x) leasing commissions; (xi)
salaries, benefits and other compensation for executives above the grade of
building manager;
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<PAGE>
(xii) advertising, marketing and promotional expenditures; (xiii) legal fees for
lease negotiations and disputes with other tenants and legal and auditing fees
other than legal and auditing fees reasonably incurred in connection with the
maintenance and operation of the Building, or in connection with the preparation
of statements required pursuant to additional rent or lease escalation
provisions; (xiv) the cost of repairs or replacements incurred by reason of fire
or other casualty or caused by the exercise of the right of eminent domain or
reimbursed to Landlord by virtue of Landlord's insurance; and (xv) Landlord's
start-up or opening expenses. Common Area Charges shall be reduced by any
reimbursement (other than from any other tenant in the Building), credits or
discounts or reductions received by Landlord for any amounts otherwise included
in operating expenses.
b. Management fees shall equal to five (5%) percent of the
fixed annual rental provided for herein. Landlord shall repair, replace, manage
and maintain all exterior Common Areas. Landlord shall use its best efforts to
maintain operating expenses at reasonable amounts. The total "pass-through"
charges to all Tenants shall not exceed one hundred (100%) percent of the actual
charges paid by Landlord.
8. USE AND OPERATION OF PREMISES.
a. Throughout the term of this Lease, Tenant covenants to use
the Demised Premises as permitted by law.
b. In the event Tenant's use of the Demised Premises shall
result in a Use Group H - High Hazard Uses classification for the Building or
the Demised Premises under the applicable BOCA codes or other applicable laws,
Tenant shall be solely responsible, at its cost, to bring the Building and
Demised Premises within compliance of the applicable BOCA codes or other
applicable laws.
c. Tenant shall not enter into any activities at the Demised
Premises which involve the on-site generation, manufacture, refining,
transportation, treatment, storage, handling or disposal of "Hazardous
Substances" and/or wastes as defined in
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ISRA and its implementing regulations, or as defined under the New Jersey Spill
Compensation and Control Act (the "Spill Act"), N.J.S.A. 58:10-23.11, ET SEQ.,
as amended, or the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. 9601 ET SEQ. ["CERCLA"]), Tenant shall indemnify,
defend and save Landlord harmless from all fines, costs, suits, damages,
procedures, judgments, or actions of any kind resulting from such use by Tenant
of the Demised Premises. Notwithstanding the foregoing, Tenant may store,
utilize and dispose of those hazardous substances set forth in Exhibit B annexed
hereto in the manner and in the quantities set forth in Exhibit B. Landlord
acknowledges that Tenant's business includes the use of some Hazardous
Substances and Landlord shall not unreasonably withhold its consent to Tenant's
written request to add permitted Hazardous Substances to the list set forth in
Exhibit B.
d. The use by the Tenant of the Demised Premises shall be in a
lawful manner, and the Tenant shall not permit the same to be used for any
unlawful purpose, nor commit nor suffer any waste. Tenant covenants to comply
with all reasonable rules and regulations which Landlord may, at any time or
from time to time during the term of this Lease, uniformly impose on all other
tenants, their employees, agents, licensees and customers.
9. INSURANCE.
a. Tenant agrees to pay monthly during the term of this Lease,
as additional rent, an amount equal to its Proportionate Share of the annual
cost for all insurance the Landlord maintains for the Property, including, but
not limited to, all insurance for loss or damage by fire and all other
casualties ordinarily included in extended coverage, public liability, insurance
for the payment of rent (for a period not to exceed twelve (12) months),
personal injury, property damage and all other insurance of any type, kind or
description which may be reasonably required for the Property. Landlord shall
maintain fire and extended coverage insurance with respect to the Building for
the full replacement value thereof and such other coverage as is
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typical for buildings of like size, use, construction and location. Said
insurance will not be cancelable except on thirty (30) days notice to Tenant.
Landlord may purchase insurance hereunder and may alter the type and amount of
insurance coverage presently carried for the Property provided such coverage is
typical for a building of like size, use, construction and location. Landlord
shall maintain liability insurance in an amount at least equal to the insurance
which Tenant is required to maintain under the terms of Paragraph 9c hereof.
b. Tenant shall not do, nor permit to be done, any act or thing
on the Demised Premises which shall invalidate or be in conflict with, or cause
any additional premium for, any insurance policy insuring the Property.
c. Tenant shall, during the entire term hereof, at its sole
cost and expense, keep in full force and effect a policy of comprehensive public
liability and property damage insurance with respect to the Demised Premises and
the business operated by Tenant in the Demised Premises as to which the limits
of liability shall not be less than ONE MILLION ($1,000,000.00) DOLLARS per
occurrence and THREE MILLION ($3,000,000.00) DOLLARS in the aggregate and in
which the property damage liability shall not be less than FIVE HUNDRED THOUSAND
($500,000.00) DOLLARS. The policy shall be from a New Jersey licensed insurance
company, with at least a Best's rating of "A", and shall name the Landlord and
Landlord's mortgagee(s) as additional insureds. The policy shall contain
clauses that: (i) the amount of any "deductible" shall be not more than
$25,000.00; (ii) the insurer will not cancel or materially modify the insurance
coverage without first giving the Landlord thirty (30) days' prior written
notice. A copy of a certificate evidencing such coverage will be delivered to
Landlord before the Commencement Date, together with proof that the first
year's premium has been paid in full.
d. Landlord and Tenant waive all rights to recover against each
other or against the officers, directors, shareholders, partners, joint
venturers, employees or agents of
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each other, for any loss or damage arising from any cause covered by, and to the
extent of, any insurance required to be carried by them pursuant to this Lease
or any other insurance actually carried by them. Each policy of such insurance
carried by Landlord or Tenant shall contain a waiver of subrogation in favor of
the other party and the other party's officers, directors, shareholders,
partners, joint venturers, employees or other agents and shall also contain a
provision that the foregoing release shall not affect the coverage provided by
such insurance. If such waiver of subrogation shall not be, or shall cease to
be obtainable, the other party shall be immediately notified of such fact and
such other party shall thereafter not be required to obtain or keep in effect
such waiver of subrogation in its policies.
10. ESTIMATED COSTS. The initial monthly additional rent charges for
Tenant's Proportionate Share of Real Estate Taxes, water and sewer charges,
Common Area Charges and insurance costs (hereinafter together referred to as
Operating Costs) shall be initially estimated at the sum of TWELVE THOUSAND FIVE
HUNDRED and 00/100 ($12,500.00) DOLLARS, which sum commencing as of the
Commencement Date, shall be paid monthly, on the first day of each month. An
adjustment to the estimated payments shall be made at least once annually by the
Landlord based upon the actual cost and expense data, and any overpayments or
under payments shall be credited against or paid with the next month's
additional rent charges after Tenant is notified of same or promptly refunded to
Tenant if the Term of the Lease has expired. This provision shall survive
termination of this Lease. Landlord shall make said adjustment by June 30th of
each year and deliver to Tenant together with such adjustment an itemized
statement of the prior Lease Year charges for all costs charged to Tenant as
pass-through items, including copies of tax bills. Tenant shall pay monthly the
adjusted amount upon written notice from Landlord. In the event Landlord fails
to invoice Tenant for an Operating Cost for a period in excess of twenty four
(24) months from the end of the calendar year during which such cost was due,
then Tenant shall be relieved
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of its obligation to pay such cost. As of January 1, 1998 an adjustment shall
be made in the amount of the estimated monthly Operating Costs to reflect that
as of that date Tenant's Proportionate Share shall be increased to 76.00%.
Tenant shall, after full payment, have the right, at its own cost and expense,
to audit Landlord's books. Any overpayment by Tenant of its Proportionate Share
of Operating Costs shall be promptly reimbursed to Tenant. In the event that it
is ultimately determined that Landlord has overcharged Tenant by more than five
(5%) percent of the amount due from Tenant, Landlord shall pay the reasonable
cost of the Tenant's audit.
11. REPAIRS AND ALTERATIONS.
a. Tenant covenants that throughout the term of this Lease it
will take good care of the Demised Premises, including all alterations, changes
and improvements at any time erected thereon, and to keep and maintain same in
good order and condition subject to normal wear and tear and casualty damage.
Tenant shall have no obligation to provide any electrical service for portions
of the Building which does not comprise the Demised Premises. Roof, foundation
and structural repairs shall be Landlord's responsibility and will not be
passed-through to Tenant. However, if repairs to the roof, foundation or
structure are necessitated by the negligence or wilful misconduct of Tenant, its
agents, licensees, guests, invitees or customers, (except to the extent Landlord
shall receive reimbursement from insurance for such items or, to the extent not
covered by insurance, insurance was maintained or required to be maintained by
Landlord pursuant to this Lease for such dollar loss), Tenant shall be
responsible for the same. Tenant shall promptly make, at its sole cost and
expense, all repairs and replacements to the Demised Premises, including but not
limited to all electrical, air-conditioning, heating, plumbing and other
mechanical systems servicing the Demised Premises. Landlord shall deliver, and
Tenant shall accept, the Demised Premises in an "as is" condition except for
Landlord's Work. In addition to roof, foundation and structural repairs (to
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the extent that these repairs are Landlord's obligation under the Lease) during
the twenty four (24) months following the Commencement Date, Landlord shall,
(except to the extent such repairs are necessitated by the negligence or willful
misconduct of Tenant, it agents, licensees, guests, invitees, or customers, in
which case Tenant shall be responsible for the same except to the extent
Landlord shall receive reimbursement from insurance for such items, or to the
extent not covered by insurance, insurance was maintained or required to be
maintained by Landlord pursuant to this Lease for such dollar loss) repair or
replace as necessary, at its sole cost, those other items identified as
Landlord's Work on Exhibit H annexed hereto (and which will not be
passed-through to Tenant). Notwithstanding anything contained herein, beyond
twenty-four (24) months, such costs shall be passed through to Tenant as a
Common Area cost unless specifically excluded from the definition of Operating
Costs.
b. Tenant shall, during the term of this Lease, at its sole
cost and expense, promptly comply with any statute, ordinance, rule, order,
regulation or requirement of the Federal, State and Municipal Government and any
and all departments, agencies, bureaus and subdivisions thereof (Laws), as same
shall apply to the Demised Premises and observe and promptly comply with: (i)
all reasonable rules, orders and regulations of the Board of Fire Underwriters;
or any like agency; and (ii) the requirements of all insurance carriers issuing
policies maintained by the Landlord on the Demised Premises or on the Property
of which the Demised Premises is a part. Notwithstanding the foregoing, Tenant
shall only be liable for roof and structural repairs, as required pursuant to
the terms of this subparagraph b, if same are required due to Tenant's
particular use of the Demised Premises. Notwithstanding the foregoing, as of
the Commencement Date, the exterior Common Areas shall, at Landlord's expense,
comply with all governmental regulations and Landlord shall remain responsible
at its own cost and expense to maintain all such items initially constructed by
Landlord in compliance with all governmental
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regulations. Landlord shall assign all warranties which are assignable to
Tenant. As to any cost or expense necessary to comply with Laws which shall
pertain to the exterior common area, Landlord shall be responsible for such
compliance, however, such cost or expense shall be part of the Operating Costs
passed through to Tenant.
c. Tenant shall have the right during the term of this Lease to
make interior alterations and improvements to the Demised Premises subject to
the following conditions: (i) any and all governmental permits and
authorizations required therefor shall have been obtained by Tenant prior to the
undertaking of said alterations or improvements; (ii) no alteration or
improvement of the Demised Premises shall be undertaken until detailed plans
and specifications have first been submitted to and approved in writing by the
Landlord which shall not be unreasonably withheld or delayed (except that
non-structural alterations or improvements do not have to be approved by
Landlord); (iii) all alterations and improvements, when completed, shall be of
such a character as shall not reduce, or otherwise materially adversely affect,
the value of the Demised Premises, reduce the cubic content of the Building,
affect the structural soundness of the Building, or change the character of the
Building; (iv) all work done in connection with any alterations and improvements
shall be done promptly and in a good and workmanlike manner and in compliance
with all building and zoning laws, and with all laws, ordinances, orders, rules,
regulations and requirements of all Federal, State and Municipal governments and
the appropriate departments, commissions, boards and officers thereof, and in
accordance with the orders, rules and regulations of the Board of Fire
Underwriters (or like agency) where the Demised Premises is situated, or any
other body exercising similar functions and having jurisdiction thereover; (v)
said alteration or improvement shall be completed free of liens for labor and
materials supplied or claimed to have been supplied to the Demised Premises; and
(vi) Tenant shall, at its sole cost and expense, maintain adequate insurance
therefor, including statutory
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workmen's compensation insurance (or Tenant shall deliver to Landlord
certificates of insurance for contractors indicating workmen's compensation
insurance is in force) covering all persons employed in connection with the work
and with respect to whom death or injury claims could be asserted against the
Landlord, the Tenant or the Demised Premises; and general liability insurance
naming the Landlord as an additional insured, which policy shall have limits of
not less than ONE MILLION ($1,000,000.00) DOLLARS per occurence and THREE
MILLION ($3,000,000.00) DOLLARS in the aggregate and FIVE HUNDRED THOUSAND
($500,000.00) DOLLARS for property damage. The policy shall contain clauses
that: (i) the amount of any "deductible" shall be not more than $25,000.00; and
(ii) the insurer will not cancel or materially modify the insurance coverage
without first giving the Landlord thirty (30) days' prior written notice. All
such insurance will be in a company or companies authorized to do business in
New Jersey, with at least a Best's rating of "A", and all such policies shall
be delivered to the Landlord prior to the commencement of any work, endorsed
"premium paid" by the company or agency issuing the same. If Landlord's consent
shall be required hereunder, such consent shall not be unreasonably withheld or
delayed.
12. EMINENT DOMAIN.
a. If the total Demised Premises is taken, acquired or
purchased by or through condemnation proceedings or any right of eminent domain
or any other authority of law, with or without the entry of an order in a
judiciary proceeding, this Lease shall terminate as of the date of taking
without further liability by the parties hereto. Tenant shall have the right to
terminate the Lease in the event of: (i) the taking of any portion of the
Demised Premises as a result of which the balance of the Demised Premises is not
reasonably suitable for the conduct of Tenant's normal business operations
therein, (ii) a denial or substantial impairment of reasonably adequate access
to the Building and the Demised Premises; (iii) a taking which shall result in
or cause substantial and material impairment of Tenant's conduct of its
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normal business operations at the Demised Premises; or (iv) a taking which shall
reduce Tenant's parking to a ratio below four parking spaces per 1,000 square
feet of remaining Demised Premises. Tenant's right to terminate the Lease shall
be exercised, in writing, within thirty (30) days after receiving written notice
of any such taking, time being of the essence. Should the Lease not be
terminated pursuant to the provisions of this Paragraph 12, Landlord shall
promptly reconstruct and restore any portion of the Demised Premises remaining
after a taking to a complete architectural unit as is reasonably practical.
b. The date of any taking shall be the date specified in the
official notice of the condemning authority, or in the absence of such notice,
the vesting of title in said authority. Subject to the provisions as
hereinafter provided in this paragraph, all rent or other charges paid or
payable by Tenant to Landlord shall be abated as of the date of said taking.
Upon any termination or cancellation of this Lease, as provided in this section,
all rent or other charges paid in advance for any period after the effective
date of the taking shall be refunded to Tenant, less any sums due Landlord from
Tenant.
c. Landlord reserves to itself all rights to damages or
compensation accruing on account of any such taking of the real property
comprising and included in the Demised Premises as aforesaid or by reason of any
act or any public or quasi-public authority for which damages are payable.
Tenant shall not be entitled to any portion of the award as a result of the loss
of its leasehold interest; however, Tenant may seek compensation for Tenant's
fixtures, moving expenses, and business dislocation damages.
d. In the event that only a portion of the Demised Premises is
taken, this Lease shall remain in full force and effect and the rental payable
hereunder shall be equitably adjusted. If the parties cannot agree upon an
equitable adjustment within 180 days of any such taking, the amount of the
adjustment, if any,
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shall be submitted pursuant to the Rules of the American Arbitration
Association.
13. INDEMNITY AND LIABILITY FOR INJURY AND LOSS.
a. Landlord, except as a result of Landlord's, negligent or
willful acts: (1) shall not be liable to Tenant or any other person on the
Demised Premises or Property for any damage either to person or property; (2)
shall not be responsible or liable in any way whatsoever for the quality,
quantity, impairment, interruption, stoppage of or other interference with
services involving water, heat, gas, electrical current for light and power,
telephone or any other service by any public utility; and (3) shall not be
liable for any damage or injury by water, steam, electricity, gas, rain, ice or
snow which may be sustained by Tenant or other person.
b. Landlord and Tenant shall indemnify, defend and save each
other harmless from and against all injuries, liability, judgments, expenses,
claims or damages to any person or property while on or about the Demised
Premises, the Building or the Property to the extent caused by the negligence or
willful acts of the other.
14. LEASE SUBORDINATION.
a. Any mortgages that hereafter may be placed against the
Building or any part thereof shall have preference and precedence and be
superior and prior to the lien of this Lease, irrespective of the date of
granting or recording, provided Tenant shall receive from the holder of any such
mortgage a non-disturbance agreement in a form that contains substantially
similar terms to those set forth on Exhibit C annexed hereto. Tenant does
hereby agree to accept any mortgagee as the Landlord hereunder and to perform
its obligation as Tenant under this Lease, if any mortgagee acquires title to
the Property by foreclosure or otherwise.
b. The term "mortgage" as used in this section includes
mortgages, deeds of trust or any similar instruments and modifications,
extensions, renewals and replacements thereof.
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c. In the event Landlord desires confirmation of such
subordination and attornment, Tenant shall deliver any instrument which may be
reasonably required to further evidence the subordination of this Lease to the
lien of any such mortgage or mortgages and the agreement by Tenant to accept the
mortgagee as the Landlord and perform under this Lease if the mortgagee acquires
title to the Building by foreclosure or otherwise, as shall be desired by any
aforesaid mortgagee or proposed mortgagee, provided such instrument shall not
alter the terms of this Lease.
d. Tenant does hereby agree to any assignment by Landlord of
the rentals under this Lease to a mortgagee.
e. Tenant shall (i) within ten (10) days after receipt of
Landlord's written request, execute and deliver to Landlord its most recent
financial statement, certified by its Chief Financial Officer.
f. Landlord and Tenant shall within ten (10) days after written
request by either party, execute and deliver an estoppel certificate, in a form
required by Tenant or by Landlord's mortgagee, stating, to the extent such
statements are accurate: (i) Tenant is the tenant under this Lease; (ii) the
Demised Premises has been unconditionally accepted and occupied and rent
payments have commenced; (iii) the Lease is in full force and effect and fully
sets forth the agreement of the parties; (iv) the Lease has not been modified,
amended, assigned or sublet, or if it has been, in what manner; and (v) no claim
or right of setoff exists, and neither Landlord nor Tenant is in default and no
grounds for reducing the rent or canceling the Lease exist.
g. Tenant's failure to timely deliver the certified financial
statement and/or the Landlord or Tenant's failure to timely deliver the estoppel
certificate shall be deemed a material default under this Lease.
15. FIRE DAMAGE.
a. If, after the date hereof, the Demised Premises is damaged
by fire, enemy action, or other casualty (such damage being hereafter called
"fire damage"), Landlord shall repair or
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restore the Demised Premises, except Landlord shall have the option not to
repair or restore the fire damage if:
(i) there shall be remaining less than two (2) Lease Years
on the then current term of this Lease unless after written notice to Tenant of
Landlord's right to terminate, Tenant shall fail within ten (10) days of the
receipt of said notice to exercise any available option to renew under this
Lease; or
(ii) the fire damage shall not be required to be insured
under this Lease, or if insured, the mortgagee(s) shall not release to Landlord
sufficient insurance proceeds to repair or restore. Notwithstanding the
application of subsection (ii) if Landlord shall exercise Landlord's rights not
to repair or restore pursuant to this subsection (ii), Tenant shall have the
option, exercisable within thirty (30) days of receipt of Landlord's notice not
to restore or rebuild to elect to loan Landlord the amount of any mortgage
proceeds not released to Landlord by Landlord's mortgagee(s) on the same terms
and conditions as said mortgagee's loan to Landlord. Said loan shall be
subordinate to any then existing mortgage and shall be payable monthly out of
the cash flow of the property available after payment of Landlord's mortgagee(s)
with the same percentage constant payment of principal and interest that
Landlord was paying to the mortgagee(s) that did not release to Landlord
insurance proceeds. In the event that Tenant shall loan Landlord such sum,
Landlord shall not have the option not to repair or restore pursuant to this
subsection (ii); or
(iii) if Landlord is unable to obtain any necessary
governmental approvals necessary to repair or restore within one hundred twenty
(120) days of its application for same, after using reasonable diligence to
obtain same during said one hundred twenty (120) day period.
In the event Landlord shall repair or restore the fire damage,
there shall be a fair and proportionate abatement of all rent payable hereunder
according to the time during which and the portion or extent to which the
Demised Premises may not be used by Tenant.
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b. If Landlord shall elect not to repair or restore the Demised
Premises pursuant to paragraph 15(a) above, this Lease shall terminate on the
date of occurrence of the fire damage. Landlord shall notify Tenant in writing
not more than thirty (30) days after the occurrence of the fire damage if it
elects not to repair or restore, in which event Landlord shall return to Tenant
a fair and proportionate rebate of all rent paid in advance to Landlord by
Tenant, if any, prorated as of the date of the occurrence of the fire damage.
c. In the event fire damage the Demised Premises, occurs during
or prior to the term of this Lease and Landlord's Work cannot be repaired within
one hundred eighty (180) days from the Determination Date (as hereinafter
defined), then this Lease may, at the option of Landlord or Tenant, terminate as
of the date of such fire damage. In the event Landlord or Tenant elects to
terminate this Lease, Landlord or Tenant shall notify the other within ten (10)
days after the Determination Date, time being of the essence. Any party's
failure to deliver notice of its election to terminate within said ten (10) day
period shall be deemed a waiver of such party's option to terminate, and this
Lease shall remain in full force and effect subject to the terms of paragraph
15(a) above.
d. As soon as practicable after the occurrence of a fire or
other casualty, Landlord, Tenant and their engineering, architectural and other
consultants shall meet and attempt to reach mutual agreement regarding the
period of time required for completion of repairs and restoration, which shall
be determined based upon the actual period of time for construction and shall
exclude any time period for adjustment of insurance claims. In the event the
parties are unable to reach agreement within ten (10) days following the
occurrence of the fire damage, fire or other casualty, the matter shall be
submitted to Paul Swartz, AIA or if Paul Swartz, AIA is unavailable, the parties
shall apply to the Chancery Court in Somerset County for the appointment of an
architect to make such determination. The Determination Date is
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the date on which the time required for completion of repairs and restoration is
determined by one of the procedures set forth above.
e. Landlord's obligations in connection with any repair and/or
restoration work contemplated pursuant to this Paragraph 15 of the Lease shall
and are hereby strictly limited to the Building delivered to Tenant in its "as
is" condition and Landlord's Work, and in no event shall Landlord be obligated
to replace, repair or restore any other improvements to the Demised Premises or
alterations thereof installed therein by or on behalf of Tenant nor shall
Landlord be obligated in any event whatsoever to replace, repair or restore
Tenant's leasehold improvements, personal property, furniture, fixtures,
equipment or the like, except to the extent included in Landlord's Work. If the
parties determine that restorations can be completed within 180 days, but such
repairs and restoration shall not be substantially completed by the 210th day
following the Determination Date, Tenant may:
(i) terminate this Lease by delivering written notice to Landlord
(a "Tenant's Notice") by the 220th day following the Determination Date, time
being of the essence. Tenant's failure to deliver notice of termination by said
220th day, shall be deemed a waiver by Tenant of this option to terminate. If
Tenant timely exercises this option to terminate, the Lease shall terminate as
of the date of Tenant's delivery of Tenant's Notice or;
(ii) elect by written notice to Landlord to complete Landlord's
obligation to repair or restore. Tenant shall be entitled to use any remaining
funds held by Landlord's mortgagee(s) for the purpose of repairing or restoring
to pay for such work which Tenant completes. If Tenant is required to expend
its own funds to repair or restore such work, Tenant shall be entitled to
reimbursement from Landlord out of Landlord's cash flow from the Property after
payment of Landlord's then existing mortgagee(s).
16. ISRA COMPLIANCE.
a. Anything contained to the contrary in paragraph 16b below
notwithstanding, Landlord shall be responsible for all
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environmental conditions existing as of the Commencement Date of this Lease, and
Tenant shall only be responsible for those environmental conditions caused by
Tenant. Landlord shall indemnify and hold harmless Tenant against all
reasonable out-of-pocket costs and expenses, claims and liability, including
reasonable legal fees incurred by Tenant by reason of Landlord's failure to
remediate any such environmental conditions. Specifically, Landlord shall have
until December 31, 1996 to remediate any chemicals in the area shown on Exhibit
F to the NJDEP residential standard. Landlord shall have until June 1, 1996 to
remediate any asbestos to NJDEP standard. Landlord shall have until June 1,
1996 to remediate any "Lead Dust" which may be in the interior of the building
to NJDEP standards. If Landlord fails to remediate any of the above by the
applicable date, Tenant may take such actions as are reasonably required to so
remediate any such item which shall not have been remediated by said applicable
date and Landlord shall on fifteen (15) days notice, reimburse Tenant for the
reasonable cost of such remediation work completed by Tenant. If Landlord shall
not so reimburse Tenant within said fifteen (15) days, Tenant may deduct the
reasonable cost of such remediation work completed by Tenant from the next sums
due to Landlord under this Lease.
b. Tenant shall, at Tenant's own expense, comply with N.J.S.A.
13:1k-6 et seq., and the regulations promulgated thereunder ("ISRA"), as well as
all other environmental laws now or hereafter enacted and applicable to the
Demised Premises and Tenant's use thereof. In connection with the foregoing,
Tenant shall, at Tenant's own expense, make all submissions to, provide all
information to, and comply with all requirements of the New Jersey Department of
Environmental Protection (the "NJDEP") or such other appropriate agency charged
with the administration of ISRA or other applicable environmental laws. Should
any division of NJDEP determine that a cleanup plan be prepared and that a
cleanup be undertaken because of any spills or discharges of hazardous
substances or wastes which are caused by Tenant, its employees,
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guests or invitees during the term of this Lease, then Tenant shall, at Tenant's
own expense, prepare and submit the required plans and financial assurances and
carry out the approved plans. Tenant's obligations under this paragraph shall
arise if there is any closing, terminating or transferring of operations of
owner ship of the industrial establishment at this premises pursuant to ISRA, or
any other triggering event under ISRA or other environmental law which would
necessitate compliance. At no expense to Landlord, Tenant shall promptly
provide all information requested by Landlord for preparation of
non-applicability affidavits and shall promptly sign such affidavits when
requested by Landlord. Tenant shall indemnify, defend and save Landlord
harmless from all fines, suits, procedures, claims and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes caused by Tenant at the Demised Premises which
occur during the term of this Lease, and from all fines, suits, procedures,
claims and actions of any kind arising out of Tenant's failure to provide all
information, make all submissions and take all actions required by ISRA, or any
other division of NJDEP or under any environmental law. Tenant's obligations
and liabilities under this paragraph shall continue so long as Landlord remains
responsible for any spills or discharges of hazardous substances or wastes which
are Tenants obligations under this Lease at the Demised Premises which occur
during the term of this Lease. Tenant's failure to abide by the terms of this
paragraph shall be restrainable by injunction. Tenant shall use its best
efforts to effectuate and complete full compliance with ISRA and any other
applicable environmental law, including but not limited to any necessary
cleanup, prior to the Termination Date of this Lease. In the event ISRA shall
not apply to Tenant's occupancy of the Demised Premises at the end of the term
of this Lease, Tenant shall furnish Landlord with a letter of non-applicability
from the NJDEP at the end of the term. Tenant's obligation under this paragraph
shall survive the termination of this Lease. Landlord's costs to comply with
any environmental
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laws, which costs are not Tenant's responsibility, shall not be "passed through"
to Tenant as an operating expense. Landlord shall promptly deliver to Tenant
all environmental reports Landlord receives in connection with the Demised
Premises.
c. Tenant warrants that its Standard Industrial Code number is,
and shall remain during the term of this Lease, ______.
17. DEFAULTS AND REMEDIES.
a. The following shall constitute events of default under this
Lease:
(1) failure to pay any installment of the fixed rent, or
additional rent, or any part thereof by the tenth (10th) day following the date
that such payment is due. Notwithstanding anything to the contrary contained
herein, during each Lease Year, before Tenant shall be declared in default or
before a late fee shall be due, Tenant shall be entitled to one written notice
from Landlord that if rent is not paid within ten (10) days of receiving
Landlord's written notice, Tenant shall be in default. In the event Tenant
shall fail to pay any fixed rent or additional rent installment as provided
herein, or any part thereof, within ten (10) days following the due date for
such installment, Landlord shall impose, and Tenant agrees to pay, a late charge
of four (4%) percent of the rent due and unpaid, said late charge to be
immediately due and payable. It is agreed that this late charge has been
reasonably calculated to offset Landlord's added expense in handling the late
payment and other costs to Landlord, including, but not limited to, the costs
Landlord may incur for late charges on its mortgages;
(2) failure in the performance of or compliance with any of
the other covenants, conditions and/or terms of this Lease, which failure shall
continue for more than thirty (30) days after written notice thereof by Landlord
to Tenant, provided however that if the default is of a nature that cannot be
cured within thirty (30) days, Tenant shall not be in default if it commences
the cure of the default within thirty (30) days of
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Landlord's notice and thereafter diligently proceeds to cure the default;
(3) if this Lease shall be assigned or sublet except as
permitted in Paragraph 18 below;
(4) the filing by or against Tenant of any petition with
respect to its own financial condition under any bankruptcy law or any amendment
thereto (including, without limitation, a petition for reorganization,
arrangement or extension), or under any other insolvency law or laws providing
for the relief of debtors (which petition, if filed against Tenant, shall not be
dismissed within ninety (90) days); the appointment of a receiver, trustee,
custodian, conservator or liquidator for Tenant on all or substantially all of
Tenant's assets, and the custodianship or appointment is not dismissed within
ninety (90) days after the commencement thereof; the admission by Tenant of its
insolvency; making of a general assignment for the benefit of creditors;
however, the foregoing shall not be a default if rent is paid on a current
basis;
(5) if Tenant liquidates or ceases to exist;
b. Upon the occurrence of any event of default, Landlord, in
addition to any and all rights and remedies it may have at law and equity, may
exercise any one or more of the following remedies:
(1) Landlord may give Tenant a notice (the "Termination
Notice") of its intention to terminate this Lease specifying a date not less
than three (3) days thereafter, upon which date this Lease, the term and estate
hereto granted and all rights of Tenant hereunder shall expire and terminate.
Notwithstanding the foregoing: (i) Tenant shall remain liable for damages as
hereinafter set forth, and (ii) Landlord may institute dispossess proceedings
for non-payment of rent, or other proceedings to enforce the payment of rent,
without giving the Termination Notice. Upon any such termination or expiration
of this Lease, Tenant shall peaceably quit and surrender the Demised Premises
to Landlord, and Landlord may without further notice enter
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upon, re-enter, possess and repossess itself thereof, by summary proceedings,
ejectment or otherwise and may have, hold and enjoy the Demised Premises and
the right to receive all rental and other income of and from the same;
(2) Landlord may, at Landlord's sole option (without
imposing any duty upon Landlord to do so), and Tenant hereby authorizes and
empowers Landlord to: (i) re-enter the Demised Premises for its own account or
otherwise; (ii) relet the same for any term; (iii) remove Tenant's improvements
if reasonably necessary or desirable for such reletting purposes; (iv) restore
the Demised Premises to the condition in which it was required to be
surrendered by Tenant; and (v) receive and apply the rent so received to pay all
reasonable fees and expenses incurred by Landlord, directly or indirectly, as a
result of Tenant's default, including, without limitation, any reasonable legal
fees and expenses arising therefrom, the reasonable cost of re-entry, repair,
remodeling and reletting and the payment of the rent and other charges due
hereunder. No entry, re-entry or reletting by Landlord, whether by summary
proceedings, termination or otherwise, shall discharge Tenant from any of its
liability to Landlord as set forth in this Lease, and in no event shall Tenant
be entitled to or receive any benefit or credit from any rental in excess of
the rent reserved under this Lease which results from a reletting of the Demised
Premises after Tenant's default;
(3) Tenant will pay Landlord, and be liable to Landlord
for, the full amount of all fixed annual rent and additional rent thereafter to
become due. Landlord shall be deemed to have satisfied its obligation to
mitigate its damages provided Landlord shall list the Demised Premises for
lease, at market rents, with an unrelated licensed commercial real estate
broker;
(4) If Tenant shall fail to make any payment required to be
made under this Lease, or shall default in the performance of any covenant,
agreement, term, provision or condition herein contained, Landlord may, after
any applicable notice and grace period, without being under any obligation to
do
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so and without thereby waiving such default, make such payment and/or remedy
such default for the account and at the sole expense of Tenant. Tenant shall
pay to Landlord, on demand, the amount of all sums so paid and all reasonable
expenses so incurred by Landlord, together with interest, at the rate set forth
in subparagraph 17(b)(5) below, on such sums and expenses from the date incurred
until payment in full;
(5) Interest on any sums due to Landlord from Tenant under
this Lease shall accrue from the date due, after any applicable notice and grace
period, at an annual rate equal to two (2) percentage points above the prime
interest rate as set daily by Chase Manhattan Bank, N.Y.C., N.Y.;
(6) Tenant, for itself and on behalf of any and all persons
claiming through or under it, including without limitation, creditors of every
kind, hereby waives and surrenders all rights and privileges which it or any of
them may have under, or by reason of, any present or future law to redeem the
Demised Premises, or to have a continuance of this Lease for the remainder of
the term, after a judgment for possession or after Tenant is ejected therefrom
by process of law or after the termination of this Lease as herein provided;
(7) In the event that at any time during the term of this
Lease either Landlord or Tenant shall institute any action or proceeding against
the other relating to the provisions of this Lease, or any default under this
Lease, then, and in that event, the unsuccessful party in such action or
proceeding agrees to reimburse the successful party for the reasonable expenses,
attorney's fees and disbursements incurred by the successful party.
c. The failure on the part of Landlord to re-enter or repossess
the Demised Premises, or to enforce any of its rights as provided in this
section upon any default, shall not be deemed a waiver of any of the terms and
conditions of this Lease and shall not preclude said Landlord from exercising
any such rights upon any subsequent occurring default or defaults. All of
Landlord's rights shall be cumulative and shall not preclude the
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Landlord from exercising any other rights which it may have under law.
18. ASSIGNMENT AND SUBLETTING.
a. Tenant shall not be entitled to transfer, sell, mortgage,
pledge, hypothecate, or assign this Lease or sublet or grant a concession or
license or otherwise permit any other person or entity to occupy the Demised
Premises or any part thereof (hereinafter referred to as "Assignment") without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed. Landlord's consent shall not be required for
an Assignment to an entity directly or indirectly, controlled by Tenant,
controlling or under common control with Tenant, or to any successor by merger,
consolidation or which has acquired all or substantially all the assets of
Tenant. Under such circumstances Landlord shall have no recapture right.
b. In the event Landlord consents to an Assignment (however,
Landlord may terminate this Lease in lieu of consenting to an Assignment unless
such Assignment is in conjunction with Tenant's sale of its business), such
consent to that Assignment shall be expressly conditioned upon the compliance by
Tenant and the Assignee of the following provisions:
(1) The Assignee shall assume, by written instrument, in
form and content reasonably satisfactory to Landlord, the due performance of all
of Tenant's obligations under the Lease, including any accrued obligations at
the time of the Assignment;
(2) A copy of the Assignment and the original assumption
agreement (both in form and content reasonably satisfactory to the Landlord)
fully executed and acknowledged by the Assignee, together with a certified copy
of a properly executed corporate resolution authorizing such assumption, if
applicable, shall be delivered to the Landlord prior to the effective date of
such Assignment. Tenant shall acknowledge, in writing, in a form acceptable to
Landlord, that it shall remain liable under this Lease regardless of the
Assignment;
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(3) Such Assignment shall be upon and subject to all the
provisions, terms, covenants and conditions of this Lease and the Tenant and
Assignee shall continue to be and remain liable hereunder;
(4) Tenant shall comply with the requirements of ISRA in
accordance with the provisions of Paragraph 16.
c. In the event Tenant shall seek to sublet a portion of the
Demised Premises, the following provisions shall apply:
(1) Tenant may sublet a cumulative total of twenty five
thousand (25,000) square feet of the Demised Premises without first obtaining
Landlord's consent or approval and Landlord shall have no recapture right; and
(2) Tenant may sublet a cumulative total of fifty thousand
(50,000) square feet for a total period of five (5) years or less without first
obtaining Landlord's consent or approval and Landlord shall have no recapture
right; and
(3) In the event that any subletting of any portion of the
Demised Premises shall not qualify under subparagraphs (1) or (2) above and is
for a cumulative total of less than 100,000 square feet, Tenant must then obtain
Landlord's consent to any such subletting, which consent will not be
unreasonably withheld or delayed; or in lieu of such consent Landlord may
recapture such space. If Landlord elects to recapture such space, Tenant shall
be released of any future obligations as to such space recaptured.
(4) In the event that any subletting of any portion of the
Demised Premises shall not qualify under subparagraph (1) or (2) above and is
for a cumulative total of more than 100,000 square feet, Tenant must first
obtain landlord's con-sent to any such subletting, which consent will not be
unreasonably withheld or delayed; or in lieu of such consent Landlord may
recapture such space or terminate the Lease. If Landlord elects to recapture
such space or terminate the Lease, Tenant shall be released of any future
obligations as to such space recaptured or to the entire space if Landlord
elects to terminate the Lease.
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19. SIGNS. The Tenant shall not display any sign, picture,
advertisement, awning, merchandise, or notice on the Building, nor anywhere in
the Common Area, except Tenant may display those signs for which the location
and specifications are shown on Exhibit D annexed hereto. Landlord's consent
will be required for all other signs which consent will not be unreasonably
withheld or delayed. Tenant shall be responsible for the maintenance and repair
of its signs and shall remove them at the expiration of the term of this Lease
and repair all damage caused by the removal.
20. LANDLORD'S RIGHT TO MAKE IMPROVEMENTS.
Landlord reserves the right to make improvements to the remainder of
the Building excluding the Demised Premises, provided that such improvements
shall not unreasonably interfere with Tenant's use of the Demised Premises or
access to the Demised Premises.
21. SECURITY. Tenant shall, upon execution of this Lease, deposit in
the Trust Account of Lasser Hochman the sum of THREE HUNDRED THIRTY THOUSAND and
100/00 ($330,000.00) DOLLARS ("Security") as security for the full and faithful
performance of the obligations of Tenant to be performed by Tenant pursuant to
this Lease. Said sum shall be released to Landlord on Tenant's receipt of the
twenty (20) year guarantee for the roof in compliance with the terms of this
Lease. Said sum shall be returned without interest to the Tenant, provided that
the Tenant shall have fully, faith fully and timely carried out all of the
terms, covenants and conditions on its part to be performed at the expiration of
the fifth, tenth and fifteenth lease years in the amount of ONE HUNDRED TEN
THOUSAND and 100/00 ($110,000.00) DOLLARS each. The return of the Security
Deposit shall be personally guaranteed by Lawrence S. Berger.
22. BANKRUPTCY OF TENANT.
a. Upon the filing of a petition by or against Tenant under the
United States Bankruptcy Code, Tenant, as debtor and as debtor in possession,
and any trustee who may be appointed agree as follows: (i) to perform each and
every obligation of Tenant under this Lease including, but not limited to, the
manner
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of "use and operation" of the Demised Premises as provided in paragraph 8 of
this Lease until such time as this Lease is either rejected or assumed by order
of the United States Bankruptcy Court; and (ii) to pay monthly in advance on the
first day of each month, as reasonable compensation for use and occupancy of the
Demised Premises, an amount equal to all rent and other additional rent
otherwise due pursuant to this Lease; and (iii) to reject or assume this Lease
within sixty (60) days of the filing of such petition under Chapter 7 of the
Bankruptcy Code or within one hundred twenty (120) days (or such shorter term as
Landlord, in its sole discretion, may deem reasonable so long as notice of such
period is given) of the filing of a petition under any other Chapter; and (iv)
to give Landlord at least forty five (45) days' prior written notice of any
proceeding relating to any assumption of this Lease; and (v) to give at least
thirty (30) days' prior written notice of any abandonment of the Demised
Premises; and such abandonment to be deemed a rejection of this Lease; and (vi)
to do all other things of benefit to Landlord otherwise required under the
Bankruptcy Code; and (vii) to be deemed to have rejected this Lease in the
event of the failure to comply with any of the above; and (viii) to have
consented to the entry of an order by an appropriate United States Bankruptcy
Court providing all of the above, waiving notice and hearing of the entry of
same.
b. No default of this Lease by Tenant, either prior to or
subsequent to the filing of such a petition, shall be deemed to have been waived
unless expressly done so in writing by Landlord.
23. QUIET ENJOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant's
prompt and full payment of all rent and other sums required to be paid by Tenant
under this Lease and observing and performing all the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Demised Premises.
24. HOLDING OVER.
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The Tenant shall have no right to remain in possession after the
Termination Date. If the Tenant shall occupy the Demised Premises after the
expiration of this Lease with the consent of the Landlord (which consent shall
be the obligation of Tenant to obtain in writing prior to the Termination Date
and which consent Landlord shall be under no obligation to give), and rent is
accepted and collected from said Tenant, such occupancy and payment shall be
construed as an extension of this Lease for a term of month-to-month only, from
the date of such expiration. In such event, if either Landlord or Tenant
desires to terminate said occupancy at the end of any month after the
termination of this Lease, the party so desiring to terminate the same shall
give the other party thirty (30) days' written notice to that effect. If such
occupancy continues after the aforesaid notice of termination, or if Tenant
shall continue its occupancy after the Termination Date without obtaining
Landlord's written consent, Tenant shall pay to Landlord, as partial damages,
one and a half times the amount of both fixed annual rental (at the rate which
was last in effect for the term) and all additional rent for the time, on a per
diem basis, Tenant retains possession of the Demised Premises or any part
thereof after termination of the term, together with all costs, expenses and
damages incurred by Landlord and its agents to obtain possession from Tenant.
Furthermore, if such occupancy continues after the aforesaid notice of
termination, or if Tenant shall continue its occupancy after the Termination
Date without obtaining Landlord's written consent, Tenant shall be liable to
Landlord for any loss of rents and/or liability sustained by Landlord or its
agents in connection with any subsequent tenancy which may have intended to
occupy said Demised Premises at the expiration of the term herein. The
acceptance of rent and/or additional rent by Landlord shall not be deemed to
create a new or additional tenancy other than aforesaid.
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25. SURRENDER.
a. On the last day of the term or on the sooner termination
thereof, Tenant shall, at Tenant's sole cost and expense peaceably surrender the
Demised Premises broom-clean, in as good order and condition as of the
commencement of the term of this Lease, except for reasonable wear and tear and
damage by casualty. Tenant may remove from the Demised Premises its signs,
furniture, equipment, machinery, trade fixtures, HVAC, and portable walls,
provided same shall have been acquired and installed at Tenant's cost and
expense by Tenant ("Tenant's Property"). Tenant's Property not so removed
within thirty (30) days following the Termination Date, may at Landlords'
election and without limiting Landlord's right to compel removal thereof, be
deemed abandoned. Tenant shall in no event be obligated to remove the roof top
penthouse constructed by Tenant. Any damage to the Demised Premises caused by
Tenant in the removal of Tenant's Property shall be immediately repaired by
Tenant at Tenant's sole cost and expense, and this obligation shall survive the
expiration or sooner termination of this Lease.
b. Title to all alterations, additions, improvements, repairs,
fixtures, other than Tenant's Property, which shall have been made, furnished or
installed by or at the expense of the Landlord in or upon the Demised Premises,
shall vest in Landlord upon the installation thereof, and the same shall remain
upon and be surrendered with the Demised Premises as part thereof without
disturbance and without charge, unless otherwise required by Landlord.
26. NOTICES.
a. All notices and demands which are required to or are
permitted by the terms of this Lease shall be given in writing, whether herein
specified or not, and shall be deemed effectively given upon receipt or
rejection if personally delivered, delivered by overnight courier with return
receipt, telecopied with written confirmation, or sent by United States
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registered, express or certified mail, postage prepaid, addressed to the parties
at the following addresses:
For Landlord:
UNITED STATES LAND RESOURCE, L.P.
c/o Berger & Bornstein, P.A.
237 South Street
Morristown, New Jersey 07962
For Tenant:
ANADIGICS, INC.
35 Technology Drive
Warren, New Jersey 07059
With a Copy To:
Richard Stewart, Esq.
Lasser Hochman
75 Eisenhower Parkway
Roseland, New Jersey 07068-1694
Said addresses and the names of the parties to whom notices are
to be sent may be changed from time to time by either party, or by an assignee
or successor of either of them, by the giving of written notice to the other
sent as above provided.
27. BROKERS.
a. Tenant and Landlord represent and warrant that neither they
nor any of their employees or agents have acted so as to entitle any brokers to
a commission in connection with this transaction except Weichert Commercial
Realtors. Landlord shall pay Weichert Commercial Realtors in accordance with
the executed Commission Agreement dated September 9, 1995.
b. In the event Tenant or Landlord shall have breached their
representations and warranties set forth in paragraph 27a above, the breaching
party covenants and agrees to indemnify and hold the other harmless against any
claim asserted by any broker, or by anyone else with whom they dealt, for any
compensation in bringing about this transaction and to reimburse the
non-breaching party for any costs or expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the non-breaching
party in defending against claims made against non-breaching party for any such
compensation.
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28. MISCELLANEOUS
a. DEFINITIONS.
(1) The term "Landlord" as used in this Lease shall mean
the owner or lessee (if the Landlord claims the right of possession by reason of
a lease or sublease from the owners) for the time being of the Building, and if
such property or the Lease be sold or transferred, voluntarily or involuntarily,
the seller, or assignor, shall be entirely relieved of all covenants and
obligations under this Lease arising after transfer without further agreement
between the parties hereto and their successors;
(2) The words "rent" or "rental" may be used
interchangeable and are defined to include all monies specifically reserved as
fixed annual rent, additional rental, and all costs, expenses and damages which
the Landlord may suffer or incur by reason of any default of the Tenant or
failure on its part to comply with the covenants, terms or conditions of this
Lease, and all other sums of money which by virtue of this Lease shall at any
time or times become due and owing by Tenant to Landlord.
b. ABANDONMENT OF FIXTURES. If, after the default in payment
of rent or violation of any other provision of this Lease or at any time during
the term hereof or upon expiration of this Lease, Tenant moves out or is
dispossessed and fails to remove any trade fixtures or any other property within
thirty (30) days after said moving or dispossession then, in that event, the
said fixtures and property shall be deemed abandoned by the Tenant and shall
become the property of the Landlord.
c. WAIVER. No agreement to accept a surrender of the Demised
Premises shall be valid unless in writing signed by Landlord. The delivery of
keys to any employee of Landlord or of Landlord's agents shall not operate as a
termination of the Lease or a surrender of the Demised Premises. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease, or of any rule or
regulation, shall not be construed as a waiver or relinquishment for the future
of such covenant, condition, rule or
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regulation. The receipt by Landlord of rent with knowledge of a breach of any
covenant of this Lease shall not be deemed a waiver of such breach. No payment
by Tenant or receipt by Landlord of a lesser amount than the rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check nor any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept the balance of such rent or pursue any
other remedy in this Lease provided.
d. ENTIRE AGREEMENT. This Lease and the Exhibits, if any,
attached hereto and forming a part hereof, set forth all the covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Demised Premises. There are no oral agreements or understandings
between the parties hereto affecting this Lease, and this Lease supersedes and
cancels any and all previous negotiations, arrangements, agreements and
understandings, if any, between the parties hereto with respect to the subject
matters hereof, and none thereof shall be used to interpret or construe this
Lease. Except as herein otherwise expressly provided, no subsequent alteration,
amendment, change or addition to this Lease, shall be binding upon Landlord or
Tenant unless reduced to writing and signed by them.
e. LEASE EFFECTIVE. The submission of this Lease by Landlord
to Tenant for examination shall not be deemed to constitute an offer by Landlord
or a reservation to Tenant of an option to lease, and this Lease shall become
effective as a binding instrument only upon the execution and delivery thereof
by both Landlord and Tenant.
f. PARTIAL INVALIDITY. If any term, covenant or condition of
this Lease or the application thereof shall, to any extent, be invalid or
unenforceable, the remainder of this Lease or the application of such term,
covenant or condition to persons or circumstances, other than those for which it
is held invalid or unenforceable, shall not be affected thereby and each
remaining
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term, covenant or condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
g. RIGHTS OF ENTRY. Landlord or its duly authorized agents or
representatives shall have the right, upon reasonable notice, except in the case
of an emergency, to enter upon the Demised Premises during all reasonable
business hours for the purpose of examining the same, showing same to banking
and insurance representatives, governmental inspectors, or, in the event of
emergency, in order that repairs and alterations may be made for the safety and
preservation thereof, provided, however, that Landlord's right to enter upon
said Demised Premises shall be subject to the exercise of ordinary care and
caution in doing so. Landlord or Landlord's duly authorized agents or
representatives shall also have the right to show the Demised Premises to
persons wishing to purchase or lease the same during the nine (9) months next
prior to the expiration of the term of this Lease and to place notices on the
front of the Building offering the Demised Premises for lease or for sale,
during said nine (9) month period. Landlord may at any time place signs on the
Property offering space other than the Demised Premises for lease, provided such
sign shall not be placed on that part of the Building constituting the Demised
Premises.
h. ELIMINATION OF LIENS BY TENANT. Tenant shall not suffer or
permit or cause any liens or any action to be filed against the Demised Premises
by reason of any cause of Tenant or Tenant's agents or employees. In the event
that any such lien is filed, Tenant shall have the same discharged within
thirty (30) days after notice thereof or post appropriate security satisfactory
to Landlord to protect Landlord's interest as a result of said lien. Nothing
in this Lease contained shall be deemed to be a consent on the part of Landlord
to subject the Demised Premises to a lien or a claim under the construction lien
law of New Jersey by reason of labor or material furnished to Tenant in
connection with the Demised Premises.
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i. INTERPRETATION. The captions and headings throughout this
Lease are for convenience and reference only and the words contained therein
shall in no way be held or deemed to define, limit, describe, explain, modify,
amplify or add to the interpretation, construction or the meaning of any
provisions of, or the scope or intent of, this Lease, nor in any way affect this
Lease.
All references to nouns and pronouns used herein shall be
construed in the singular or plural and in such gender and tense as the sense of
this Lease requires.
No provisions of this Lease shall be construed by any court or
other judicial authority against either Landlord or Tenant by reason of any such
party being deemed to have drafted or structured such provision.
The words "hereby", "herein", "hereof", "hereto", "hereunder",
and similar words shall always be deemed to refer to this Lease in its entirety,
and not merely to the subparagraph or paragraph wherein such words appears,
unless expressly so modified.
j. TRIAL BY JURY WAIVER. The parties hereby waive trial by
jury in any action, proceeding or counterclaim brought by either party against
the other on any matter arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant, or Tenant's use and occupancy of the
Demised Premises.
k. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon
and shall inure to the benefit of the parties hereto, their respective heirs,
representatives, successors, and to the extent that this Lease is assignable by
the terms hereof, to the assigns of such parties. No rights, however, will
inure to the benefit of any assignee of Tenant unless the assignment to such
assignee has been made in accordance with the provisions of this Lease.
l. EXCULPATION. Notwithstanding anything to the contrary set
forth in this Lease, it is specifically understood and agreed by Tenant that
there shall be absolutely no personal liability on the part of Landlord or on
the part of the partners or
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agents of Landlord with respect to any of the terms, covenants and conditions of
the Lease, and Tenant shall look solely to the equity, rent and profits of the
Landlord in and of the Building of which the Demised Premises is a part for the
satisfaction of each of the terms, covenants and conditions of this Lease to be
performed by Landlord, and including any judgments or other liens obtained by
Tenant against the Landlord. This exculpation of personal liability is
absolute and without any exception whatsoever, except to the extent resulting
from the following: (i) a misapplication or misappropriation of insurance
proceeds or any award paid in the event of a taking by condemnation or eminent
domain; (ii) a misapplication or misappropriation of any amounts paid to
Landlord in escrow, in trust, or otherwise paid to Landlord or to be used by
Landlord for a specific purpose as set forth in the Lease; (iii) a breach of any
of the covenants or agreements of Landlord as set forth in Paragraph 16 of this
Lease; (iv) acts or omissions by Landlord for which Landlord receives insurance
proceeds under the commercial general liability insurance policy Landlord
maintains, or is required to maintain, pursuant to the Lease; (v) any fraudulent
conduct on the part of Landlord; or (vi) return of security deposit as provided
for herein.
29. RIGHT OF FIRST REFUSAL.
a. In the event that additional space in the Building shall
become available ("Additional Space") and Landlord desires to accept a BONA FIDE
offer to lease the Additional Space, Landlord shall notify Tenant in writing of
Landlord's receipt of such offer and shall include within its notice the terms
of the offer to lease the Additional Space. Tenant shall have the option to
elect to lease the Additional Space pursuant to the same terms as the offer
received by Landlord ("Right of First Refusal"). Tenant must exercise its Right
of First Refusal, within ten (10) business days of receipt of Landlord's notice,
by delivering written notice to Landlord, time being of the essence. If Tenant
shall fail to exercise its Right of First Refusal within said ten (10) business
day period, or shall fail to execute a lease pursuant
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to the terms of said offer within ten (10) business days of exercising its Right
of First Refusal, time being of the essence, Tenant shall be deemed to have
waived its Right of First Refusal.
b. In the event that Landlord in its sole discretion
decides at any time during the term of this Lease to sell the Building, Landlord
agrees to let Tenant know of such decision in writing.
30. LANDLORD'S REPRESENTATIONS.
a. Landlord owns the Building and the Property in fee simple,
free and clear of all liens and encumbrances except as contained on Exhibit E.
b. The Demised Premises, the Building and the Property are not
at the present subject to any assessment for municipal improvements, nor has any
municipal improvement work been commenced or completed for which an assessment
can be imposed;
c. There is no pending or threatened condemnation or taking
affecting the Demised Premises, the Building and/or the Property;
d. To the best of Landlord knowledge no citations or notices
have been issued or suits or proceedings commenced against Landlord or against
the Demised Premises, the Building and/or the Property for violation of any law,
ordinance, rule or regulation. To the best of Landlord's knowledge there is no
litigation pending or threatened regarding the Demised Premises, the Building,
the Property or their use;
e. Landlord has not received any notice of a violation of any
laws, ordinances, rules or regulations regarding environmentally hazardous
substances and environmentally hazardous wastes as defined under ISRA and the
Spill Compensation Act;
f. There is no asbestos insulation located in the Demised
Premises and/or the Building;
g. Landlord has complied, if required, with the New Jersey
Underground Storage of Hazardous Substances Act (N.J.S.A. 58:10A-21, et seq.).
47
<PAGE>
h. Tenant shall have the right to record a short form of this
Lease to be executed by Landlord and Tenant.
31. TAX LIENS. The parties acknowledge that there are one or more
Tax Lien Certificates outstanding against the Demised Premises. So as to enable
Tenant to protect its investment in improvements which Tenant intends to make to
the Demised Premises, Landlord agrees upon execution of the this Lease to
execute an assignment of all proceeds it may receive as a result of the sale of
the Property as a result of the foreclosure of said Tax Lien Certificates if
Tenant is the purchaser of the Property at such sale. The form of assignment is
attached hereto as Exhibit J.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
LANDLORD:
BY: UNITED STATES LAND RESOURCES, L.P.
General Partner
BY: UNITED STATES REALTY RESOURCES, INC.,
General Partner
By: /s/ Lawrence S. Berger
-------------------------------------
LAWRENCE S. BERGER, President
TENANT:
ANADIGICS, INC.
BY: /s/ George J. Gilber
--------------------------------------
GEORGE J. GILBERT, Executive Vice-
President
As To The Obligation To Return
The Security Deposit Contained
In Paragraph 21 Of The Lease
/s/ Lawrence S. Berger
- ------------------------------
LAWRENCE S. BERGER
48
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Selected Financial Data" and "Experts" in the Registration
Statement (Form S-3 No. 333-00000) and related Prospectus of
ANADIGICS, Inc. for the registration of 2,347,739 shares of its
common stock and to the use of our report dated January 30,
1997, with respect to the financial statements and schedule of
ANADIGICS, Inc. for the year ended December 31, 1996.
ERNST & YOUNG LLP
Princeton, New Jersey
January 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted for the
twelve months ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,112,000
<SECURITIES> 9,008,000
<RECEIVABLES> 10,696,000
<ALLOWANCES> 0
<INVENTORY> 8,901,000
<CURRENT-ASSETS> 53,637,000
<PP&E> 50,563,000
<DEPRECIATION> 21,830,000
<TOTAL-ASSETS> 86,996,000
<CURRENT-LIABILITIES> 15,812,000
<BONDS> 0
0
0
<COMMON> 126,000
<OTHER-SE> 70,431,000
<TOTAL-LIABILITY-AND-EQUITY> 86,996,000
<SALES> 68,864,000
<TOTAL-REVENUES> 68,864,000
<CGS> 38,887,000
<TOTAL-COSTS> 38,887,000
<OTHER-EXPENSES> 20,242,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,368,000)
<INCOME-PRETAX> 11,103,000
<INCOME-TAX> (888,000)
<INCOME-CONTINUING> 11,991,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,991,000
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
