-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DQPfmZ3e5zruVuEqWZIJMxSj9k2fOHZilIECH8gCUt3ddg3DkNU9JHEHkW5KFKMd nRcn95dGO2BTb029YsjpZw== 0000950005-97-000603.txt : 19970625 0000950005-97-000603.hdr.sgml : 19970625 ACCESSION NUMBER: 0000950005-97-000603 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970624 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRIAN CORP /CA/ CENTRAL INDEX KEY: 0000925054 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770023003 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24360 FILM NUMBER: 97629055 BUSINESS ADDRESS: STREET 1: 350 WEST JAVA DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087455400 MAIL ADDRESS: STREET 1: 350 WEST JAVA DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 1997 or |_| Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________ to _______________ Commission file number: 0-24360 SPECTRIAN CORPORATION (Exact name of registrant as specified in its charter) California 77-0023003 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 350 West Java Drive, 94089 Sunnyvale, California (Zip Code) (Address of principal executive office) Registrant's telephone number, including area code: (408) 745-5400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on June 5, 1997 as reported on the Nasdaq National Market, was approximately $145,486,588. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of June 5, 1997, registrant had outstanding 8,307,161 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following document are incorporated by reference to Parts II, III and IV of this Annual Report on Form 10-K: (1) Proxy Statement for registrant's 1997 Annual Meeting of Shareholders to be held July 31, 1997 and (2) registrant's Annual Report to Shareholders for the fiscal year ended March 31, 1997. PART I ITEM 1. BUSINESS This Report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including those set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Report or incorporated by reference herein. Spectrian Corporation (herein "Spectrian" or the "Company") designs, manufactures and markets highly linear radio frequency ("RF") power amplifiers that address the needs of wireless infrastructure equipment suppliers and their service provider customers. Spectrian's amplifiers improve spectrum efficiency, allow lower capital costs per subscriber, enhance the quality and reliability of service and help service providers achieve rapid and large scale deployment of wireless infrastructure equipment. Industry Background The market for wireless communications services has grown significantly during the past decade as cellular, Personal Communications Services ("PCS"), Wireless Local Loop ("WLL"), paging, specialized mobile radio and other new and emerging applications have become accessible and affordable to growing numbers of consumers, businesses and governments. Among the various types of wireless services, the markets for cellular, PCS and WLL (collectively "wireless") communications are currently the largest. According to the Cellular Telephone Industry Association ("CTIA"), from 1984 to 1996 the number of cellular subscribers in the United States has increased from under 100,000 to approximately 42 million. In addition, based upon data compiled by the CTIA and other industry publications, the Company estimates that the number of wireless subscribers worldwide was approximately 125 million at the end of 1996. Wireless market growth both in North America and Western Europe has been fueled by decreasing prices for wireless phones, increasing competition among service providers and a greater availability of services. In addition, many developing countries are installing wireless telephone networks instead of installing, expanding or upgrading traditional wireline networks. Moreover, emerging bi-directional wireless data applications have the potential to further expand the market for wireless communications by allowing service providers to increase revenue generating traffic on their networks. In connection with wireless market growth, a number of radio frequency modulation standards, both domestically and internationally, have evolved that govern the limited amount of radio spectrum that is available to service providers. The growth in wireless communications has required, and will continue to require, substantial investment by service providers in infrastructure equipment. A typical wireless communications system comprises a geographic region containing a number of cells, each of which contains a cell site, which are networked to form a service provider's coverage area. Each cell site or "base station" houses the equipment that receives incoming telephone calls from the switching office of the local wireline telephone -2- company and broadcasts calls to the wireless users within the cell. Such equipment includes an antenna and a series of transceivers, RF power amplifiers and cavity filters. Typical cells cover a geographic area of up to five miles in radius and are sometimes referred to as "macrocells," each of which typically requires equipment costing between $600,000 and $1.5 million. Wireless service providers compete in dynamic markets characterized by evolving and competing industry standards, technologies and applications. Given the large expenditures associated with infrastructure equipment, those wireless service providers that are able to increase the efficiency and lower the cost of new and existing systems, while improving reliability, will compete most effectively. In addition, operators need to increase system capacity to accommodate the growing number of subscribers. Consequently, wireless service providers must anticipate evolving industry standards and invest in infrastructure equipment that provides greater efficiency in the management of the limited spectrum licensed to them. The ability to bring these improvements to the market in a timely manner is also key to their success. Wireless operators' ability to more effectively manage scarce spectrum resources and accommodate a larger number of subscribers is dependent on their ability to broadcast signals with high "linearity." Linearity is the degree to which amplified signals remain within their prescribed band of spectrum with low distortion or interference with adjacent channels. In current systems, the RF power amplifier is generally the source of the greatest amount of signal distortion. Consequently, obtaining RF power amplifiers with high linearity is critical to the service providers' ability to improve spectrum efficiency and thereby increase system capacity. Substantial investment and technical expertise are required to design and manufacture RF power amplifiers with high linearity. Higher linearity amplifiers are required as the industry transitions from analog to digital technologies. Traditional cellular systems, which are based on analog technology, are capable of carrying only one call per channel of spectrum. Such systems are being supplanted by digital systems, which allow a given channel of spectrum to carry multiple calls simultaneously thereby increasing system capacity. In addition, in order to maintain compatibility with existing analog subscriber equipment while converting their systems to digital, many wireless service providers in the United States are installing "dual mode" systems that support both digital and analog technologies. Current analog standards include AMPS in North America and TACS and NMT in Europe, and current digital standards include TDMA and CDMA in North America, PDC in Japan and GSM in most other parts of the world. CDMA has also become the Korean standard. Digital standards which are expected to be utilized in emerging PCS systems include TDMA, CDMA and GSM in North America, DCS-1800 in Europe and CDMA in Korea. The use of multicarrier amplifiers has many benefits and requires leading edge linearity technology to function properly. Typically, each cell site is assigned a fixed number of frequency channels which each require a separate power amplifier and cavity filter. Consequently, a cell site reaches capacity when it carries as many calls as it has channels, even though unused channel capacity in adjacent cell sites may be available. Systems with dynamic channel allocation capabilities are being implemented that allow channels to be moved between cell sites to more fully utilize available capacity. These systems require multicarrier power amplifiers, which can simultaneously broadcast signals according to multiple -3- transmission standards and over a variable number of channels, allowing more efficient use of the radio frequency spectrum. Further, systems with high subscriber densities are expected to utilize microcells which are smaller, less expensive cell sites placed more closely together than the larger and more costly macrocells. Wireless service providers are requiring equipment that allows them to provide higher quality and more reliable service. Since service provider revenue is based on customer usage, equipment failure can cause an inability to process calls, resulting in lost revenue. The Company believes that the RF power amplifier in cell sites historically has been the most common single point of equipment failure in wireless networks. Increasingly reliable power amplifiers will, therefore, improve the level of service offered by wireless operators, while reducing their operating costs and increasing their revenue. Further, service providers are seeking solutions that allow them to reduce maintenance costs, such as multicarrier amplifiers that do not require separate, high maintenance cavity filters. The market for wireless infrastructure equipment is primarily concentrated among a few companies that supply equipment to wireless service providers in North America and overseas. The Company believes that Lucent Technologies, Inc. ("Lucent"), LM Ericsson Telephone Company ("Ericsson"), Motorola Corporation ("Motorola"), Northern Telecom Limited ("Northern Telecom") and Nokia Corporation supplied over 80% of the wireless infrastructure equipment worldwide in 1996. These equipment manufacturers compete in high-growth, highly competitive market segments in which technology changes rapidly and numerous industry standards currently exist and are evolving. Although most of these equipment manufacturers make their own amplifiers, in response to competition and as the performance requirements of certain components of base stations increase, many of these equipment manufacturers are focusing on their core technologies and competencies and are relying on independent sources for certain system components, such as power amplifiers, that must meet unique technical requirements. To succeed in capturing orders from these OEMs, power amplifier suppliers must be capable of producing products that are highly linear, have multicarrier functionality, support multiple standards, are highly reliable and can be produced in high volumes. The Spectrian Solution Spectrian provides custom RF power amplifiers that represent attractive alternatives to those of other merchant suppliers and those that could be internally produced by many of the Company's customers. The differentiating features of Spectrian's highly linear RF power amplifiers include: Linearity. Spectrian has developed multiple competencies and disciplines to achieve high linearity in its products. These technology disciplines include RF power semiconductor technology, computer-aided design and modeling, solid state device physics, thermal and mechanical packaging design, advanced circuit design, amplifier linear correction technologies, advanced signal processing techniques and digital control systems. The Company believes that achieving high levels of linearity is critical to enabling Spectrian's customers to provide wireless operators with higher capacity base station equipment at lower capital cost per subscriber. -4- Multicarrier Functionality. Spectrian is developing and supplying multicarrier amplifiers that integrate the functions of multiple power amplifiers and cavity filters into a single smaller unit. These integrated multicarrier units can potentially reduce service providers' equipment and maintenance costs and space requirements and enable them to implement dynamic channel allocation solutions and microcells. Standards Independence. Spectrian's technologies are compatible with all wireless modulation standards. Spectrian currently provides single carrier and multicarrier amplifiers that support multiple modulation standards. The Company's multicarrier products support multiple analog and digital standards simultaneously. Certain of the Company's single carrier products support both analog and digital standards in a dual mode format. A single carrier dual mode amplifier installed in a conventional analog cellular system does not need to be replaced if the base station equipment is upgraded for digital transmission. The Company believes that its ability to provide amplifiers for all modulation formats as well as those which support multiple standards and have dual mode capability is important to cellular service providers as they upgrade their cellular infrastructure equipment and implement digital systems in an environment characterized by evolving industry standards. High Quality and Reliability. Spectrian provides power amplifiers designed to be highly reliable in the field. Spectrian's integrated design and manufacturing processes are important factors contributing to its ability to develop and produce highly reliable power amplifiers. In order to further address customer requirements for amplifier quality and reliability and to ensure process quality control, Spectrian implemented a total quality management ("TQM") program throughout the Company and is ISO 9001 certified. The Company believes that designing products for high reliability in the field has been a competitive advantage in securing orders from its customers. Design for Manufacturability. Spectrian designs amplifiers to be manufactured in high volumes at low cost. The integration of Spectrian's design and production processes is a key element of the Company's ability to address the cellular infrastructure equipment suppliers' quantity and time to market requirements for power amplification products. The Company believes that designing products for volume manufacturing has been a competitive advantage in securing orders from its OEM customers because power amplifiers have historically been difficult to manufacture in high volumes based upon the labor intensive nature of the manufacturing process and the complexities of radio frequency ("RF") power technology. Strategy Spectrian's objective is to be the leading merchant supplier of highly linear power amplifiers to wireless infrastructure equipment manufacturers and service providers worldwide. The Company's strategy incorporates the following key elements: Develop Relationships with Leading Manufacturers of Wireless Infrastructure Equipment. The Company has developed relationships with certain large wireless equipment manufacturers, such as Northern Telecom, Nortel Matra Cellular, in which Northern Telecom has an equity interest ("Nortel -5- Matra"), LG Information & Communications ("LGIC") and QUALCOMM Incorporated ("QUALCOMM"), as well as certain emerging manufacturers such as Tellabs and Watkins Johnson. Spectrian has also begun to establish some direct relationships with service providers allowing the Company to address previously unavailable markets. The Company's strategy is to form lasting customer relationships by working closely with OEM customers to develop insight into their amplifier requirements and to design specific products that meet their needs, by rapidly delivering product designs and volume production and by maintaining the confidentiality of customer technology. By establishing close relationships with its customers, Spectrian hopes to secure additional business from these wireless equipment manufacturers. Provide Application Specific Products. The Company provides customized or "application specific" amplification products to address the unique requirements of the Company's customers. The Company relies upon its modular product architecture and configurable core technologies in order to rapidly and cost effectively develop application specific solutions for its customers. The Company intends to use and promote its application specific design methodology to provide its customers with industry leading high performance amplifiers designed to meet the customers' requirements. Pursue Standard and System Independence. The Company provides products that are compatible with wireless communications systems provided by various infrastructure suppliers and which operate under most major domestic and international standards. By pursuing both standard and system independence, the Company believes that it will benefit from the continuing growth of existing wireless communications systems and other emerging wireless communications markets while reducing the risks associated with relying on the success of one or a limited number of existing or emerging industry standards. For cellular systems, the Company currently supports the AMPS and TACS analog standards, and the TDMA, GSM and CDMA digital standards. In addition, the Company has developed, and is continuing to develop, products that address the needs of the PCS and WLL markets. Maintain a Leadership Position in Amplification Technology. The Company intends to maintain and expand its technological leadership position by continuing to invest significant resources in research and development of amplification technology. The Company believes that its RF amplifier research and development team is among the largest and most skilled in the high power RF industry. In order to maintain a technological leadership position, the Company believes that numerous integrated technical capabilities are required, including proprietary semiconductor design and fabrication, unique packaging concepts and components and expert circuit design. The Company's strategy is to continue to invest significant resources to support the Company's technology leadership in the linearity, power and efficiency of its product designs. Employ Vertical Integration in Design and Manufacturing. The Company has pursued a strategy of vertical integration of its design and manufacturing processes. The Company believes that vertical integration enables the high linearity of the Company's products, since the Company retains control of each step in their development and manufacture, beginning with the design and development of the semiconductor die and ending with the manufacture of the final product. Each of these steps collectively contributes to the linearity of a finished power amplifier. Vertical integration also improves the Company's -6- time to market capabilities, reduces unit costs, improves quality control and reliability, and improves the Company's ability to rapidly achieve volume production. Technology The Company's linear power amplifiers are used primarily in connection with wireless base station equipment. A typical wireless base station consists of a series of wireless transceivers, power amplifiers and tunable cavity filters and an antenna to transmit the signal to the wireless telephone user. These wireless base stations typically contain between 6 and 100 radio frequency channels, with each channel capable of supporting a single phone conversation, and are typically configured with three sectors of 16 channels each for a total of 48 channels. In a single carrier system, each separate radio frequency channel requires a separate transceiver, power amplifier and tunable cavity filter. The following chart depicts a typical signal transmission path for a phone call from a wireline phone to a wireless phone: [DIAGRAM] [Edgar summary: Diagram depicting path of signal transmission from wireline phone to telephone central office to mobile telephone switching office, across fiber optic cable or microwave link, to wireless base station and, by antenna, to wireless car phone]. The power amplifier within the base station receives a relatively weak signal from the transceiver and significantly boosts the power of the outgoing signal so that it can be broadcast throughout the cell. The radio frequency power levels necessary to transmit the signal over the required range must be achieved without distorting the modulation characteristics of the signal. The signal must be amplified with linearity in order to remain in the assigned frequency channel without distorting or interfering with adjacent channels. Because the radio frequencies assigned to transmissions are fixed, service providers are seeking new methods of more efficiently using frequencies in order to increase capacity. One such method, dynamic channel allocation, allows real-time changing of channel assignments across a metropolitan area to follow user loading. Commuter density changes during rush hours and traffic jams are examples of the dynamic nature of user loading. Dynamic channel allocation allows the service provider to automatically move unused channels from less active cell sites to busier adjacent cell sites as the load moves. A key enabling technology for dynamic channel allocation is a multicarrier amplifier, in which all channels are amplified together rather than each channel using a separate power amplifier. The multicarrier power amplifier makes possible instantaneous electronic channel allocation. A multicarrier power amplifier functionally combines multiple single carrier power amplifiers, typically 16, into a single unit, thus eliminating 16 single carrier power amplifiers and the corresponding 16 tunable cavity filters. The following chart depicts the increased functionality of a multicarrier power amplifier as compared to a single carrier power amplifier: -7- [DIAGRAM] [Edgar summary: Diagram illustrating difference between the conversion of low input power to high output power usage by single carrier amplifier and by multicarrier amplifier, respectively] Digital modulation schemes represent the most significant new technology trend in the wireless industry. Service providers are transitioning from traditional analog technologies to various digital technologies in order to reduce service pricing and increase system capacity. With new competition from PCS service providers there is increasing pressure on cellular operations to complete this transition. Conversion to digital transmission is expected to allow three to eight times as many voice conversations to occupy the same frequency bands. Without significant improvements in power amplifier linearity, however, multiple conversations on a single channel would lead to unacceptable channel interference. The Company has developed ultralinear single carrier and multicarrier amplifiers for all of the most significant new digital modulation standards. The majority of all applications currently utilize single carrier amplifiers. A further trend in the development of base stations involves the transition from macrocells to microcells. A multicarrier power amplifier requires less space than multiple single carrier power amplifiers, allowing the cell site to be physically smaller, an important consideration in urban locations where the number of channels is more important than the absolute power per channel. Conventional cell sites today are macrocells containing high power amplifiers of 45 watts per channel which are designed to cover a geographic area typically up to five miles in radius. With 48 channels in a typical base station and one power amplifier per channel, a conventional analog macrocell's capacity is typically 1,000 subscribers per cell, or approximately 20 subscribers per analog channel. When the number of subscribers within the cell exceeds the capacity of the macrocell's equipment, the cell must be split into several smaller microcells to avoid a degradation in service to the subscribers. The geographic range of these microcells will be smaller, requiring lower power and less expensive equipment at each base station, but more of these smaller base stations are required in order to increase the capacity of the overall system. Markets Cellular systems have historically employed analog transmission formats, certain of which have evolved into industry standards. The need to accommodate a growing cellular customer base in a finite amount of spectrum has, however, encouraged a worldwide transition from the traditional analog standards to various digital technologies which are significantly more efficient. In the North American cellular market, the established analog transmission format has been the Advanced Mobile Phone Services ("AMPS") standard originally developed by AT&T. Several large metropolitan markets have limited capacity to serve increasing numbers of subscribers. The response to this need for additional capacity has led to the emergence of digital technology standards in the North American market including Time Division Multiple Access ("TDMA") and Code Division Multiple Access ("CDMA"). -8- In the European cellular market the Nordic Mobile Telephone ("NMT") standard and the Total Access Communication System ("TACS") have been used throughout much of Europe as the industry standard analog transmission formats. The European community and many other countries around the world have implemented of a single digital standard, the Global System for Mobile Communications ("GSM"). The implementation of GSM in Europe, where many countries have traditionally had a single cellular operator, has been accompanied in most cases by the addition of at least one competitive service provider, which the Company believes has contributed to increased growth of such systems. The Company offers amplifiers that support the AMPS and TACS analog standards and the TDMA, CDMA and GSM digital standards for cellular systems. The Company has elected not to support the NMT analog standard in Europe, because it believes that NMT has a lower potential for growth than the GSM digital standard. To date, the Company has not invested significant development resources to incorporate the Personal Digital Cellular ("PDC") standard into its product offerings, because such standard has not developed to any great degree outside of Japan. In addition to the analog and digital cellular systems discussed above, the market for PCS systems is expanding rapidly. The FCC has reallocated spectrum in the 1.85 to 1.99 gigahertz range for the provision of PCS and has conducted six rounds of auctions for the PCS spectrum. PCS systems utilize digital transmission standards, including TDMA, GSM and CDMA. The success of the introduction of PCS as a new type of wireless service will depend in part on whether infrastructure manufacturers and service providers can reduce system manufacturing and service costs and pricing sufficiently to significantly increase the rate of market penetration of potential subscribers. The following chart illustrates these existing and developing standards for wireless communications, and the markets served and standards supported by the Company's current product offerings. -9- Major Wireless Standards By Region - -------------------------------------------------------------------------------------------------
U.S.A. Canada Europe Japan Rest of World (MHz) (MHz) (MHz) (MHz) - ------------------------------------------------------------------------------------------------- Analog AMPS (800) NMT (450, 900) NTT (800) NMT (450, 900) Cellular TACS (900) JTACS (800) AMPS (800) AMPS (800) TACS (900) - ------------------------------------------------------------------------------------------------- Digital CDMA (800) GSM (900) PDC (1500) CDMA (800, 900) Cellular TDMA (800) JDC (800) GSM (900) TDMA (450, 800) - ------------------------------------------------------------------------------------------------- CDMA (1900) DCS 1800 (1800) PHS (1900) CDMA (1900) PCS TDMA (1900) CDMA (1900) DCS-1800 (1800) GSM (1900) CDMA (1800) - ------------------------------------------------------------------------------------------------- WLL GSM (1900) NMT (450, 900) NMT (450, 900) PHS (1900) CDMA (1900) TACS (900) TACS (900) CDMA (1900) TDMA (1900) AMPS (800) AMPS (800) CDMA (800) CDMA (800) GSM (900) GSM (900) DCS 1800 (1800) DCS 1800 (1800) CDMA (2400) - -------------------------------------------------------------------------------------------------
The Company believes that the potential for wireless communications in countries without reliable or extensive wireline systems may be even greater than in countries with developed telecommunications systems. The cost of building and maintaining a wireless network is generally less than the cost of building and maintaining a comparable wireline network. Thus, in many less developed countries, cellular service may provide the primary service platform for both mobile and fixed telecommunications. Due to political, social and economic pressures to rapidly and efficiently provide reliable basic telephone service in a cost-effective manner, many countries are beginning to view wireless networks favorably because of the potential for dramatic reductions in installation and maintenance costs and the ability to more rapidly deploy such wireless systems. If technological advances and price decreases continue to occur, a market in the United States for wireless service to be used in conjunction with, or in place of, traditional wireline ("local loop") service may emerge for a variety of applications. For example, wireless networks could provide local loop service and direct access to the long distance carriers. Some local telephone companies are conducting trials using fixed wireless terminals to provide basic telephone service as a cost effective alternative to traditional wireline service. The wireless infrastructure equipment market is dominated by a small number of large original equipment manufacturers ("OEMs"), including Lucent, Ericsson, Motorola and Northern Telecom . The Company believes that a substantial majority of the present worldwide production of power amplifiers is captive within the manufacturing operations of these companies and offered for sale as part of their -10- wireless systems. Furthermore, the Company believes that it, along with its competitors, have captured a significant share of the merchant market for power amplifiers and, once captured, OEMs are reluctant to switch suppliers. As a result, the Company's future success is dependent upon the extent to which these OEMs elect to purchase from outside sources rather than design and build their own amplifiers. Among the Company's current customers, Northern Telecom and LGIC continuously evaluate whether to manufacture their own amplifiers. There can be no assurance that the Company's customers will continue to rely, or expand their reliance, on the Company for amplifiers, or that other OEMs will become customers. If one or more of the Company's existing customers decided to build their own amplifiers internally or if the trend to increasingly use outside sources for amplifiers were to decline or reverse, the Company's business, financial condition and results of operations would be materially adversely affected. Products The Company designs application specific products that address the unique requirements of its OEM customers in a timely and cost effective manner by employing vertical integration in its manufacturing, and designing its products in a modular fashion using configurable core technologies. The Company's product strategy is to support multiple wireless systems and standards. Most existing wireless systems use single carrier power amplifiers. The following table provides a list of standards for which the Company provides single carrier amplifiers: - -------------------------------------------------------------------------------- Spectrian Single Carrier Amplifier Configurations - -------------------------------------------------------------------------------- Frequency Power Standard (MHz) (Watts) - -------------------------------------------------------------------------------- Analog Cellular: AMPS, CDPD 869-894 65 TACS 917-950 65 - -------------------------------------------------------------------------------- Digital Cellular: TDMA 485-495 50 TDMA 869-894 50 CDMA 869-894 25 GSM 925-960 30 - -------------------------------------------------------------------------------- PCS: DCS 1800 1805-1880 30 CDMA 1930-1990 20 GSM 1900 1930-1990 30 CDMA 1805-1870 30 - -------------------------------------------------------------------------------- The Company also offers multicarrier application specific amplification products. Multicarrier power amplifiers require significantly higher linearity compared to single carrier designs. The following table provides a list of the standards for which the Company provides multicarrier amplifiers: -11- - -------------------------------------------------------------------------------- Spectrian Multicarrier Amplifier Configurations - -------------------------------------------------------------------------------- Frequency Power Typical Standard (MHz) (Watts) Linearity (dBc)* - -------------------------------------------------------------------------------- AMPS, TDMA, CDMA, CDPD 869-894 100-175 -70 TACS 917-950 25 -50 CDMA 1805-1870 100 -65 - -------------------------------------------------------------------------------- * Carrier to Intermodulation Distortion Ratio. The Company's amplifiers can be configured as either modules or pallets, separate plug-in amplifier units or integrated subsystems, and range in price from approximately $500 to $30,000. A pallet represents the lowest level of amplifier complexity and consists of a radio frequency transistor mounted on a printed circuit board without a housing. A plug-in amplifier unit consists of a cast housing, which provides for thermal management and low cost of production, and contains a radio frequency amplifier pallet combined with a digital control interface module. A power amplifier subsystem consists of multiple cast housings and adds signal processing to enhance linearity. The Company's products are integrated into systems by its customers, and therefore must be engineered to be compatible with industry standards and with certain customer specifications, such as frequency, power and linearity. OEM Customers, Sales and Marketing The Company sells power amplifiers to a limited number of OEM customers in North America and Europe principally through its direct sales organization. The Company's customers include many of the world's largest manufacturers of wireless infrastructure equipment, including Northern Telecom, LGIC and QUALCOMM. During fiscal 1997, Northern Telecom and Nortel Matra accounted for 63% and 12%, respectively, of revenues. During fiscal 1996, Northern Telecom and Nortel Matra accounted for approximately 58% and 17%, respectively, of revenues. During fiscal 1995, Northern Telecom, Nortel Matra and Ericsson accounted for approximately 53%, 13% and 8%, respectively, of revenues. While Northern Telecom continues to be the Company's dominant customer due to Northern Telecom's growth and diversification into new markets, the products the Company supplies to Northern Telecom has become more diverse. The Company expects that sales of its products will continue to be concentrated among a limited number of customers. The Company's business, financial condition and results of operations have been materially adversely affected in the past by the failure of anticipated orders to materialize and by deferrals or cancellations of orders by its customers. If the Company were to lose a major customer, in particular Northern Telecom, or if orders by a major customer were to otherwise decrease, the Company's business, financial condition and results of operations would be materially adversely affected. The Company employs a customer focused, team-based direct sales approach to satisfy the power amplification needs of its customers. Sales to large OEM customers require close account management by Company personnel and relationships at multiple levels of its customers' organizations, including management, engineering and purchasing personnel. In addition, the Company's application specific amplification products require experienced sales personnel to match the customer's amplification -12- requirements to the Company's product capabilities. The Company believes that close technical collaboration with the customer during the design phase of new communications equipment is critical to the integration of its amplification products into the new equipment. The Company's integrated sales approach involves a team consisting of a senior account manager, a program manager and members of the Company's engineering department. This sales approach allows the Company's engineering personnel to work closely with their counterparts at the OEM customer to assure compliance of the product to the customer's specification. The Company's executive officers are also involved in all aspects of the Company's relationships with its major customers and work closely with their senior management. As of March 31, 1997, the Company had a direct sales staff of eight people. The Company warrants new products against defects in design, materials and workmanship, typically for a period of twelve to eighteen months. As part of the effort to diversify its product base, the Company has begun to sell multicarrier amplifier systems (including filters and combiners) directly to service providers. To date, these sales have been to providers in the United States and Israel. The Company recognizes that these sales may be in conflict with potential or current OEM sales and is willing to work with its OEM equipment suppliers so that the service provider receives a Spectrian power amplifier system directly or through the OEM. There can be no assurance that the Company's direct sales to service providers will not cause its OEM equipment suppliers to reduce orders or terminate their relationship with the Company. Any such reduction or termination could have a materially adverse effect on the Company's business, financial condition and results of operations. The Company markets its products overseas with the assistance of independent sales representatives to customers in Europe, Japan and South Korea. The Company has four sales representatives in Europe covering Austria, Finland, France, Germany, Italy, Sweden and Switzerland, one sales representative dedicated to Japan and a representative organization in South Korea. In addition, the Company is pursuing selected opportunities to sell its RF power transistors and has three independent sales representatives and one sales employee in the United States and Europe addressing this market. The Company continuously evaluates whether to establish direct sales to a particular region or customer depending upon available sales opportunities. The Company's direct sales staff provides sales direction and support to the international sales representatives. Sales outside of the United States represented 73%, 72% and 71% of revenues in fiscal 1997, 1996 and 1995, respectively. Sales outside of the United States are denominated in U.S. dollars in order to reduce the risks associated with the fluctuations of foreign currency exchange rates. The Company expects that international sales will continue to account for a significant portion of its revenues. Sales outside of the United States involve a number of inherent risks, including reduced protection for intellectual property rights in some countries, the impact of recessionary environments in economies outside the United States, generally longer receivables collection periods, unexpected changes in regulatory requirements, tariffs and other trade barriers. There can be no assurance that such factors will not have an adverse effect on the Company's future international sales and, consequently, on the Company's business, financial condition and results of operations. -13- Manufacturing The Company assembles, tests, packages and ships amplifier products at its manufacturing facilities located in Sunnyvale, California. The Company's manufacturing facilities in Sunnyvale consist of a 4-inch wafer fabrication and transistor assembly and test facility and an amplifier assembly and test facility. The Company is winding down operations in its Mountain View 3-inch fabrication facility and anticipates closure of that facility by the end of the first quarter of fiscal 1998. Wafer Fabrication. As part of its strategy of vertical integration, the Company operates its own wafer fabrication facility for the production of the RF power transistor, the most important component utilized in the Company's amplifiers. The Company believes that control of the semiconductor manufacturing process allows it to reduce unit costs, control quality, improve time to market delivery and most importantly increase the linearity of the RF power transistors used in its amplifiers. In December 1996, the Company completed construction and facilitation of a more modern, higher capacity 4-inch wafer fabrication facility to further increase production capacity. In addition, the Company utilizes a high volume, third party supplier to supplement wafer capacity on a subcontract basis. The design and fabrication of RF power transistors is a unique, complex and precise process. Such manufacturing is sensitive to a wide variety of factors, including variations and impurities in the raw materials, difficulties in the fabrication process, performance of the manufacturing equipment, defects in the masks used to print circuits on a wafer and the level of contaminants in the manufacturing environment. There can be no assurance that the Company will be able to maintain acceptable production yields in the future. In addition, the Company's wafer fabrication facility represents a single point of failure in its manufacturing process that would be costly and time-consuming to replace if its operation were interrupted. The interruption of wafer fabrication operations or the loss of employees dedicated to the wafer fabrication facility could have a material adverse effect on the Company's business, financial condition and results of operations. Any failure to maintain acceptable wafer production levels either from the 4-inch facility or from the third party wafer supplier, will have a material adverse effect on the Company's business, financial condition and results of operations. The Company is subject to a variety of local, state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. The failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. Compliance with such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses. Transistor Assembly and Test. Once a wafer is processed, it is tested and diced into chips that are attached to a special ceramic package, wire bonded and encapsulated. The packages are designed for maximum thermal and optimum electrical performance which is critical during high power RF operation. These processes require precision for performance and volume manufacturing. The Company -14- utilizes patented transistor packaging techniques to improve the performance and the automated assembly of both transistors and amplifiers. In addition, the Company utilizes a specialized surface mount packaging process to improve transistor assembly while enhancing thermal performance, lowering costs and improving reliability. Amplifier Assembly and Test. The Company's amplifier manufacturing activities consist of purchasing components, assembling and testing components and subassemblies, and integrating subassemblies into finished products. The Company's amplifiers consist of a variety of subassemblies and components designed or specified by the Company, including housings, harnesses, cables, packaged RF power transistors, integrated circuits and printed circuit boards. Except for the RF power transistors, these components and subassemblies are manufactured by third parties and are shipped to the Company for final assembly. The most critical step in the assembly process consists of the integration of the Company's internally produced RF power transistors with the externally procured printed circuit boards. Each of the Company's products receives extensive in-process and final quality inspections and tests. The Company attempts to utilize standard parts and components that are available from multiple vendors. However, certain components used in the Company's products are currently available only from single sources, and other components are available from only a limited number of sources. Despite the risks associated with purchasing components from single sources or from a limited number of sources, the Company has made the strategic decision to select single source or limited source suppliers in order to obtain lower pricing, receive more timely delivery and maintain quality control. If the Company were unable to obtain sufficient quantities of components, delays or reductions in product shipments could occur which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company continues to initiate actions to reduce its manufacturing costs. The Company has negotiated master purchase agreements with its vendors to have substantially all of its parts bid on an annual basis rather than on a monthly basis, which it believes has generated significant volume discounts. The Company is also implementing standardized automated test processes and material handling throughout the manufacturing area which is also designed to reduce costs. There can be no assurance that these activities will reduce costs as quickly as anticipated reductions in average selling prices of the Company's products. Any failure to achieve continued manufacturing cost reductions could have a material adverse effect on the Company's business, financial condition and results of operations. Research and Development The Company's research and development efforts are focused on the design of new RF power transistors and power amplifiers, improvement of existing product performance, cost reductions and improvements in the manufacturability of existing products. The Company's research and development staff is organized into a semiconductor group and an amplifier group. The Company uses an automated design environment and employs advanced workstations to model RF power transistors and amplifiers. This design environment, together with the Company's modular product architecture and configurable -15- core technologies, allow it to rapidly define, develop and deliver on a timely basis the new and enhanced products demanded by its OEM customers. The Company has historically devoted a significant portion of its resources to research and development programs and expects to continue to do so. As of March 31, 1997, the Company had 108 people engaged in research and development. The Company's research and development expenses in fiscal 1997, 1996 and 1995 were $17.2 million, $14.5 million and $11.4 million, respectively, and represented 19%, 20% and 18%, respectively, of total revenues. The Company in the past funded a significant portion of its research and development from NRE revenues received from customers in connection with the design and development of application specific products. NRE revenues have declined in the past three years and the Company expects NRE revenue to further decline in future years due to the competitive development climate. Costs associated with customer funded research and development were $2.1 million, $4.5 million and $5.8 million for fiscal 1997, 1996 and 1995, respectively. See Note 1 of Notes to Consolidated Financial Statements. The markets in which the Company and its customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. The Company's future success depends on its ability to develop new products in a timely manner that compete effectively on the basis of price and performance and that adequately address OEM customer requirements. No assurance can be given that the Company's product development efforts will be successful, that its new products will achieve customer acceptance or that its customers' products will achieve customer acceptance. In addition, as is characteristic of the wireless communications equipment industry, the average sales prices of the Company's products have historically decreased over the products' lives and are expected to continue to do so. To offset declining average sales prices, the Company believes that in the near term it must develop new products that incorporate advanced features and can be sold at higher average sales prices. To the extent that new products are not developed in a timely manner, do not achieve customer acceptance or do not generate higher sales prices and margins, the Company's business, financial condition and results of operations could be materially adversely affected. Patents and Proprietary Technology The Company's ability to compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The Company has a policy of seeking patents on inventions resulting from its ongoing research and development activities. The Company has been awarded 13 United States patents which expire from 2008 to 2015. In addition, the Company has 14 United States patent applications pending, including one that has been allowed but not yet formally issued. The Company also has been awarded six foreign patents and has four foreign patent applications pending. There can be no assurance that the Company's pending patent applications will be allowed or that the issued or pending patents will not be challenged or circumvented by competitors. -16- Notwithstanding the Company's active pursuit of patent protection, the Company believes that the success of its business depends more on the collective value of its patents, specifications, CAD design and modeling tools, technical processes and employee expertise. The Company generally enters into confidentiality and non-disclosure agreements with its employees, suppliers, OEM customers, licensees and potential customers and licensees and limits access to and distribution of its proprietary technology. However, there can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, or that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors. The failure of the Company to protect its proprietary technology could have a material adverse effect on its business, financial condition and results of operations. As is typical in the communications equipment industry, the Company may in the future be notified that it is infringing certain patent and/or other intellectual property rights of others. Although there are no such pending lawsuits against the Company or unresolved notices that the Company is infringing intellectual property rights of others, there can be no assurance that litigation or infringement claims will not occur in the future. Such litigation or claims could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations. Competition The wireless communications equipment industry is extremely competitive and is characterized by rapid technological change, new product development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. The principal elements of competition in the Company's market include product linearity and functionality, other technical capabilities, the ability to design products for manufacturability and volume production, time-to-market delivery capabilities, the ability to source low cost, high performance RF transistors, standards compliance, product quality and reliability and price. The Company believes that overall it competes favorably with respect to the foregoing elements, and as a result, the Company's products are generally priced higher than those offered by its competitors. The ability of the Company to compete successfully and sustain profitability depends in part upon the rate at which customers incorporate the Company's products into their systems. The Company believes that a substantial majority of the present worldwide production of power amplifiers is captive within the manufacturing operations of a small number of wireless equipment OEMs and offered for sale as part of their wireless systems. The Company's future success is dependent upon the extent to which these major wireless equipment OEMs elect to purchase from outside sources rather than manufacture their own amplifiers. There can be no assurance that customers will incorporate the Company's products into their systems or that in general they will continue to rely, or expand their reliance, on external sources of supply for their power amplifiers. The Company's major customers, including Northern Telecom and LGIC, continuously evaluate whether to manufacture their own amplification products or purchase them from outside sources. These customers and other large manufacturers of wireless communications equipment could also elect to enter into the merchant market and compete directly with the Company. Such increased competition could materially adversely affect the Company's business, financial condition and results of operations. -17- The Company's principal competitors in the market for wireless amplification products provided by independent suppliers currently include Powerwave Technologies, Hewlett-Packard Wireless Infrastructure Division, M/A-COM (a subsidiary of AMP), Microwave Power Devices, Inc., AML Communications and Amplidyne. Certain of these competitors have, and potential future competitors could have, substantially greater technical, financial, marketing, distribution and other resources than the Company and have, or could have, greater name recognition and market acceptance of their products and technologies. No assurance can be given that the Company's competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features. To the extent that OEMs increase their reliance on external sources for their power amplification needs, more competitors could be attracted to the market. The Company expects its competitors to offer new and existing products at prices necessary to gain or retain market share. The Company has experienced significant price competition, which has in the past affected gross margins. Certain of the Company's competitors have substantial financial resources which may enable them to withstand sustained price competition or downturns in the power amplification market. Backlog The Company's backlog of orders as of March 31, 1997 and March 31, 1996 was $26.8 million and $27.5 million, respectively, of which, as of March 31, 1997, approximately 99% was scheduled to be shipped within the next 12 months. In general, the Company includes in its backlog only those orders for which it has accepted purchase orders. As part of the Company's close working relationships with its major customers, such customers expect the Company to respond quickly to changes in the volume and delivery schedule of their amplifiers, and if necessary, to inventory products at the Company's facilities for just-in-time delivery. Therefore, although contracts with such customers typically specify aggregate dollar volumes of products to be purchased over an extended time period, such contracts also provide that scheduled shipment dates of particular volumes are generally released to the Company only days or a few weeks prior to the actual required delivery dates. In addition, the Company's customers may cancel or defer orders without significant penalty. The Company's backlog at any particular date may not be representative of actual sales for any succeeding period because of orders received for products to be shipped in the same quarter in which such orders are received, potential changes in product delivery schedules, cancellations of orders and potential manufacturing problems or other delays in product shipments. American Microwave Technology, Inc. In April 1997, the Company sold its wholly-owned subsidiary, American Microwave Technology, Inc. ("AMT"), to the management group and employees of AMT for approximately $4.0 million, realizing a net gain of approximately $500,000 after disposition of AMT's assets. The Company decided to divest AMT, which designs, develops and manufactures radio frequency power amplifier systems for selected wireless, scientific and application specific markets, after concluding AMT's market focus had become -18- less synergistic with the Company's core business. In fiscal 1997 and 1996, AMT accounted for approximately 7% and 10%, respectively, of the Company's revenue. Employees As of March 31, 1997, the Company had a total of 677 regular, temporary and contract employees, including 505 in manufacturing, 108 in research and development, 27 in sales and 37 in administration. The Company's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical and management personnel. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES The Company's principal administrative, engineering and manufacturing facilities are located in two buildings of approximately 141,000 square feet in Sunnyvale, California. In November 1996, the Company entered into several agreements in connection with a transaction with respect to these properties. Pursuant to the agreements, the Company sold the Properties to SPEC (CA) QRS 12-20, Inc. ("SPEC"), and pursuant to the terms of a lease agreement, SPEC agreed to lease the Properties to the Company for a term of 15 years (with two options to extend the lease for up to an additional ten years). The lease agreement also provides that the Company shall have the right of first refusal to purchase the Properties from SPEC upon the occurrence of certain conditions. In addition, in March 1997, the Company entered into a 10-year lease for a third building of approximately 39,000 square feet in Sunnyvale, California located between the Company's two occupied buildings. The Company is currently subleasing this building to third parties under month-to-month lease arrangements. The building is owned by a limited liability company of which the Company owns 91.5%. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is party to various legal proceedings or claims, either asserted or unasserted, which arise in the ordinary course of business. Management has reviewed pending legal matters and believes that the resolution of such matters will not have a significant adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -19- EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the Company's executive officers are as follows: Name Age Position - ---- --- -------- Garrett A. Garrettson..... 53 President, Chief Executive Officer and Director Bruce R. Wright........... 48 Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary Stephen B. Greenspan...... 55 Executive Vice President of Operations and Chief Operating Officer Joseph M. Veni............ 45 Senior Vice President, Sales and Marketing William Zucker............ 39 Vice President, Marketing Garrett A. Garrettson joined the Company in April 1996 as President, Chief Executive Officer and director. Between March 1993 and March 1996, he served as President and Chief Executive Officer of Censtor Corporation, which designed and sold technology related to magnetic recording heads for the disk drive industry. From 1986 to March 1993, he served as a Vice President of Imprimis Technology Incorporated ("Imprimis"), a wholly-owned subsidiary of Control Data Corporation, and subsequently as a Vice President of Seagate Technology, Inc. ("Seagate") when it acquired Imprimis in 1989. Prior to 1986, Mr. Garrettson held a variety of positions with Hewlett-Packard Company and served in the United States Navy. Mr. Garrettson also serves as a director of Censtor Corporation and Benton Oil and Gas Company. He received his B.S. and M.S. in Engineering Physics and a Ph.D. in Mechanical Engineering from Stanford University. Bruce R. Wright joined the Company on May 1, 1997 as Executive Vice President of Finance and Administration, Chief Financial Officer and Secretary. Prior to joining the Company, he was Chief Financial Officer at Tencor Instruments from December 1991 to April 1997. From January 1988 to July 1991, he was Chief Financial Officer at Teknekron Corporation. Mr. Wright also has experience with Atlantic Richfield Company and the U.S. Air Force. He has a B.A. in Physics from Pomona College, a B.S. in Mechanical Engineering from Cal Tech and an S.M. in Management from MIT. Stephen B. Greenspan joined the Company in May 1996 as Executive Vice President of Operations and was named Chief Operating Officer in April 1997. From November 1991 and February 1996, he served as Senior Vice President, Quality at Seagate, a leading supplier of data storage devices, supporting technologies and data management software. Mr. Greenspan also held a variety of positions at Seagate including Vice President of Process Development and Vice President of Domestic and Far East Operations. From March 1986 to August 1987, Mr. Greenspan served as Vice President of Operations at Tandon Corporation, a manufacturer of personal computers. From 1967 to 1986, Mr. Greenspan held a variety of management positions at IBM Corporation related to circuit technologies, personal computer manufacturing and supplier management. He received his B.S. degree in Electrical -20- Engineering from New Jersey Institute of Technology and M.S. degree in Electrical Engineering from Syracuse University. Joseph M. Veni joined the Company in April 1992 as Vice President of Sales and in June 1996 was named to Spectrian's executive staff as Senior Vice President, Sales and Marketing. Prior to April 1992, he was Vice President of Sales and Marketing at TTI-General Signal and prior to that he worked at Cushman Electronics, Inc., Halcyon Communications, Inc., ICS Group, Inc. and Western Union Telegraph Co. in various marketing and sales positions. Mr. Veni received an Associates Degree in Electronics Technology from Mt. San Antonio College. William Zucker joined the Company in October 1995 as Vice President of Engineering. In August 1996, Mr. Zucker became Vice President of Product Line Management. In April 1997, he was named Vice President of Marketing. Prior to joining the Company, Mr. Zucker held several positions at AT&T/AT&T Bell Labs including a director of product management from July 1994 to October 1995 and a director of development from November 1991 to July 1994. Mr. Zucker received a B.S. degree in Electrical Engineering from Manhattan College and an M.S. in Electrical Engineering from MIT. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to inside the back cover page of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1997, filed as Exhibit 13.1 hereto (the "Annual Report to Shareholders"). Between November 11, 1996 and March 27, 1997, the Registrant issued options to purchase an aggregate of 390,000 shares of Common Stock to three employees at exercise prices of $9.50, $13.75 and $14.50 per share pursuant to Non-Qualified Stock Option Agreements. On April 18, 1997, the Company filed a Registration Statement on Form S-8 registering the 390,000 shares of Common Stock to be issued pursuant to such Non-Qualified Stock Option Agreements. The sales of the above securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act, regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. All recipients had adequate access, through their relationship with the Company, to information about the Registrant. -21- ITEM 6: SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to page 14 of the Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages 15-17 of the Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages 18-28 of the Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item concerning the Company's directors is incorporated by reference to the sections captioned "Election of Directors" and "Compliance with Section 16(a) of the Exchange Act" contained in the Company's Proxy Statement related to the 1997 Annual Meeting of Shareholders to be held July 31, 1997, to be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy Statement"). Certain information required by this item concerning executive officers is set forth in Part I of this Report and certain other information required by this item is incorporated by reference from the section captioned "Compliance with Section 16(a) of the Exchange Act" contained in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the section captioned "Executive Compensation and Other Matters" contained in the Proxy Statement. -22- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" contained in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the sections captioned "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" contained in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The following financial statements are incorporated by reference in Item 8 of this Report: Report of KPMG Peat Marwick LLP, Independent Auditors Balance Sheets, March 31, 1997 and 1996 Statements of Operations for the years ended March 31, 1997, 1996 and 1995 Statements of Shareholders' Equity for the years ended March 31, 1997, 1996 and 1995 Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 Notes to Financial Statements (a)(2) Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts and Reserves (see page S-1) Independent Auditors' Report (see page S-2) Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. -23- (a)(3) Exhibits 3.1(4) Restated Articles of Incorporation of Registrant. 3.4(1) Bylaws of Registrant. 4.1(11) Amended and Restated Preferred Shares Rights Agreement of January 15, 1997, between the Registrant and ChaseMellon Shareholder Services, L.L.C., as amended, including the form of Rights Certificate and the Certificate of Determination, the Summary of Rights attached thereto as Exhibits A, B and C, respectively. 4.1.1(11) Letter Agreement to amend Preferred Shares Rights Agreement dated as of January 15, 1997 between the Registrant and Kopp Investment Advisors, Inc. 10.1(1) Form of Indemnification Agreement with directors and officers. 10.2(8) 1992 Stock Plan, as amended. 10.3(8) 1994 Employee Stock Purchase Plan, as amended, and form of agreement thereunder. 10.4(1) 1994 Director Option Plan and form of agreement thereunder. 10.5(1) Amended and Restated Registration Rights Agreement dated as of August 9, 1993 by and among Registrant and certain individuals and entities named therein. 10.6.1(1) Lease between Registrant and Portola Land Company dated March 28, 1984, as amended. 10.6.2(1) Lease between Registrant and 465 Mountain View Properties Incorporated dated May 15, 1990, as amended. 10.6.3(1) Standard Industrial Lease-Multiple-Tenant between American Microwave Technology, Inc. and Enterprise Business Center-Brea dated December 19, 1990. 10.7.1(1) Business Loan Agreement between Registrant and Silicon Valley Bank dated May 21, 1992, as amended, and ancillary documents thereto. 10.7.2(1) Amendment to Business Loan Agreement between Registrant and Silicon Valley Bank dated June 27, 1994. 10.8(+1) Supply Agreement between Registrant and Northern Telecom Canada Limited dated July 16, 1993. 10.9(+1) Agreement between Registrant and Matra Communication dated March 24, 1993. 10.10.1(+1) Agreement among Registrant and Ericsson GE Mobile Communications, Inc., Ericsson Radio Access AB, Ericsson Mobile Communications AB and Ericsson Radio Systems AB dated July 21, 1993 (collectively "Ericsson"). 10.10.2(+1) Addendum to Agreement among Registrant and Ericsson dated June 29, 1994. 10.10.3(+1) Addendum to Agreement among Registrant and Ericsson dated June 29, 1994. 10.11(+2) Hardware Development Agreement dated July 6, 1994 between Northern Telecom Limited and Registrant. 10.12(+3) Hardware Development Agreement dated October 18, 1994 between Northern Telecom Limited and Registrant. -24- 10.13(+4) Hardware Supply Agreement dated April 6, 1995 between Northern Telecom Limited and Registrant 10.14(4) Employment Agreement dated January 6, 1992 between Registrant and C. Woodrow Rea, Jr. 10.15(4) Employment Agreement dated January 6, 1992 between Registrant and David S. Wisherd. 10.16(5) Purchase and Sale Agreement between Metropolitan Life Insurance Company and Registrant. 10.17(+6) Development and Supply Agreement between QUALCOMM Incorporated and Registrant. 10.18(+7) Purchasing Agreement between Airnet Communications Corporation and Registrant. 10.19(8) Employment Agreement between Garrett A. Garrettson and Registrant. 10.20(8) Employment Agreement between Stephen B. Greenspan and Registrant. 10.21(9) Term Loan Agreement between Silicon Valley Bank and Registrant 10.22(10) Lease Agreement dated November 19, 1996 between the Registrant and SPEC (CA) QRS 12-20, Inc. 10.23(10) Bill of Sale dated November 19, 1996 by the Registrant to SPEC (CA) QRS 12-20, Inc. 10.24 Employment Agreement dated March 11, 1997 between the Registrant and Bruce R. Wright. 10.25 Letter Agreement dated November 6, 1996 between the Company and Edward Supplee. 10.26(12) Stock Option Agreement dated November 26, 1997 between Registrant and Garrett A. Garrettson. 10.27(12) Stock Option Agreement dated November 26, 1997 between Registrant and Garrett A. Garrettson. 10.28(12) Stock Option Agreement dated March 24, 1997 between Registrant and Bruce Wright. 10.29(12) Stock Option Agreement dated March 20, 1997 between Registrant and Michael Morrione. 10.30 Stock Option Agreements dated April 17, 1996 and August 7, 1996 between Registrant and Stephen B. Greenspan. 11.1 Computation of net income (loss) per share. 13.1 Annual Report to Shareholders for the year ended March 31, 1997. 23.1 Consent of KPMG Peat Marwick LLP. 24.1 Power of Attorney (included on page 27). 27.1 Financial Data Schedule. - --------------------------- + Confidential treatment has been requested or granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. 1 Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-79952) as declared effective by the Securities and Exchange Commission August 2, 1994. -25- 2 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994. 3 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994. 4 Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995. 5 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995. 6 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 7 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 30, 1995. 8 Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. 9 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 10 Incorporated by reference to the Registrant's Form 8-K dated November 19, 1996. 11 Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form 8-A (File No. 000-24360) as filed with the Securities and Exchange Commission on January 17, 1997. 12 Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (File No. 333-25435) as filed with the Securities and Exchange Commission on April 17, 1997. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended March 31, 1997. (c) Exhibits. See Item 14(a)(3) above. (d) Financial Statement Schedules. See Item 14(a)(2) above. -26- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SPECTRIAN CORPORATION By: /s/ Garrett A. Garrettson ------------------------------------- Garrett A. Garrettson President, Chief Executive Officer and Director Date: June 24, 1997 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Garrett A. Garrettson and Bruce R. Wright, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. -27- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ GARRETT A. GARRETTSON President, Chief Executive Officer and June 24, 1997 - -------------------------------------- Director (Principal Executive Officer) Garrett A. Garrettson /s/ BRUCE R. WRIGHT Executive Vice President, Finance and June 24, 1997 - -------------------------------------- Administration, Chief Financial Officer Bruce R. Wright and Secretary (Principal Financial and Accounting Officer) /s/ JAMES A. COLE Director June 24, 1997 - -------------------------------------- James A. Cole /s/ ROBERT C. WILSON Director June 24, 1997 - -------------------------------------- Robert C. Wilson /s/ ERIC A. YOUNG Director June 24, 1997 - -------------------------------------- Eric A. Young /s/ MARTIN COOPER Director June 24, 1997 - -------------------------------------- Martin Cooper
-28- SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in thousands) Balance at Additions Allowance for Doubtful Beginning Charged to Balance at Accounts and Sales Returns: of Period Income Deductions End of Period -------------------------------------------------- 1997 $ 339 $ 36 $ 10 $ 365 1996 $ 454 $ 14 $ 129 $ 339 1995 $ 377 $ 82 $ 5 $ 454 S-1 Independent Auditors' Report The Board of Directors and Shareholders Spectrian Corporation: Under date of April 11, 1997, we reported on the consolidated balance sheets of Spectrian Corporation and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1997, as contained in the annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the index appearing under Item 14(a)(2) of the Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. San Jose, California April 11, 1997 S-2 INDEX TO EXHIBITS Sequentially Exhibits Numbered Page - -------- ------------- 3.1(4) Restated Articles of Incorporation of Registrant. 3.4(1) Bylaws of Registrant. 4.1(11) Amended and Restated Preferred Shares Rights Agreement of January 15, 1997, between the Registrant and ChaseMellon Shareholder Services, L.L.C., as amended, including the form of Rights Certificate and the Certificate of Determination, the Summary of Rights attached thereto as Exhibits A, B and C, respectively. 4.1.1(11) Letter Agreement to amend Preferred Shares Rights Agreement dated as of January 15, 1997 between the Registrant and Kopp Investment Advisors, Inc. 10.1(1) Form of Indemnification Agreement with directors and officers. 10.2(8) 1992 Stock Plan, as amended. 10.3(8) 1994 Employee Stock Purchase Plan, as amended, and form of agreement thereunder. 10.4(1) 1994 Director Option Plan and form of agreement thereunder. 10.5(1) Amended and Restated Registration Rights Agreement dated as of August 9, 1993 by and among Registrant and certain individuals and entities named therein. 10.6.1(1) Lease between Registrant and Portola Land Company dated March 28, 1984, as amended. 10.6.2(1) Lease between Registrant and 465 Mountain View Properties Incorporated dated May 15, 1990, as amended. 10.6.3(1) Standard Industrial Lease-Multiple-Tenant between American Microwave Technology, Inc. and Enterprise Business Center-Brea dated December 19, 1990. 10.7.1(1) Business Loan Agreement between Registrant and Silicon Valley Bank dated May 21, 1992, as amended, and ancillary documents thereto. 10.7.2(1) Amendment to Business Loan Agreement between Registrant and Silicon Valley Bank dated June 27, 1994. 10.8(+1) Supply Agreement between Registrant and Northern Telecom Canada Limited dated July 16, 1993. 10.9(+1) Agreement between Registrant and Matra Communication dated March 24, 1993. 10.10.1(+1) Agreement among Registrant and Ericsson GE Mobile Communications, Inc., Ericsson Radio Access AB, Ericsson Mobile Communications AB and Ericsson Radio Systems AB dated July 21, 1993 (collectively "Ericsson"). 10.10.2(+1) Addendum to Agreement among Registrant and Ericsson dated June 29, 1994. Sequentially Exhibits Numbered Page - -------- ------------- 10.10.3(+1) Addendum to Agreement among Registrant and Ericsson dated June 29, 1994. 10.11(+2) Hardware Development Agreement dated July 6, 1994 between Northern Telecom Limited and Registrant. 10.12(+3) Hardware Development Agreement dated October 18, 1994 between Northern Telecom Limited and Registrant. 10.13(+4) Hardware Supply Agreement dated April 6, 1995 between Northern Telecom Limited and Registrant 10.14(4) Employment Agreement dated January 6, 1992 between Registrant and C. Woodrow Rea, Jr. 10.15(4) Employment Agreement dated January 6, 1992 between Registrant and David S. Wisherd. 10.16(5) Purchase and Sale Agreement between Metropolitan Life Insurance Company and Registrant. 10.17(+6) Development and Supply Agreement between QUALCOMM Incorporated and Registrant. 10.18(+7) Purchasing Agreement between Airnet Communications Corporation and Registrant. 10.19(8) Employment Agreement between Garrett A. Garrettson and Registrant. 10.20(8) Employment Agreement between Stephen B. Greenspan and Registrant. 10.21(9) Term Loan Agreement between Silicon Valley Bank and Registrant 10.22(10) Lease Agreement dated November 19, 1996 between the Registrant and SPEC (CA) QRS 12-20, Inc. 10.23(10) Bill of Sale dated November 19, 1996 by the Registrant to SPEC (CA) QRS 12-20, Inc. 10.24 Employment Agreement dated March 11, 1997 between the Registrant and Bruce R. Wright. 10.25 Letter Agreement dated November 6, 1996 between the Company and Edward Supplee. 10.26(12) Stock Option Agreement dated November 26, 1997 between Registrant and Garrett A. Garrettson. 10.27(12) Stock Option Agreement dated November 26, 1997 between Registrant and Garrett A. Garrettson. 10.28(12) Stock Option Agreement dated March 24, 1997 between Registrant and Bruce Wright. 10.29(12) Stock Option Agreement dated March 20, 1997 between Registrant and Michael Morrione. -2- Sequentially Exhibits Numbered Page - -------- ------------- 10.30 Stock Option Agreements dated April 17, 1996 and August 7, 1996 between Registrant and Stephen B. Greenspan. 11.1 Computation of net income (loss) per share. 13.1 Annual Report to Shareholders for the year ended March 31, 1997. 23.1 Consent of KPMG Peat Marwick LLP. 24.1 Power of Attorney (included on page 27). 27.1 Financial Data Schedule - --------------------------- + Confidential treatment has been requested or granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. 1 Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-79952) as declared effective by the Securities and Exchange Commission August 2, 1994. 2 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994. 3 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994. 4 Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995. 5 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995. 6 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 7 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 30, 1995. 8 Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. 9 Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 10 Incorporated by reference to the Registrant's Form 8-K dated November 19, 1996. 11 Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form 8-A (File No. 000-24360) as filed with the Securities and Exchange Commission on January 17, 1997. 12 Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (File No. 333-25435) as filed with the Securities and Exchange Commission on April 17, 1997. EX-10.24 2 EXHIBIT 10.24 [Spectrian letterhead] March 11, 1997 Bruce R. Wright 47 Red Birch Court Danville, CA 94506 Dear Bruce: Spectrian is pleased to offer you the position of Executive Vice President of Finance and Administration and Chief Financial Officer reporting to me. As compensation for your services, your annual base salary will be $200,000 paid bi-weekly. You will be eligible for all benefits available to Spectrian employees; these include medical, dental, vision, life, long-term disability, 401(k), paid time off, and the employee stock purchase plan. You will also be eligible for quarterly Variable Compensation targeted at $100,000 per year in accordance with the Executive Variable Compensation Plan. I would like you to join us as a regular full time employee as soon as possible, but preferably no later than May 1, 1997. I would like for you to work for me as a part time consultant from the date of signing this offer letter until you become a full time employee. In the event your current commitments make it impossible for you to join us on or before May 1, 1997, I am open to extending the part time consulting arrangement until June 1, 1997. Compensation for your consulting work will be paid at the rate of $100 per hour. A consulting agreement will be provided to you as a separate document in the event this offer of employment is accepted by you. You will be responsible for invoicing us on a monthly basis for your consulting time, and payment of consulting fees will be remitted 45 days from the date of your invoice. We will recommend to Spectrian's Board of Directors at the board meeting following your hire date that you receive a non-qualified option to purchase 100,000 shares of the Company's stock. All shares are subject to a four year vesting based on your date of hire and will be at the fair market value at the time the option is granted. In the event there is a change of control of the company in which substantially all of the company's assets are purchased by another commercial entity subsequent to your becoming a full time employee, your options will fully vest. Spectrian reserves the right, at its discretion, to assign you to perform other duties. Employment with Spectrian is for no specific period of time. As a result, either you or Spectrian are free to terminate your employment relationship at any time for any reason, with or without cause. This is the full and complete agreement between us. Although your job duties, title, compensation and benefits, as well as Spectrian's personnel policies and procedures, may change periodically, the "at-will" nature of your employment may only be changed in an express writing signed by you and the President of the Company. You agree to devote your full time, ability, and attention to the business of Spectrian after becoming a full time employee, and not, directly or indirectly, render any services of a business, commercial or professional nature to any person or entity, whether for compensation or otherwise, without the written consent of Spectrian. This offer is contingent upon your executing Spectrian's Proprietary Information and Inventions Agreement and upon your providing us with the legally required proof of your identity and authorization to work in the United States. If these terms are acceptable please sign this original and return to Spectrian no later than 12 p.m. on Thursday March 13, 1997. Bruce, we believe your experience and skills complement nicely those of the rest of the senior management team. I am looking forward to having you join me as a business partner with an objective of growing Spectrian shareholder value. Sincerely, /s/ GARRETT A. GARRETTSON Garrett A. Garrettson President and Chief Executive Officer Accepted: /s/ BRUCE R. WRIGHT --------------------- Date: 12 MAR 97 --------------------- Start Date: 1 MAY 97 --------------------- EX-10.25 3 EXHIBIT 10.25 [Spectrian letterhead] 7 November 1996 Dear Ed: I would like to personally thank you for your commitment to Spectrian and to me over the past six months. This has helped immeasurably during my transition and initial learning period. While I would like to have you remain as CFO, the Board of Directors and I understand that you aspire for a broader management assignment. We are, however, still in the midst of a difficult transition. In return for your commitment to stay through January 1997 in order to help Spectrian, we are prepared to offer you the following benefits. 1. Medical and Life Insurance benefits through July 1997, or until you are permanently employed elsewhere, which ever occurs first. 2. Accelerated vesting of 30,000 shares of stock option (1/4 of the grant given in August), about 15,000 shares more than would ordinarily vest in that period. 3. Period to exercise any vested options extended to January 31, 2000. 4. Diligent assistance from the Board of Directors to help you find a suitable opportunity to run a company or major operation. In return for these benefits, it is understood that you would agree to help the company in the following ways: 1. Help recruit and train your replacement. 2. Complete the January 1997 five year plan. 3. Complete the Sale & Leaseback of the building. 4. If possible, complete the financing of owned equipment (if favorable terms can be reached), or line up lease financing for new capital equipment. 5. Help resolve whether we are selling AMT or keeping that operation. 6. After Jan 31, if able, consult as required until permanently employed elsewhere, @ the rate of $1000/day. If you agree with these terms, please sign below and return a copy to me. Thanks Ed for your help. I look forward to working with you this quarter on yet another major transition in the Company's evolution. Sincerely yours, /s/ GARRETT A. GARRETTSON Garrett A. Garrettson President & CEO Agreed to by /s/ ED SUPPLEE ----------------- Ed Supplee On (Date): 11/7/96 ----------------- EX-10.30 4 EXHIBIT 10.30
SEE REVERSE SIDE FOR STOCK OPTION AGREEMENT GREENSPAN, STEPHEN B. 13935 Damon Lane Saratoga, CA 95070 [GRAPHIC OMITTED] SPECTRIAN CORPORATION NOTICE OF STOCK OPTION GRANT You have been granted an option to purchase Common Stock of Spectrian Corporation (the "Company") under the terms of the Spectrian Corporation 1992 Stock Plan as follows: Grant Number 2608 Type of Option ISO and NQ Date of Grant 4/17/96 Plan 96GG Option Price Per Share $21.375 Term/Expiration Date 4/14/2006 Total Number of Shares Granted 80,000 Vesting Commencement Date 4/17/96 Vesting Schedule: This Option shall be exercisable cumulatively, to the extent of 1/48th of the total Number of Shares Granted for each full calendar month of your Continuous Status as an Employee or Consultant since the Vesting Commencement Date; provided, however, that this Option shall not be exercisable prior to one year from the Vesting Commencement Date. Termination Period: 3 months after termination of employment or consulting relationship (but in no event later than the Expiration Date). SPECTRIAN CORPORATION By: /s/ Garrett Garettson ------------------------------- Title: CEO ---------------------------- This Notice of Grant does not represent a stock interest in the Company, which shall occur only upon the exercise of this stock option pursuant to its terms.
SPECTRIAN CORPORATION STOCK OPTION AGREEMENT 1. Grant of Option. The Plan Administrator of Spectrian Corporation, a California corporation (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase a total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the Spectrian Corporation 1992 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Option as defined in Section 422A of the Code. 2. Exercise of Option. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise. (a) This Option may not be exercised for a fraction of a share. (b) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitation contained in subsection 2(i)(c). (c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant. (ii) Method of Exercise. This Option shall be exercisable by written notice (in the form available from the Company) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Optionee's Representations. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his Investment Representation Statement in the form provided by the Company, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement. 4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash; or (ii) check; or (iii) surrender of other shares of Common Stock of the Company which (A) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company and (B) have a fair market value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised. 5. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Section 16 Restrictions. Options granted to persons who are subject to Section 16 of the Exchange Act ("Insiders") may not be exercised for a period of at least six months from the date of grant, except in the case of death or disability. 7. Termination of Relationship. In the event Optionee's Continuous Status as an Employee or consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 8. Disability of Optionee. Notwithstanding the provisions of Section 7 above, in the event Optionee's Continuous Status as an Employee or Consultant terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of termination of employment or consultancy (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Death of Optionee. The Option may be exercised at any time within twelve (12) months after the Optionee's death (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 10. Non-Transferability of Option. This Option may not be transferred or assigned in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 11. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 12. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax. (ii) Exercise of Nonqualified Stock Option. If this Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (iii) Disposition of Shares. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. (iv) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after transfer of such Shares to the Optionee upon exercise of the ISO, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1992 STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and certain information, related thereto and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions of the Plan. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions relating to this Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option. /s/ Stephen B. Greenspan Dated: April 17, 1997 _______________________________ Optionee Signature Dissolution, Merger or Assets Sale. Notwithstanding the foregoing Vesting Schedule, in the event of a Change of Control of the Company, the Optionee shall have the right to exercise this Option as to all of the Shares, including Shares as to which it would not otherwise be exercisable. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" or "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets (other than to a subsidiary or subsidiaries).
SEE REVERSE SIDE FOR STOCK OPTION AGREEMENT GREENSPAN, STEPHEN B. 13935 Damon Lane Saratoga, CA 95070 [GRAPHIC OMITTED] SPECTRIAN CORPORATION NOTICE OF STOCK OPTION GRANT You have been granted an option to purchase Common Stock of Spectrian Corporation (the "Company") under the terms of the Spectrian Corporation 1992 Stock Plan as follows: Grant Number 2774 Type of Option NQ Date of Grant 8/7/96 Plan 96GG Option Price Per Share $14.500 Term/Expiration Date 8/7/2006 Total Number of Shares Granted 20,000 Vesting Commencement Date 8/7/96 Vesting Schedule: This Option shall be exercisable cumulatively, to the extent of 1/48th of the total Number of Shares Granted for each full calendar month of your Continuous Status as an Employee or Consultant since the Vesting Commencement Date; provided, however, that this Option shall not be exercisable prior to one year from the Vesting Commencement Date. Termination Period: 3 months after termination of employment or consulting relationship (but in no event later than the Expiration Date). SPECTRIAN CORPORATION By: /s/ Garrett Garettson ------------------------------- Title: CEO ---------------------------- This Notice of Grant does not represent a stock interest in the Company, which shall occur only upon the exercise of this stock option pursuant to its terms.
SPECTRIAN CORPORATION STOCK OPTION AGREEMENT 1. Grant of Option. The Plan Administrator of Spectrian Corporation, a California corporation (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase a total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the Spectrian Corporation 1992 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Option as defined in Section 422A of the Code. 2. Exercise of Option. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise. (a) This Option may not be exercised for a fraction of a share. (b) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitation contained in subsection 2(i)(c). (c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant. (ii) Method of Exercise. This Option shall be exercisable by written notice (in the form available from the Company) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Optionee's Representations. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his Investment Representation Statement in the form provided by the Company, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement. 4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash; or (ii) check; or (iii) surrender of other shares of Common Stock of the Company which (A) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company and (B) have a fair market value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised. 5. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Section 16 Restrictions. Options granted to persons who are subject to Section 16 of the Exchange Act ("Insiders") may not be exercised for a period of at least six months from the date of grant, except in the case of death or disability. 7. Termination of Relationship. In the event Optionee's Continuous Status as an Employee or consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 8. Disability of Optionee. Notwithstanding the provisions of Section 7 above, in the event Optionee's Continuous Status as an Employee or Consultant terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of termination of employment or consultancy (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Death of Optionee. The Option may be exercised at any time within twelve (12) months after the Optionee's death (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 10. Non-Transferability of Option. This Option may not be transferred or assigned in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 11. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 12. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax. (ii) Exercise of Nonqualified Stock Option. If this Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (iii) Disposition of Shares. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. (iv) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after transfer of such Shares to the Optionee upon exercise of the ISO, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1992 STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and certain information, related thereto and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions of the Plan. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions relating to this Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option. /s/ Stephen B. Greenspan Dated: August 7, 1996 _______________________________ Optionee Signature Dissolution, Merger or Assets Sale. Notwithstanding the foregoing Vesting Schedule, in the event of a Change of Control of the Company, the Optionee shall have the right to exercise this Option as to all of the Shares, including Shares as to which it would not otherwise be exercisable. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" or "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets (other than to a subsidiary or subsidiaries). EX-11.1 5 COMPUTATION OF NET INCOME (LOSS) PER SHARE Exhibit 11.1 SPECTRIAN CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME (LOSS) PER SHARE (In thousands, except per share data)
Years ended March 31, 1997 1996 1995 ------- ------- ------- Net income (loss) $(3,991) $ 5,480 $ 5,473 ======= ======= ======= Weighted average number of shares outstanding used in computation: Common stock 8,152 7,702 4,679 Preferred stock -- -- 1,469 Common stock equivalents as a result of stock options outstanding (1) -- 491 1,147 Staff Accounting Bulletin No. 83 - stock options -- -- 58 Staff Accounting Bulletin No. 83 - preferred shares -- -- 82 ------- ------- ------- Shares use in computing per share amounts 8,152 8,193 7,435 ======= ======= ======= Net income (loss) per share $ (0.49) $ 0.67 $ 0.74 (1) The modified treasury stock method was used when shares obtainable exceeded 20% of the aggregate of Common and Preferred Stock outstanding at the end of the period. The assumed reduced interest expense resulting from the application of this method is immaterial.
EX-13.1 6 ANNUAL REPORT TO SHAREHOLDERS FOR 3/97 Selected Consolidated Financial Data
Year ended March 31, (In thousands, except per share data) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA Revenues: Product sales $ 86,665 $ 68,014 $ 58,668 $ 33,175 $ 20,961 Non-recurring engineering revenues 1,587 4,099 3,810 4,684 3,497 -------- -------- -------- -------- -------- 88,252 72,113 62,478 37,859 24,458 -------- -------- -------- -------- -------- Costs and expenses: Cost of product sales 65,322 45,355 39,068 22,154 14,796 Research and development 17,230 14,548 11,374 10,058 3,461 Selling, general and administrative 9,299 7,450 6,784 5,529 3,939 -------- -------- -------- -------- -------- 91,851 67,353 57,226 37,741 22,196 -------- -------- -------- -------- -------- Operating income (loss) (3,599) 4,760 5,252 118 2,262 Interest income (expense), net (392) 889 391 (667) (235) -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes (3,991) 5,649 5,643 (549) 2,027 Income tax expense -- 169 170 -- -- -------- -------- -------- -------- -------- Income (loss) from continuing operations (3,991) 5,480 5,473 (549) 2,027 Discontinued operation: Income (loss) from discontinued military operation -- -- -- -- (767) Provision for operating losses during phase-out period -- -- -- -- (1,144) -------- -------- -------- -------- -------- Net income (loss) $ (3,991) $ 5,480 $ 5,473 $ (549) $ 116 ======== ======== ======== ======= ======== Net income (loss) per share: Income (loss) from continuing operations $ (0.49) $ 0.67 $ 0.74 $ (0.41) $ 0.42 ======== ======== ======== ======= ======== Shares used in computing per share amounts 8,152 8,193 7,435 1,325 4,849 BALANCE SHEET DATA Working capital 24,062 12,710 28,317 7,859 3,355 Total assets 66,633 55,922 45,070 20,965 17,115 Debt and capital lease obligations, net of current portion 7,057 -- -- 3,634 1,961 Total shareholders equity 42,466 44,838 37,056 9,765 5,953
Certain statements in the following section Management's Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements. These forward-looking statements include, but are not limited to, the statements in the fourth paragraph of Overview concerning the volatility of revenues and the expectation of declining average sales prices, the statements in the last paragraph of Overview, the statements in the analysis of Years Ended March 31, 1997 and 1996 under Revenues regarding future NRE revenues and under Cost of Product Sales regarding anticipated product introductions, related cost improvements and trends offsetting such cost improvements, the statement in the second paragraph of Liquidity and Capital Resources concerning renewal of the revolving line of credit and the statements in the last paragraph under Liquidity and Capital Resources regarding the anticipated spending for capital additions in fiscal 1998 and the sufficiency of the Company's available resources to meet working capital and capital expenditure requirements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties are included in the discussion under Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview. SPECTRIAN CORPORATION AND SUBSIDIARIES 14 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Spectrian designs, manufactures and markets highly linear single carrier and multicarrier power amplifiers to wireless communications infrastructure equipment manufacturers that support a broad range of worldwide analog and digital transmission standards, including AMPS, TDMA, CDMA, TACS, and GSM. Spectrian pursues a strategy of vertical integration of its manufacturing process and expends significant resources for research and development in all aspects of the design of power amplification products. The Company generates the majority of its product sales revenue from the sale of its power amplifiers. A minor amount of product sales revenue is derived from amplifier repair and service. The Company also receives non-recurring engineering (NRE) revenues, which represent funding from the Company's OEM customers for specific development projects. Over the last several years, the Company's revenues have increased significantly, primarily as a result of increasing sales to a limited number of wireless infrastructure original equipment manufacturers. The Company's principal customers in fiscal 1997, Northern Telecom and Nortel Matra Communications, in which Northern Telecom has an equity investment, accounted for 63% and 12% of revenues, respectively. In fiscal 1996, sales to Northern Telecom and Nortel Matra Communications represented 58% and 17% of revenues respectively, and in fiscal 1995, these same two customers accounted for 53% and 13% of revenues, respectively. If the Company were to lose a major OEM customer, in particular Northern Telecom, or if orders by a major OEM customer were to otherwise decrease, the Company's business, financial condition and results of operations would be materially adversely affected. As a result of the Company's limited customer base, the Company's revenues have been and will continue to be volatile. Softness in portions of the wireless markets in late 1995 and early 1996, driven partly by delays in the build-out of PCS infrastructure, caused significant fluctuations in the Company's product sales during that period of time. In fiscal 1997 the Company made strides to broaden its customer base and product portfolio by entering the Korean market for PCS CDMA amplifiers, supporting the new US PCS system rollouts, continuing to support the conversion from analog to digital systems and by rolling out its second generation multicarrier product. However, should there be future delays in the roll-out of PCS and other wireless systems the Company could experience materially adverse effects on quarterly and annual revenues. The Company has also experienced, and expects to continue to experience, declining average sales prices for its power amplifiers. The Company's cost of product sales consists primarily of raw materials, RF transistor fabrication costs, amplifier assembly and test costs, overhead and warranty cost. It does not include costs incurred in connection with NRE revenues. Despite its focus on designing products for manufacturability, the Company has experienced high material and manufacturing costs, including scrap, material obsolescence, labor inefficiencies and an inability to recognize economies of scale, due in part to rapid increases in production volume and the introduction of multiple new products into manufacturing. The Company has also experienced intermittent supply shortages of the semiconductor parts produced by the Company among other material shortages. The Company's high manufacturing costs have historically had a material adverse effect on gross margins. Although the Company has initiated corrective actions, any failure to achieve manufacturing cost reductions, or any interruption in the supply of materials, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's results of operations have in the past, and will in the future, vary significantly due to a number of factors, including the timing, cancellation or rescheduling of customer orders and shipments; the availability of semiconductor RF transistors and other materials; variations in manufacturing costs and efficiencies; the availability for sale of new products; changes in the mix of products having differing gross margins; changes in average selling prices; competitive factors; and variations in product development or other operating expenses. The results of operations for any period are not indicative of results for any subsequent period. Results of Operations The following table sets forth, for the periods indicated, certain statement of operations data of the Company expressed as a percentage of total revenues and the gross margin on product sales. Year ended March 31, 1997 1996 1995 ---- ---- ---- Revenues: Product sales 98% 94% 94% Nonrecurring engineering revenues 2 6 6 ---- ---- ---- 100 100 100 ---- ---- ---- Costs and expenses: Cost of product sales 74 63 63 Research and development 19 20 18 Selling, general and administrative 11 10 11 104 93 92 ---- ---- ---- Operating income (loss) (4) 7 8 Interest income (expense), net (1) 1 1 ---- ---- ---- Income (loss) from operations before income taxes (5) 8 9 ==== ==== ==== Gross margin on product sales 24.6% 33.3% 33.4% SPECTRIAN CORPORATION AND SUBSIDIARIES 15 Years Ended March 31, 1997 and 1996 Revenues. The Company's revenues increased by 22% from $72.1 million in fiscal 1996 to $88.3 million in fiscal 1997. The increase was due primarily to increasing volume in sales of PCS products, reflecting the build-out of the U.S. PCS network infrastructure, and continued strong GSM product sales. These revenue increases were partially offset by a 61% decrease in NRE revenues, from $4.1 million in fiscal 1996 to $1.6 million in fiscal 1997, due to continued reductions in the number of customer-funded research and development projects. The Company expects NRE revenue to further decline in future years in both absolute dollars and as a percentage of revenue. Cost of Product Sales. The Company's cost of product sales increased by 44% to $65.3 million in fiscal 1997 from $45.4 million in fiscal 1996. Gross margin on product sales in fiscal 1997 declined to 24.6% from 33.3% in fiscal 1996. During fiscal 1997 the Company introduced fourteen new products into manufacturing to meet customer and market demands. The need to produce many of these products in high volumes during their manufacturing infancy resulted in much higher costs for the related material, labor and overhead. The heavy new product volume had a detrimental effect on the Company's fiscal 1997 gross margins and profitability. The Company anticipates a similar number of new products will be introduced in fiscal 1998 but will be developed primarily from existing product platforms thereby producing some economies of scale and reducing the inefficiencies associated with steep learning curves. Trends which may offset some of these anticipated cost improvements are the increasingly more complex amplifier product performance expectations from the marketplace and customer pressures to reduce pricing as shipment volumes grow. Research and Development. The Company's research and development (R&D) expenses increased 18% to $17.2 million in fiscal 1997 from $14.5 million in fiscal 1996. As a percentage of revenues, R&D expenses declined slightly from 20% in fiscal 1996 to 19% in fiscal 1997. The increase in R&D expenses primarily reflected nine months of development expenses for the Company's 4-inch wafer fabrication facility as compared to only three months in fiscal 1996 as well as increased R&D hiring and the associated recruiting and salary costs. Selling, General and Administrative. The Company's selling, general and administrative expenses (SG&A) increased by 25% to $9.3 million in fiscal 1997 from $7.5 million in fiscal 1996. SG&A expenses as a percentage of revenues increased slightly from 10% in fiscal 1996 to 11% in fiscal 1997. The increase in SG&A expenses from fiscal 1996 to 1997 was primarily attributable to increases in sales and marketing headcount, the related salaries and expense benefits as well as outside commissions expenses required to support the Company's expanding customer base and product portfolio. Interest Income (Expense), net. Net interest expense for fiscal 1997 was $392,000, compared to net interest income of $889,000 in fiscal 1996. The change between fiscal 1997 and fiscal 1996 primarily reflects decreased interest income as a result of lower average cash balances in fiscal 1997 and the interest expense incurred as a result of the Company utilizing various debt financing instruments during fiscal 1997. Income Taxes. The Company did not record a provision for income taxes in fiscal 1997 because of net losses incurred. An income tax provision of $169,000 was recorded in fiscal 1996, an effective tax rate of 3% after use of net operating loss carryforwards. As of March 31, 1997, the Company had a net operating loss carryforward of approximately $29 million for federal income tax purposes and $9 million for California income tax purposes. The Company's ability to use its net operating loss carryforwards against taxable income may be subject to restrictions and limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change in ownership of the Company. Years Ended March 31, 1996 and 1995 Revenues. The Company's revenues increased 15% to $72.1 million in fiscal 1996 from $62.5 million in fiscal 1995. The increase was principally attributable to increases in sales of existing cellular amplifier products and increases in sales of new amplifier products for the PCS market. Cost of Product Sales. The Company's cost of product sales increased 16% to $45.4 million in fiscal 1996 from $39.1 million in fiscal 1995. Gross margin on product sales in fiscal 1996 and 1995 was 33.3% and 33.4%, respectively. The very slight decline in fiscal 1996 gross margin was attributable primarily to lower average selling prices and manufacturing inefficiencies, largely offset by lower cost of material. Research and Development. The Company's R&D expenses increased 28% to $14.5 million in fiscal 1996 from $11.4 million in fiscal 1995. The increase in R&D expenses resulted primarily from increased headcount and the associated salaries expense, cost of materials for prototypes and other expenses associated with increasingly complex semiconductor and amplifier development activities. R&D expenses as a percentage of revenues, increased to 20% of revenues in fiscal 1996 from 18% in fiscal 1995, reflecting the Company's decision to grow R&D funding at a faster rate than the current growth rate in revenues. Selling, General and Administrative. The Company's SG&A expenses increased 10% to $7.5 million in fiscal 1996 from $6.8 million in fiscal 1995. This increase in SG&A expenses was pri- SPECTRIAN CORPORATION AND SUBSIDIARIES 16 marily attributable to increases in headcount and associated salaries and administrative expenses as a result of overall growth in the Company's operations. Interest Income, net. The Company earned net interest income of $889,000 in fiscal 1996 as compared to net interest income of $391,000 in fiscal 1995. The change between fiscal 1995 and fiscal 1996 reflected the interest income earned for a full year period on the proceeds from the Company's initial public offering. Income Taxes. The Company recorded a provision for income taxes of $169,000 in fiscal 1996 as compared to $170,000 in fiscal 1995, both at an effective rate of 3% after use of net operating loss carryforwards. Liquidity and Capital Resources The Company has historically financed its growth through its initial public offering of Common Stock in August 1994 and through private sales of equity securities, capital equipment leases, bank lines of credit and cash flows from operations. Cash used by operations in fiscal 1997 was $8.1 million as compared to cash provided by operations of $9.6 million and $7.0 million in fiscal 1996 and 1995 respectively. The cash used by operations in fiscal 1997 was principally for purchasing inventory to support increased production ramps for increasing product shipment volumes. In addition, cash from operations was impacted by the Company's net loss in fiscal 1997 and higher receivables levels as a result of higher shipment volumes, offset in large part by increased depreciation expense, higher accounts payable driven by higher inventory levels and higher accrued liabilities for warranty and employee benefits among others. The increase in cash provided by operations in fiscal 1996 primarily related to the increased depreciation included in expenses, improved collections of accounts receivable and management of accounts payable, partially offset by increased inventory. As of March 31, 1997, the Company had working capital of $24.1 million including $6.2 million in cash and cash equivalents. In addition, the Company has a revolving line of credit of $6.0 million with a bank secured by the majority of the Company's assets which expires in July 1997, and a $4.0 million term loan with the same bank to be secured by a portion of the Company's capital equipment assets as the loan is drawn down. Under the terms of the master agreement governing both these credit instruments, the Company is required to maintain certain minimum working capital, net worth, profitability and other specific financial ratios. As of March 31, 1997, the Company was in compliance with these financial covenants. The Company expects to renew the revolving line of credit in July 1997. There were no borrowings outstanding against these lines of credit as of March 31, 1997. In January 1997, the Company borrowed $6.0 million under a term loan secured by certain of the Company's capital equipment. The loan, which expires in January 2002, requires the payment of monthly principal plus interest and is subject to certain minimum net worth and other specific financial ratio covenants. The Company was in compliance with these covenants as of March 31, 1997. In March 1997, the Company also secured a $3.2 million real estate loan, which expires in April 2007, for the purchase of a light industrial building for its future facilities expansion. Additions to property and equipment were $16.3 million, $28.2 million and $5.8 million in fiscal 1997, 1996 and 1995, respectively. Capital additions during fiscal 1997 included manufacturing test equipment required to support new product ramps and increase factory capacity, equipment purchased for the new 4-inch wafer fabrication facility, R&D test equipment to support various development projects and the acquisition of a 39,000 square foot building located between the Company's two existing leased facilities in Sunnyvale, CA. In November 1996, the Company completed a sale of its principal facilities in Sunnyvale, California including its 4-inch wafer fabrication facility, originally purchased during fiscal 1996. The proceeds from the sale of the facilities were $16.3 million, net of fees, commissions and closing costs. The Company anticipates spending approximately $16 million in fiscal 1998 for capital additions primarily to support manufacturing capacity requirements, development projects and facilities expansion. Based on the Company's current working capital position, the cash flows the Company expects to generate from fiscal 1998 operations and the available line of credit the Company expects to renew, the Company believes that sufficient resources will be available to meet the Company's cash requirements for at least the next twelve months. Cash requirements for periods beyond the next twelve months depend on the Company's profitability, timing and level of capital expenditures, working capital requirements and the Company's rate of growth. SPECTRIAN CORPORATION AND SUBSIDIARIES 17 Consolidated Balance Sheets Year Ended March 31, (In thousands) 1997 1996 --------------------- ASSETS Current assets: Cash and cash equivalents $ 6,240 $ 1,163 Short-term investments -- 3,002 Accounts receivable, less allowance for doubtful accounts of $365 and $339, respectively 15,825 11,980 Inventories 17,301 7,229 Prepaid expenses and other current assets 1,806 420 -------- -------- Total current assets 41,172 23,794 Property and equipment, net 25,461 32,128 -------- -------- $ 66,633 $ 55,922 ======== ======== LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Accounts payable $ 8,101 $ 6,964 Accrued liabilities 7,421 4,120 Current portion of debt obligations 1,588 -- -------- -------- Total current liabilities 17,110 11,084 Debt obligations, net of current portion 7,057 -- -------- -------- Total liabilities 24,167 11,084 -------- -------- Shareholders equity: Common stock, no par value; 20,000,000 shares authorized; 8,265,230 and 8,014,525 shares issued and outstanding, respectively 53,395 51,956 Deferred compensation expense -- (182) Unrealized gains on investments -- 2 Accumulated deficit (10,929) (6,938) -------- -------- Total shareholders equity 42,466 44,838 -------- -------- $ 66,633 $ 55,922 ======== ======== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SPECTRIAN CORPORATION AND SUBSIDIARIES 18 Consolidated Statements of Operations Year Ended March 31, (In thousands, except per share data) 1997 1996 1995 ---------------------------- Revenues: Product sales $ 86,665 $ 68,014 $ 58,668 Nonrecurring engineering revenues 1,587 4,099 3,810 -------- -------- -------- 88,252 72,113 62,478 -------- -------- -------- Costs and expenses: Cost of product sales 65,322 45,355 39,068 Research and development 17,230 14,548 11,374 Selling, general and administrative 9,299 7,450 6,784 -------- -------- -------- 91,851 67,353 57,226 -------- -------- -------- Operating income (loss) (3,599) 4,760 5,252 Interest income (expense), net (392) 889 391 -------- -------- -------- Interest (loss) before income taxes (3,991) 5,649 5,643 Income tax expense -- 169 170 -------- -------- -------- Net income (loss) $ (3,991) $ 5,480 $ 5,473 ======== ======== ======== Net income (loss) per share $ (0.49) $ 0.67 $ 0.74 ======== ======== ======== Shares used in computing per share amounts 8,152 8,193 7,435 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SPECTRIAN CORPORATION AND SUBSIDIARIES 19 Consolidated Statements of Cash Flows
Year Ended March 31, (In thousands) 1997 1996 1995 -------------------------------- Cash flows from operating activities: Net income (loss) $ (3,991) $ 5,480 $ 5,473 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,574 4,793 2,789 Stock option compensation 182 (49) 200 Tax benefit associated with stock options -- 138 60 Changes in operating assets and liabilities: Accounts receivable (3,845) (1,360) (2,033) Inventories (10,072) (2,444) (1,239) Prepaid expenses and other assets (1,386) (26) (227) Accounts payable 1,137 2,897 966 Accrued liabilities 3,301 173 1,011 -------- -------- -------- Net cash provided by (used for) operating activities (8,100) 9,602 7,000 -------- -------- -------- Cash flows from investing activities: Purchase of short-term investments -- (16,123) (12,107) Proceeds from sale of short-term investments 3000 25,230 -- Proceeds from sale of property 16,414 -- -- Purchase of property and equipment (16,321) (28,182) (5,800) -------- -------- -------- Net cash provided by (used for) investing activities 3,093 (19,075) (17,907) Cash flows from financing activities: Proceeds from sale and leaseback financing -- -- 584 Proceeds from real estate loan 2,917 -- -- Proceeds from debt and equipment financing 18,000 -- -- Repayments of debt and capital lease obligations (12,272) -- (5,935) Proceeds from initial public offering -- -- 21,066 Proceeds from sales of common stock, net 1,439 2,216 487 -------- -------- -------- Net cash provided by financing activities 10,084 2,216 16,202 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 5,077 (7,257) 5,295 Cash and cash equivalents, beginning of year 1,163 8,420 3,125 -------- -------- -------- Cash and cash equivalents, end of year $ 6,240 $ 1,163 $ 8,420 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 660 $ 31 $ 291 ======== ======== ======== Noncash investing and financing activities: Conversion of preferred stock into common stock $ -- $ -- $ 27,166 ======== ======== ======== Capital equipment acquired under capital lease obligations $ -- $ -- $ 188 ======== ======== ======== Deferred stock option compensation $ -- $ (425) $ 308 ======== ======== ======== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SPECTRIAN CORPORATION AND SUBSIDIARIES 20 Consolidated Statements of Shareholders Equity
Deferred Preferred stock Common Stock Compensation Shares Amount Shares Amount Expense ------------------------------------------------------------------- (In thousands) Balances as of March 31, 1994 4,155,912 $ 27,166 817,173 $ 940 $ (450) Exercise of stock options -- -- 273,247 121 -- Employee stock purchase plan -- -- 34,469 366 -- Repurchase of common stock -- -- (1) -- -- initial public offering, net of $2,372 expenses -- -- 1,875,000 21,066 -- Conversion of preferred stock into common stock (4,155,912) (27,166) 4,155,912 27,166 -- Deferred stock option compensation -- -- -- 308 (308) Stock option compensation -- -- -- -- 200 Tax benefit associated with stock options -- -- -- 60 -- Unrealized gains on investments -- -- -- -- -- Net income -- -- -- -- -- ---------- ------- --------- ------ ---------- Balances as of March 31, 1995 -- -- 7,155,800 50,027 (558) Exercise of stock options -- -- 761,778 1,161 -- Employee stock purchase plan -- -- 96,947 1,055 -- Deferred stock option compensation -- -- -- (425) 425 Stock option compensation -- -- -- -- (49) Tax benefit associated with stock options -- -- -- 138 -- Unrealized losses on investments -- -- -- -- -- Net income -- -- -- -- -- ---------- ---------- --------- ---------- ---------- Balances as of March 31, 1996 -- -- 8,014,525 51,956 (182) Exercise of stock options -- -- 114,671 276 -- Employee stock purchase plan -- -- 136,034 1,163 -- Stock option compensation -- -- -- -- 182 Unrealized losses on investments -- -- -- -- -- Net loss -- -- -- -- -- ---------- ---------- --------- ---------- ---------- Balances as of March 31, 1997 -- $ -- 8,265,230 $ 53,395 $ -- ========== ======= ========= ========== ==========
Unrealized Total Gains (Losses) Accumulated Shareholders on Investments Deficit Equity ----------------------------------------- (In thousands) Balances as of March 31, 1994 -- $ (17,891) $ 9,765 Exercise of stock options -- -- 121 Employee stock purchase plan -- -- 366 Repurchase of common stock -- -- initial public offering, net of $2,372 expenses -- -- 21,066 Conversion of preferred stock into common stock -- -- -- Deferred stock option compensation -- -- -- Stock option compensation -- -- 200 Tax benefit associated with stock options -- -- 60 Unrealized gains on investments $ 5 -- 5 Net income -- 5,473 5,473 --------- --------- ----------- Balances as of March 31, 1995 5 (12,418) 37,056 Exercise of stock options -- -- 1,161 Employee stock purchase plan -- -- 1,055 Deferred stock option compensation -- -- -- Stock option compensation -- -- (49) Tax benefit associated with stock options -- -- 138 Unrealized losses on investments (3) -- (3) Net income -- 5,480 5,480 --------- ----------- ----------- Balances as of March 31, 1996 2 (6,938) 44,838 Exercise of stock options -- -- 276 Employee stock purchase plan -- -- 1,163 Stock option compensation -- -- 182 Unrealized losses on investments -- (2) (2) Net loss -- (3,991) (3,991) --------- ----------- ----------- Balances as of March 31, 1997 $ -- $ (10,929) $ 42,466 ========= ========== =========== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SPECTRIAN CORPORATION AND SUBSIDIARIES 21 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, American Microwave Technology, Inc., and a limited liability company, Gibraltar Court Associates, of which the Company is a majority owner. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company recognizes product sales upon shipment and concurrently accrues for expected warranty expenses. Repair and service revenues are recognized when the service is performed. Non-recurring engineering (NRE) revenues relate to customer funded development projects and are deferred and recognized upon completion of project milestones. The Company is under no obligation to repay funds once related milestones are achieved. Costs associated with such NRE revenue of $ 2,142,000, $4,472,000 and $5,835,000 for the years ended March 31, 1997, 1996 and 1995, respectively, are included in research and development expense in the accompanying consolidated financial statements. Concentration of Credit Risk and Fair Value of Financial Instruments The Company performs ongoing credit evaluations of its customers financial condition and generally does not require collateral on accounts receivable. When required, the Company maintains allowances for credit losses and such losses have been within Management's expectations. The recorded amounts of financial instruments approximate their fair market values. Cash Equivalents and Short-Term Investments The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. The cash equivalents consist of repurchase agreements and money market accounts as of March 31, 1997. The Company has classified its investments in certain debt and equity securities as "available-for-sale", and records such investments at fair market value, with unrealized gains and losses reported as a separate component of shareholder's equity. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. At March 31, 1997 and 1996, the fair value of the Company's investments approximated cost. Inventories Inventories are stated at the lower of first-in, first-out cost or market. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Assets recorded under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease terms or the estimated useful lives of the respective assets. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets where their realization is subject to uncertainty. Per Share Computations Net income (loss) per share has been computed using the weighted average number of outstanding shares of Common Stock and common equivalent shares from stock options outstanding (when dilutive using the treasury stock method). The modified treasury stock method was used when shares obtainable from options exceeded 20% of the aggregate of Common and Preferred Stock outstanding at the end of the period. Pursuant to certain Securities and Exchange Commission Staff Accounting Bulletins, Common and Preferred Stock issued for consideration below the initial public offering (IPO) price of $12.50 per share and stock options granted with exercise prices below the $12.50 per share price during the 12-month period preceding the date of the initial filing of the registration statement in connection with the IPO, even when antidilutive, have been included in the calculation of common equivalent shares, using the treasury stock method and the $12.50 per share price, as if they were outstanding for all pre-IPO periods presented. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No.128 requires presentation of basic earnings per share (EPS) and, for companies with complex capital structures, diluted EPS. SFAS SPECTRIAN CORPORATION AND SUBSIDIARIES 22 Notes to Consolidated Financial Statements (continued) No. 128 is effective for annual and interim periods ending after December 31, 1997. The Company expects that basic EPS will be higher than primary earnings per share as presented in the accompanying consolidated financial statements and that diluted EPS will not differ materially from primary earnings per share. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. The most significant of these relate to allowances for inventory obsolescence, allowances for doubtful accounts and the warranty accrual. Actual results could differ from those estimates. Accounting for Stock-Based Compensation The Company accounts for its stock option plans using the intrinsic value method set forth in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock issued to Employees, and related interpretations. On April 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, and has provided the pro forma disclosure provisions of SFAS No. 123. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on April 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity. 2. Investments Available-for-sale securities consisted of the following (in thousands): March 31, 1997 1996 ----------------------- U.S. government securities $ -- $3,002 Repurchase agreements 4,830 893 Corporate debt securities 128 38 ----------------------- $4,958 $3,933 ======================= As of March 31, 1997 and 1996 the estimated fair value of each investment approximated the amortized cost and, therefore, there were no significant unrealized gains or losses. At March 31, 1997 and 1996 all securities held were due in less than one year and were classified as follows (in thousands): March 31, 1997 1996 ----------------------- Cash equivalents $4,958 $ 931 Short-term investments -- 3,002 ----------------------- $4,958 $3,933 ======================= 3. Balance Sheet Components Balance sheet components are as follows (in thousands): March 31, 1997 1996 ----------------------- Inventories: Raw materials $ 9,315 $ 1,512 Work in progress 6,699 4,842 Finished goods 1,287 875 ----------------------- $17,301 $ 7,229 ======================= Property and equipment: Machinery and equipment $ 37,181 $26,053 Land, building and improvements 2,822 15,682 Furniture and fixtures 1,376 1,342 Leasehold improvements 867 927 ----------------------- 42,246 44,004 Less accumulated depreciation and amortization 16,785 11,876 ----------------------- $25,461 $32,128 ======================= Accrued liabilities: Employee compensation and benefits $ 3,772 $ 2,673 Warranty 1,940 699 Other 1,709 748 ----------------------- $ 7,421 $ 4,120 ======================= 4. Debt and Lease Commitments Lines of Credit The Company maintains a revolving line of credit under a master credit agreement with a bank. The master credit agreement contains certain financial covenants and certain restrictions on other indebtedness and payment of dividends. The line of credit, secured by a majority of the Company's assets, expires on July 31, 1997, bears interest at the banks prime rate, and provides for borrowings and letters of credit aggregating up to $6,000,000 based on a specified percentage of eligible accounts receivable. As of March 31, 1997, the Company was SPECTRIAN CORPORATION AND SUBSIDIARIES 23 in compliance with its financial covenants and had $6,000,000 available under this line of credit with no borrowings outstanding. The Company also entered into a $4,000,000 term loan agreement with the same bank in February 1997 which provides for advances of funds secured by capital equipment purchases with interest payments equal to the banks prime rate plus 0.75% until November 1997. This term loan is subject to the same financial covenants as the Company's revolving line of credit. The Company has until October 31, 1997 to draw down some portion or all of the loan amount, and will be required to make equal monthly payments for thirty-six months commencing November 1997 plus interest equal to the banks prime rate plus 0.75%. As of March 31, 1997, $4,000,000 was available under this equipment term loan and no borrowings were outstanding. Equipment and Real Estate Loans In January 1997, the Company borrowed $6,000,000 secured by certain capital equipment. Under the terms of the agreement, the Company is required to make a series of uneven monthly principal payments through January 2002 ranging from $42,000 to $136,000, plus interest at a rate equal to the Treasury Rate plus 2.75%, and must maintain certain minimum working capital, net worth, profitability, and other specific ratios for which the Company was in compliance as of March 31, 1997. In March 1997, through means of a limited liability company in which the Company is a majority owner, the Company purchased a 39,000 square foot building and secured a real estate loan with an institutional lender in the amount of $3,200,000 of which $2,917,000 was received by the Company in fiscal 1997. The loan has an initial maturity date of April 2002 with an option to be extended to April 2007. The Company makes monthly payments of principal and interest in equal amounts which are amortized over two hundred forty months with the remaining principal balance due on the maturity date. The interest rate is a variable interest rate set at the LIBOR rate plus 3.25%. During fiscal 1997, the Company borrowed $12,000,000 through various equipment term loan arrangements and repaid the outstanding balances prior to fiscal year end. Future minimum debt principal payments under these loans as of March 31, 1997 aggregated $8,645,000 including $1,588,000, $1,598,000, $1,062,000, $813,000, and $1,396,000 for the fiscal years 1998, 1999, 2000, 2001 and 2002, respectively, and $2,188,000, thereafter. Lease Commitments During fiscal 1997, the Company sold its principal facilities in Sunnyvale for $16,414,000, and leased the facilities back under a lease that has been classified as an operating lease. The lease expires in November 2011 and the quarterly rent payments are subject to Consumer Price Index adjustments on a tri-annual basis beginning in November 1999. The Company leases these facilities and certain equipment under noncancelable operating leases. Future minimum lease payments under these noncancelable operating leases as of March 31, 1997 aggregated $26,790,000 including $2,015,000, $1,977,000, $1,977,000, $1,977,000 and $1,971,000 for the fiscal years 1998, 1999, 2000, 2001 and 2002, respectively and $16,872,000, thereafter. Rent expense was approximately $819,000, $778,000 and $802,000 for the years ended March 31, 1997, 1996 and 1995, respectively. 5. Shareholders Equity Authorized Shares All outstanding shares of Preferred Stock automatically converted into shares of Common Stock on a one-for-one basis upon completion of the Company's initial public offering in August 1994. At that time, the Board of Directors authorized 5,000,000 shares of Preferred Stock and 20,000,000 shares of Common Stock. Stock Option Plans The Company has adopted stock option plans, (the "Plans"), pursuant to which the Company's Board of Directors may grant stock options to selected employees, directors, officers and consultants of the Company. Stock options are generally granted with an exercise price equal to the fair market value of the Company's stock at the date of grant. The options generally have 10-year terms and vest 25% after one year from the grant date with the remaining options vesting pro rata over the following 36 months. Under the 1992 Stock Plan, certain options were granted at prices that were below fair market value and, accordingly, the Company had accrued deferred compensation of $182,000 as of March 31, 1996, which was fully amortized to expense as of March 1997. A total of 286,449 shares of Common Stock have been reserved for issuance under the 1992 Stock Plan as of March 31, 1997. During the year ended March 31, 1997, under the Director Option Plan, 10,000 shares were granted, none were issued, and no remaining shares of Common Stock were reserved for issuance as of March 31, 1997. Outside of the 1992 Stock Plan and the 1994 Director Option Plan, two officers and one employee of the Company were granted a combined total of 390,000 options during fiscal 1997, at exercise prices ranging from $9.50 to $14.50, which are subject to the same vesting schedule as that of the Company's 1992 Stock Plan. SPECTRIAN CORPORATION AND SUBSIDIARIES 24 Notes to Consolidated Financial Statements (continued) The per share weighted average fair market value of stock options granted during fiscal 1997 and fiscal 1996 were $9.41 and $17.69, respectively, on the date of grant using the Black-Scholes Option-Pricing Model with the following assumptions for both fiscal 1997 and fiscal 1996: stock price volatility of 80%, no expected dividends, an average risk-free interest rate of 6% and an average expected option term of 4.3 years. The following table summarizes option activity under the Plans: Weighted Available Average for Options Exercise Grant Outstanding Price ------------------------------------- Outstanding as of March 31, 1994 1,629,974 1,532,596 $ 0.60 Granted (419,811) 419,811 15.48 Exercised -- (272,900) 0.54 Canceled 53,565 (53,565) 4.05 ------------------------------------- Outstanding as of March 31, 1995 1,263,728 1,625,942 4.34 Granted (444,743) 444,743 23.98 Exercised -- (761,791) 1.52 Canceled 372,306 (372,306) 4.13 ------------------------------------- Outstanding as of March 31, 1996 1,191,291 936,588 16.03 Granted at fair market value (1,760,346) 1,760,346 14.98 Granted in excess of fair market value (250,000) 250,000 14.50 Exercised -- (114,671) 2.50 Canceled 1,105,510 (1,105,510) 19.83 ------------------------------------- Outstanding as of March 31, 1997 286,455 1,726,753 $ 13.20 The following table summarizes information about stock options outstanding at March 31, 1997: Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices Options Life Price Price Price - --------------------------------------------------------------------------- $ 0.20-9.50 490,348 8.8 $ 7.75 107,987 $ 2.65 10.00-13.75 107,833 9.8 13.48 4,333 10.00 14.50 964,042 8.6 14.50 34,219 14.50 16.25-38.50 164,530 8.6 21.66 62,786 21.06 $ 0.20-38.50 1,726,753 8.7 $ 13.20 209,325 $ 10.26 Employee Stock Purchase Plan In May 1994, the Board of Directors approved the 1994 Employee Stock Purchase Plan (the "Purchase Plan") which permits eligible employees to purchase the Company's Common Stock through payroll deductions. The Purchase Plan is implemented by consecutive and overlapping 24-month offering periods, each divided into four 6-month purchase periods. The purchase price of the shares is 85% of the lower of the fair market value of the Common Stock at the beginning of the offering period or the end of each purchase period. The Company reserved a total of 275,000 shares of common stock for issuance under this plan, of which 7,550 shares of Common Stock were still available for issuance as of March 31, 1997. During the year ended March 31, 1997, there were 136,034 shares acquired under the Purchase Plan at per share prices ranging from $6.59 to $12.11. Under SFAS No. 123, proforma compensation cost is calculated for the fair market value of the employees' purchase rights. The per share weighted average fair market value of those purchase rights granted in fiscal 1997 and fiscal 1996, respectively, was $5.14 and $6.54, using the Black-Scholes Option-Pricing Model with the following assumptions: for fiscal 1997, a stock price volatility of 80%, no expected dividends, risk free interest rate of 6% and an expected term of 0.9 years; for fiscal 1996, a stock price volatility of 80%, no expected dividends, a risk free interest rate of 6% and an expected term of 0.8 years. Pro Forma Fair Value Information The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, compensation cost has been recognized for its stock options using the intrinsic value method in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been reduced to the pro forma amounts indicated below: 1997 1996 ------------ ---------- Net income (loss) As reported $(3,991,000) $5,480,000 Pro forma $(8,018,000) $2,339,000 Earnings (loss) per share As reported $ (0.49) $ 0.67 Pro forma $ (0.98) $ 0.29 Pro forma net income (loss) reflects only the options granted in fiscal 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options vesting period of four years and compensation cost for options granted prior to April 1, 1995 is not considered. SPECTRIAN CORPORATION AND SUBSIDIARIES 25 6. Income Taxes Income tax expense for the years ended March 31, 1997, 1996 and 1995 differs from the amount computed by applying the federal income tax rate of 34% to pretax income (loss) from operations as a result of the following (in thousands): Year ended March 31, 1997 1996 1995 ------------------------------- "Expected" income tax expense (benefit) $(1,357) $ 1,921 $ 1,918 Utilization of net operating loss carryforwards -- (1,921) (1,918) Unutilized net operating losses 1,337 Alternative minimum tax -- 169 170 Other 20 -- -- ------------------------------- Income tax expense $ -- $ 169 $ 170 =============================== The Company is entitled to a deduction for federal and state tax purposes with respect to employees' early disposition of stock acquired through employee stock options. The net reduction in taxes otherwise payable arising from that deduction has been credited to Common Stock. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands): March 31, 1997 1996 ----------------------- Deferred tax assets: Various accruals and reserves 2,921 1,887 Deferred research and development expenses 66 Net operating loss carryforwards 10,266 9,067 Credit carryforwards 4,721 3,359 ----------------------- Total gross deferred tax assets 17,908 14,379 Less valuation allowance (17,313) (13,011) ----------------------- Net deferred tax assets $ 595 $ 1,368 ======================= Deferred tax liabilities: Property and equipment depreciation differences $ (595) $ (1,368) Total gross deferred liabilities (595) (1,368) ----------------------- Net deferred tax assets $ -- $ -- ======================= As of March 31, 1997, the Company has a net operating loss carryforward of $29 million for federal income tax purposes and $9 million for California income tax purposes. The Company has research credit carryforwards of approximately $1.6 million and $1.5 million for federal and California income tax purposes, respectively. If not utilized, these carryforwards will expire in various amounts from 1999 through 2012. The Company also has an investment tax credit carryforward of approximately $1.6 million for California income tax purposes which, if not utilized, will expire in 2004 through 2005. Included in the deferred tax assets is approximately $8.9 million of assets relating to the stock option compensation, which will be credited to equity when realized. 7. Major Customers The following table summarizes the annual percentage contribution to revenues by customers when sales to such customers exceeded 10% of such revenues in fiscal 1997, 1996 and 1995, and the amounts due from these customers as a percentage of total accounts receivable as of March 31, 1997 and 1996, follows: Revenues Percentage of Total Accounts Year ended March 31, Receivable as of March 31, 1997 1996 1995 1997 1996 -------------------------------------------------- Customer A 63% 58% 53% 51% 69% Customer B 12% 17% 13% 27% 10% Customers A and B are major companies in the wireless infrastructure equipment industry. Company A has an equity investment in Company B. Export sales as a percentage of revenues were as follows: Year ended March 31, 1997 1996 1995 -------------------- Canada 57% 51% 55% Europe 13 20 15 Other 3 1 1 -------------------- Total exports 73% 72% 71% ==================== 8. Subsequent Event In April 1997, the Company sold its wholly-owned subsidiary, American Microwave Technology (AMT) to the management group and employees of AMT for approximately $4.0 million, realizing a net gain of approximately $500,000 after disposition of AMT's assets. The Company decided to divest AMT, which designs, develops and manufactures radio frequency power amplifier systems for selected wireless, scientific and application specific markets, after concluding AMT's market focus had become less synergistic with the Company's core business. For fiscal years 1997, 1996 and 1995, AMT reported revenues of approximately $6.0, $7.5 and $7.5 million respectively, and pretax income (loss) of $(0.8), $0.3 and $0.3 million, respectively. SPECTRIAN CORPORATION AND SUBSIDIARIES 26 Report of KPMG Peat Marwick LLP, Independent Auditors The Board of Directors and Shareholders of Spectrian Corporation: We have audited the accompanying consolidated balance sheets of Spectrian Corporation and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spectrian Corporation and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP - ------------------------- San Jose, California April 11, 1997 SPECTRIAN CORPORATION AND SUBSIDIARIES 27 Selected Unaudited Quarterly Financial Data
Year Ended March 31, 1997 Year Ended March 31, 1996 (In thousands, except per share data) FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- ------- -------- -------- -------- ------- STATEMENT OF OPERATIONS DATA Revenues: Product sales $ 9,560 $ 22,005 $ 23,839 $31,261 $ 20,262 $ 19,490 $ 11,644 $16,618 Nonrecurring engineering revenues 363 267 646 311 199 1,461 628 1,811 -------- -------- -------- ------- -------- -------- -------- ------- 9,923 22,272 24,485 31,572 20,461 20,951 12,272 18,429 -------- -------- -------- ------- -------- -------- -------- ------- Costs and expenses: Cost of product sales 8,491 16,639 17,211 22,981 13,010 12,682 8,203 11,460 Research and development 4,293 3,770 4,773 4,394 3,295 3,737 3,611 3,905 Selling, general and administrative 2,379 1,948 2,293 2,679 2,058 2,094 1,460 1,838 -------- -------- -------- ------- -------- -------- -------- ------- 15,163 22,357 24,277 30,054 18,363 18,513 13,274 17,203 -------- -------- -------- ------- -------- -------- -------- ------- Operating income (loss) (5,240) (85) 208 1,518 2,098 2,438 (1,002) 1,226 Interest income (expense), net (74) (251) (70) 3 367 229 201 92 -------- -------- -------- ------- -------- -------- -------- ------- Income (loss) from operations before income taxes (5,314) (336) 138 1,521 2,465 2,667 (801) 1,318 Income taxes -- -- -- -- (201) (214) 65 181 -------- -------- -------- ------- -------- -------- -------- ------- Net income (loss) $ (5,314) $ (336) $ 138 $ 1,521 $ 2,264 $ 2,453 $ (736) $ 1,499 -------- -------- -------- ------- -------- -------- -------- ------- Net income (loss) per share $ (0.66) $ (0.04) $ 0.02 $ 0.18 $ 0.27 $ 0.29 $ (0.09) $ 0.18 -------- -------- -------- ------- -------- -------- -------- ------- Shares used in computing per share amounts 8,039 8,147 8,295 8,422 8,276 8,393 7,771 8,332 AS A PERCENTAGE OF REVENUES Revenues: Product sales 96% 99% 97% 99% 99% 93% 95% 90% Nonrecurring engineering revenues 4 1 3 1 1 7 5 10 -------- -------- -------- ------- -------- -------- -------- ------- 100 100 100 100 100 100 100 100 Costs and expenses: Cost of product sales 86 75 70 73 64 60 67 62 Research and development 43 17 19 14 16 18 29 21 Selling, general and administrative 24 9 9 8 10 10 12 10 -------- -------- -------- ------- -------- -------- -------- ------- 153 100 99 95 90 88 108 93 -------- -------- -------- ------- -------- -------- -------- ------- Operating income (loss) (53) (0) 1 5 10 12 (8) 7 Interest income (expense), net (1) (1) 0 0 2 1 1 0 -------- -------- -------- ------- -------- -------- -------- ------- Income (loss) from operations before income taxes (54%) (2%) 1% 5% 12% 13% (7%) 7% -------- -------- -------- ------- -------- -------- -------- ------- Gross margin on product sales 11% 24% 28% 26% 36% 35% 30% 31%
Year Ended March 31, 1995 FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA Revenues: Product sales $ 13,867 $ 14,104 $ 13,757 $ 16,940 Nonrecurring engineering revenues 841 1,202 1,252 515 -------- -------- -------- -------- 14,708 15,306 15,009 17,455 -------- -------- -------- -------- Costs and expenses: 9,330 9,417 9,251 11,070 Cost of product sales 2,636 3,067 2,859 2,812 Research and development 1,586 1,507 1,716 1,975 -------- -------- -------- -------- Selling, general and administrative 13,552 13,991 13,826 15,857 -------- -------- -------- -------- 1,156 1,315 1,183 1,598 Operating income (loss) (142) 5 242 286 -------- -------- -------- -------- Interest income (expense), net Income (loss) from operations before income taxes 1,014 1,320 1,425 1,884 Income taxes (30) (40) (43) (57) -------- -------- -------- -------- Net income (loss) $ 984 $ 1,280 $ 1,382 $ 1,827 -------- -------- -------- -------- Net income (loss) per share $ 0.17 $ 0.17 $ 0.17 $ 0.22 -------- -------- -------- -------- Shares used in computing per share amounts 5,903 7,454 8,162 8,220 AS A PERCENTAGE OF REVENUES Revenues: Product sales 94% 92% 92% 97% Nonrecurring engineering revenues 6 8 8 3 -------- -------- -------- -------- 100 100 100 100 Costs and expenses: Cost of product sales 63 61 62 64 Research and development 18 20 19 16 Selling, general and administrative 11 10 11 11 -------- -------- -------- -------- 92 91 92 91 -------- -------- -------- -------- Operating income (loss) 8 9 8 9 Interest income (expense), net (1) 0 1 2 -------- -------- -------- -------- Income (loss) from operations before income taxes 7% 9% 9% 11% -------- -------- -------- -------- Gross margin on product sales 33% 33% 33% 35%
SPECTRIAN CORPORATION AND SUBSIDIARIES 28 EX-23.1 7 EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Spectrian Corporation: We consent to incorporation by reference in the registration statements (Nos. 33-83832 and 33-31046) on Form S-8 of Spectrian Corporation of our reports dated April 11, 1997, relating to the consolidated balance sheets of Spectrian Corporation and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1997, and the related schedule, which reports appear in or are incorporated by reference in the March 31, 1997, annual report on Form 10-K of Spectrian Corporation. San Jose, California June 24, 1997 EX-27.1 8 FINANCIAL DATE SCHEDULE
5 0000925054 Spectrian Corporation 1,000 12-MOS MAR-31-1997 APR-01-1996 MAR-31-1997 6,240 0 16,190 365 17,301 1,806 42,246 16,785 66,633 17,110 7,057 0 0 53,395 (10,929) 66,633 88,252 88,252 65,322 65,322 26,529 0 392 (3,991) 0 (3,991) 0 0 0 (3,991) (0.49) (0.49)
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