-----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, VsPKQH0DB1zRcDTMApThqplIKx4IAWo/U9Jvu6qhhX0Ga09KCi+QekoDQyRPqHxR rU3qvn5KmjZ44WVt/eBV1Q== /in/edgar/work/20000816/0000950005-00-000938/0000950005-00-000938.txt : 20000922 0000950005-00-000938.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950005-00-000938 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000702 FILED AS OF DATE: 20000816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRIAN CORP /CA/ CENTRAL INDEX KEY: 0000925054 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 770023003 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24360 FILM NUMBER: 704161 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 STREET 2: C/O CORPORATE CONTROLLER CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q 1 0001.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q --------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE Act of 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. Commission file number: 0-24360 SPECTRIAN CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0023003 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 350 West Java Drive Sunnyvale, California 94089 (Address of principal executive offices) (Zip Code) Telephone Number (408) 745-5400 (Registrant's telephone number, including area code) 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 [ ] As of August 7, 2000 there were 10,959,833 shares of the Registrant's Common Stock outstanding. ================================================================================ SPECTRIAN CORPORATION FORM 10-Q INDEX FOR QUARTER ENDED JULY 2, 2000
Page ---- PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements Condensed Consolidated Balance Sheets - July 2, 2000 and March 31, 2000........ 3 Condensed Consolidated Statements Of Operations - Three Months Ended July 2, 2000 and June 27, 1999..................................................... 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended July 2, 2000 and June 27, 1999 ............................................ 5 Notes to Condensed Consolidated Financial Statements........................... 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 12 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk..................... 23 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings.............................................................. 25 ITEM 6 Exhibits and Reports on Form 8-K............................................... 25 Signatures..................................................................... 26
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
July 2, March 31, 2000 2000 (1) ---- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,179 $ 11,553 Short-term investments 31,220 36,027 Accounts receivable, less allowance for doubtful accounts of $420 and $420, respectively 27,328 23,817 Inventories 34,584 34,542 Prepaid expenses and other current assets 6,162 4,400 ------------ ------------ Total current assets 110,473 110,339 Property and equipment, net 18,980 19,668 Other assets 1,268 1,268 ------------ ------------ Total assets $ 130,721 $ 131,275 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 19,316 $ 16,416 Accrued liabilities 12,810 13,793 Current portion of debt and capital lease obligations 982 730 ------------ ------------ Total current liabilities 33,108 30,939 Debt and capital lease obligations, net of current portion 959 1,351 ------------ ------------ Total liabilities 34,067 32,290 ------------ ------------ Contingencies (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued and outstanding, respectively -- -- Common stock, $0.001 par value, 20,000,000 shares authorized; 11,948,721 and 11,859,507 shares issued, respectively; 10,948,721 and 10,859,507 shares outstanding, respectively 12 12 Additional paid-in capital 160,625 160,117 Treasury stock, 1,000,000 shares of common stock held (14,789) (14,789) Deferred compensation expense (91) (937) Accumulated other comprehensive loss (502) (617) Accumulated deficit (48,601) (44,801) ------------ ------------ Total stockholders' equity 96,654 98,985 ------------ ------------ Total liabilities and stockholders' equity $ 130,721 $ 131,275 ============ ============ (1) Derived from the March 31, 2000 audited balance sheet included in the 2000 Annual Report on Form 10-K of Spectrian Corporation. See accompanying notes to condensed consolidated financial statements.
3 SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended ----------------------- July 2, June 27, 2000 1999 ---- ---- NET REVENUES $ 42,190 $ 31,484 -------- -------- COSTS AND EXPENSES: Cost of revenues 35,268 25,892 Research and development 5,601 4,877 Selling, general and administrative 5,660 4,294 -------- -------- Total costs and expenses 46,529 35,063 -------- -------- OPERATING LOSS (4,339) (3,579) INTEREST INCOME 597 1,147 INTEREST EXPENSE (46) (158) -------- -------- LOSS BEFORE INCOME TAXES (3,788) (2,590) INCOME TAXES 12 32 -------- -------- NET LOSS $ (3,800) $ (2,622) ======== ======== NET INCOME (LOSS) PER SHARE: Basic and diluted $ (0.35) $ (0.26) ======== ======== SHARES USED IN COMPUTING PER SHARE AMOUNTS: Basic and diluted 10,916 10,176 ======== ======== See accompanying notes to condensed consolidated financial statements.
4 SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended --------------------------- July 2, June 27, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,800) $ (2,622) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,928 3,373 Loss on sale of property and equipment, net 5 65 Provision for excess and obsolete inventories and write-down to 322 454 market Stock option compensation expense 139 219 Changes in operating assets and liabilities: Accounts receivable (3,511) (4,385) Inventories (364) (121) Prepaid expenses and other current assets (1,762) 161 Accounts payable 2,900 556 Accrued liabilities (983) (3,975) -------- -------- Net cash used in operating activities (4,126) (6,275) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments -- (4,984) Proceeds from sale and maturities of short-term investments 4,922 5,056 Purchase of property and equipment (2,245) (884) Proceeds from sale of property and equipment -- 42 -------- -------- Net cash provided by (used in) investing activities 2,677 (770) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt and capital lease obligations (140) (276) Proceeds from sales of common stock, net 1,215 1,053 -------- -------- Net cash provided by financing activities 1,075 777 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (374) (6,268) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,553 26,254 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,179 $ 19,986 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 46 $ 158 ======== ======== Cash paid for income taxes $ 12 $ 32 ======== ======== See accompanying notes to condensed consolidated financial statements.
5 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Spectrian Corporation and subsidiaries ("Spectrian" or the "Company") have been prepared in conformity with generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the management, the statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the financial information set forth therein. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as set forth on pages F-1 through F-22 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending March 31, 2001, or any other future period. 2. BALANCE SHEET COMPONENTS Balance sheet components are as follows (in thousands): July 2, March 31, 2000 2000 ---- ---- Inventories: Raw materials $16,609 $16,763 Work in progress 10,652 10,353 Finished goods 7,323 7,426 ------- ------- $34,584 $34,542 ======= ======= Property and equipment: Machinery and equipment $60,309 $58,322 Software 4,265 4,248 Leasehold improvements 3,806 3,781 ------- ------- 68,380 66,351 Less accumulated depreciation and amortization 49,400 46,683 ------- ------- $18,980 $19,668 ======= ======= Accrued liabilities: Employee compensation and benefits $ 3,858 $ 4,310 Warranty 7,208 7,123 Restructuring 869 996 Other accrued liabilities 875 1,364 ------- ------- $12,810 $13,793 ======= ======= 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established a new model for accounting for derivative and hedging activities. In July, 1999 the Financial Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until the first fiscal year beginning after June 15, 2000. SFAS 133 is not expected to have any material impact on the Company's consolidated financial statements. 6 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company has until the fourth quarter of fiscal 2001 to comply with the guidance in SAB 101. SAB 101 is not expected to have any material impact on the Company's consolidated financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions involving Stock Compensation" an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of certain provisions prior to July 1, 2000 did not have a material effect. The Company believes that the adoption of the remaining provisions of FIN 44 will not have a material effect on its financial position or results of operations. 4. 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 consisted of investment grade, interest-bearing commercial paper and money market funds as of July 2, 2000. The Company has classified its investments in certain debt securities as "available-for-sale," and records such investments at fair market value, with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses are determined using the specific identification method. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. As of July 2, 2000 and March 31, 2000, short-term investments classified as available-for-sale securities were as follows (in thousands):
Amortized Unrealized Fair As of July 2, 2000 Cost Gain (Loss) Value ------------------ ---- ----------- ----- Government bonds & notes $ 11,101 $ (137) $ 10,964 Corporate bonds & notes 24,775 (365) 24,410 -------- -------- -------- 35,876 (502) 35,374 Less amounts classified as cash equivalents 4,154 -- 4,154 -------- -------- -------- Short-term investments $ 31,722 $ (502) $ 31,220 ======== ======== ======== Contractual maturity dates: 1 to 5 years $ 31,220 ========
7 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited)
Unrealized Fair As of March 31, 2000 Amortized Cost Gain (Loss) Value -------------------- -------------- ----------- ----- Government bonds & notes $ 14,599 $ (166) $ 14,433 Commercial paper 29,545 (451) 29,094 -------- -------- -------- 44,144 (617) 43,527 Less amounts classified as cash equivalents 7,500 -- 7,500 -------- -------- -------- Short-term investments $ 36,644 $ (617) $ 36,027 ======== ======== ======== Contractual maturity dates, less than 1 year $ 3,500 Contractual maturity dates, 1 to 5 years 32,527 -------- $ 36,027 ========
5. PER SHARE COMPUTATION Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive common shares outstanding during the period using the treasury stock method. Potentially dilutive common shares include the effect of stock options. For the three months ended July 2, 2000 and June 27, 1999, 3,215,071 and 2,651,352 stock options were not included for the calculation of diluted net loss per share as they were considered antidilutive due to the net loss the Company experienced in these fiscal periods. 6. SEGMENT INFORMATION Under the management approach, the Company has broken down its business into two operating segments based upon product type: Amplifier Division and Semiconductor Division, which operates under the tradename of UltraRF. UltraRF derives substantially all of its revenues from sales to the Amplifier Division. The Company allocates operating expenses to these segments but does not allocate interest income and expense, other income, net, the provision for income taxes and certain corporate operating expenses. Corporate expenses are allocated to the operating segments based on predetermined annual allocation methods. Appropriate intersegment eliminations are made in the consolidation of the Company's consolidated financial statements. Segment assets, which include inventories and property and equipment, are reported upon by operation. No other assets and liabilities are reported separately. Consolidated Statement of Operations Data - fiscal 2001:
Three Months Ended July 2, 2000 ------------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $ 41,937 $ 253 $ -- $ 42,190 Net revenues, intersegment -- 7,186 (7,186) -- Amortization and depreciation 1,440 690 798 2,928 Income (loss) before income taxes $ (4,475) $ 497 $ 190 $ (3,788) *Data in the "Other" column represents the elimination of intersegment revenues, interest income and expense, other income, net, the provision for income taxes, certain unallocated corporate expenses and corporate amortization and depreciation that is subsequently allocated to the operating segments.
8 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) Consolidated Balance Sheet Data:
July 2, 2000 ----------------------------------------------------------- Amplifier UltraRF Other Total --------- ------- ----- ----- Segment Assets $ 31,798 $14,747 $ 7,019 $ 53,564 Expenditures for additions to long-lived assets $ 634 $ 1,448 $ 163 $ 2,245 Consolidated Statement of Operations Data - fiscal 2000: Three Months Ended June 27, 1999 ---------------------------------------------------------- Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $ 31,471 $ 13 $ -- $ 31,484 Net revenues, intersegment -- 4,223 (4,223) -- Amortization and depreciation 1,372 628 1,373 3,373 Income (loss) before income taxes $ (4,034) $ (272) $ 1,716 $ (2,590) *Data in the "Other" column represents the elimination of intersegment revenues, interest income and expense, other income, net, the provision for income taxes, certain unallocated corporate expenses and corporate amortization and depreciation that is subsequently allocated to the operating segments. Consolidated Balance Sheet Data: March 31, 2000 ----------------------------------------------------------- Amplifier UltraRF Other Total --------- ------- ----- ----- Segment Assets $ 32,142 $ 13,605 $ 8,463 $ 54,210
Geographic Segment Data: Revenue from unaffiliated customers by geographic region as a percentage of revenues were as follows: Three Months Ended -------------------------- July 2, June 27, 2000 1999 ---- ---- Canada 35% 54% United States 34% 8% France 25% 24% South Korea 5% 14% Other countries 1% --% The Company's long-lived assets are located in the following countries (in thousands): July 2, March 31, 2000 2000 ---- ---- United States $ 17,249 $ 18,226 Thailand 1,315 1,218 South Korea 416 224 -------- -------- $ 18,980 $ 19,668 ======== ======== 9 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) 7. Discontinued manufacturing operations and Related Restructuring Charges During fiscal 1999, the Company transitioned the assembly and test of its higher volume single carrier power amplifier products to a contract manufacturer located in Thailand on a turnkey basis. During the fourth quarter of fiscal 2000, the Company decided to transfer the remaining power amplifier production in Sunnyvale, California, to the contract manufacturer. In connection with the decision, the Company recognized in fiscal 2000 an approximately $1.0 million restructuring charge for estimated severance costs related to organizational changes and a planned reduction in work force. Approximately 90 employees engaged in manufacturing and production related functions are anticipated to be terminated as a result of the restructuring. At July 2, 2000, approximately twenty-one employees had been terminated pursuant to the restructuring. The Company anticipates that the restructuring will be substantially completed in the third quarter of fiscal 2001. The following table represents the restructuring activity that took place up to July 2, 2000 (in thousands): Reduction in Workforce --------- Balance at March 31, 2000 $ 996 Cash payment of severance costs (127) -------- Balance at July 2, 2000 $ 869 ======== The balance of the restructuring accrual is included in current liabilities on the condensed consolidated balance sheets. 8. Comprehensive Income Statement of Financial Accounting Standard No. 130 (SFAS 130) "Reporting Comprehensive Income" establishes rules for the reporting and display of comprehensive income and its components. The following are the components of comprehensive income (loss) (in thousands): Three Months Ended ---------------------- July 2, June 27, 2000 1999 ---- ---- Net loss $(3,800) $(2,622) Unrealized gain (loss) on marketable securities 115 (540) ------- ------- Comprehensive loss $(3,685) $(3,162) ======= ======= The components of accumulated other comprehensive loss are as follows (in thousands): July 2, March 31 2000 2000 ---- ---- Unrealized loss on marketable securities $(502) $(617) ===== ===== 10 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) 9. Litigation On May 19, 2000, the Company announced that it had reached a settlement in principle of the shareholder class action lawsuits which were filed in the United States District Court for the Northern District of California and the Superior Court of the State of California for Santa Clara County. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. The final settlement agreement is subject to Court approval and class notice provisions. 10. Line of Credit The Company has a revolving line of credit of $10.0 million with a bank collateralized by the majority of the Company's assets. The line of credit expires on June 30, 2001. Under the terms of the master agreement governing this credit instrument, the Company is required to maintain certain minimum working capital, net worth, profitability and other specific financial ratios. The master agreement also has certain restrictions on other indebtedness and the payment of dividends. The Company was in default of certain of the covenants and the bank has granted a waiver of the default effective through September 30, 2000. The amount available to borrow at July 2, 2000 was $10.0 million. The Company can borrow at either (i) a variable rate equal to the prime rate or (ii) a fixed rate equal to 200 basis points above the LIBOR rate, which at July 2, 2000 was 9.5% and 8.79%, respectively. The Company had no borrowings under the line of credit at July 2, 2000. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the `'Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), including statements regarding Spectrian Corporation's ("the Company") expectations, hopes, intentions or strategies regarding the future. When used herein, the words `'may," `'will," `'expect," `'anticipate," `'continue," `'estimate," `'project," `'intend" and similar expressions are intended to identify forward-looking statements within the meaning of the Securities Act and the Exchange Act. Forward-looking statements include: statements regarding events, conditions and financial trends that may affect the Company's future plans of operations, business strategy, results of operations and financial position. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995. Factors that could cause or contribute to such differences include, but are not limited to, those described below, under the heading "Factors Affecting Future Operating Results" and elsewhere in this Quarterly Report on Form 10-Q. Overview Spectrian designs, manufacturers and markets high-power RF amplifiers and semiconductor devices, for the global wireless communications industry. The Company's power amplifiers support a broad range of transmission standards, including AMPS, TDMA, CDMA, PCS, GSM, WLL, and IMT-2000. Spectrian's power amplifiers are utilized as part of the infrastructure for both wireless voice and data networks. The Company's power amplifiers boost the power of a signal so that it can reach a wireless phone or other device within a designated geography. The Company's semiconductor devices are key components of a power amplifier. UltraRF, the tradename for the Company's semiconductor division, operates its own wafer fabrication facility that utilizes bipolar and LDMOS technologies. This facility is capable of processing MOS devices with gold metallization. Using this fabrication facility, UltraRF produces high-power, high-performance LDMOS RF power semiconductors, which are one critical enabling component in the design and manufacture of second and third generation wireless infrastructure equipment. In addition to its own unique designs, UltraRF also produces functional equivalents to some devices provided by other manufacturers. For the three months ended July 2, 2000, Nortel Networks Corporation ("Nortel") and Verizon Communications ("Verizon"), formed by the merger of Bell Atlantic and GTE Corporation, accounted for approximately 61% and 28% of net revenues, respectively. For the three months ended June 27, 1999, Nortel and LG Information & Communications, Inc. ("LGIC") accounted for approximately 83% and 12% of net revenues, respectively. The Company's business, financial condition and results of operations have been materially adversely affected in the past by anticipated orders failing to materialize and by deferrals or cancellations of orders as a result of changes in OEM requirements. In the year ended March 31, 1999 ("fiscal 1999") and the first and fourth quarters of the year ended March 31, 2000 ("fiscal 2000"), product orders fell sharply resulting in substantial losses in those fiscal periods. There can be no assurance that the Company will not experience such fluctuations in the future. In September 1999, the Company announced that it expected that it would not be developing new products for Nortel but would continue to supply Nortel with existing products. If the Company is unable to find other customers to generate demand for its new products, the Company's revenues may be materially adversely affected. If the Company were to lose Nortel, Verizon or any other major OEM customer, or if orders by Nortel, Verizon or any other major OEM customer were to otherwise materially decrease either in unit quantity or in price, the Company's business, financial condition and results of operations would be materially adversely affected. During the three months ended July 2, 2000 and June 27, 1999, sales outside of the United States were 66% and 92%, respectively. The Company expects that international sales will continue to account for a significant percentage of the Company's net revenues for the foreseeable future. Financial market turmoil, economic downturn, consolidation or merger of customers, and other changes in business conditions in any of the Company's current or future markets, such as South Korea and France, may have a material adverse effect on the Company's sales of its products. Furthermore, because the Company's products are priced in U.S. dollars, currency fluctuations and 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) instability in the financial markets that are served by the Company may have the effect of making the Company's products more expensive than those of other manufacturers whose products are priced in the local currency of the customer and may result in reduced revenues for the Company. In Sunnyvale, California, the Company manufactures low-volume single carrier and multicarrier power amplifier products, and services all of its power amplifier products. In addition, the Company operates a four-inch semiconductor wafer fabrication facility and semiconductor assembly and testing operation in Sunnyvale, California. During fiscal 1999, the Company transitioned the assembly and test of its higher volume single carrier power amplifier products to a contract manufacturer located in Thailand on a turnkey basis. In the year ended March 31, 2001 ("fiscal 2001"), the Company plans to transfer the remaining power amplifier production in Sunnyvale to the contract manufacturer. The Company utilizes contract manufacturing to decrease the Company's manufacturing overhead and costs of its products, to increase flexibility to respond to fluctuations in product demand and to leverage the strengths of the contract manufacturer's focus on high volume, high quality manufacturing. The cost of transitioning manufacturing activities to the contract manufacturer in fiscal 1999 were higher than the savings from costs of products, which adversely affected the Company's gross margin for fiscal 1999. The Company anticipates that its gross margin will be adversely affected in fiscal 2001 during the transition of the remaining power amplifier production to the contract manufacturer. As a result of its wafer fabrication facility and other manufacturing and development infrastructure, the Company has a high level of fixed costs and is dependent upon substantial revenue to achieve and maintain profitability. The Company's semiconductor fabrication facilities entails a number of risks, including a high level of fixed and variable costs, the management of complex processes, dependence on a single source of supply for certain components and services, and a strict regulatory environment. During periods of low demand, high fixed wafer fabrication costs are likely to have a material adverse effect on the Company's operations. In addition, the Company's strategy of frequently introducing and rapidly expanding the manufacture of new products to meet evolving OEM customer and wireless service provider needs has caused the Company to experience high materials and manufacturing costs, including high scrap and material waste, significant material obsolescence, labor inefficiencies, high overtime hours, inefficient material procurement and an inability to realize economies of scale. The market for the Company's products is becoming increasingly competitive. The Company is selling its power amplifier products in South Korea, as well as directly to cellular service providers where its competitors are already established as suppliers. In addition, the Company competes with at least one merchant amplifier manufacturer for business from Nortel. This competition has resulted in, and will continue to result in reduced average selling prices for the Company's products, which accordingly will negatively impact gross margins. Results of Operations The following table sets forth for the periods indicated certain statement of operations data of the Company expressed as a percentage of total revenues and gross margin on sales. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Three months ended July 2, June 27, 2000 1999 ---- ---- NET REVENUES 100.0% 100.0% ----- ----- COSTS AND EXPENSES: Cost of revenues 83.6 82.2 Research and development 13.3 15.5 Selling, general and administrative 13.4 13.6 ----- ----- Total costs and expenses 110.3 111.3 ----- ----- OPERATING LOSS (10.3) (11.3) INTEREST INCOME 1.4 3.6 INTEREST EXPENSE (0.1) (0.5) ----- ----- LOSS BEFORE INCOME TAXES (9.0) (8.2) INCOME TAXES -- 0.1 ----- ----- NET LOSS (9.0)% (8.3)% ===== ===== GROSS MARGIN ON SALES 16.4% 17.8% ===== ===== Net Revenues. The Company's revenues increased 34% to $42.2 million for the three months ended July 2, 2000 from $31.5 million for the three months ended June 27, 2000. The growth in revenue was primarily due to higher demand in the single carrier power amplifier ("SCPA") products, primarily new Broadband products, and achieving volume shipments of the new multi-channel power amplifier ("MCPA") products. SCPA revenues, including the new single carrier Broadband products, increased 8% to $33.2 million for the three months ended July 2, 2000 from $30.7 million for the three months ended June 27, 1999. MCPA revenues increased 1,018% to $8.7 million for the three months ended July 2, 2000 from $0.8 million for the three months ended June 27, 1999. UltraRF revenues from external customers increased to $0.3 million from none for the three months ended July 2, 2000 and June 27, 1999, respectively. Cost of Revenues. Cost of revenues consists primarily of turnkey amplifier costs for the Company's higher volume products, internal amplifier assembly and test costs for its lower volume and new products, radio frequency ("RF") semiconductor fabrication, assembly and test costs, raw materials, manufacturing overhead and warranty costs. The Company's cost of revenues increased by 36% to $35.3 million for the three months ended July 2, 2000 from $25.9 million for the three months ended June 27, 2000. The increase on a dollar basis for the three months ended July 2, 2000 was due to higher production volumes associated with the increased revenues. Gross margin on sales was 16% for the three months ended July 2, 2000 as compared to 18% for the three months ended June 27, 1999. The decrease in gross margin reflects a change in product mix and declining average sales prices in certain volume products which were partially offset by cost improvements resulting from lower per unit manufacturing costs driven by higher production volumes, product cost reduction initiatives, and the increased use of contract manufacturing. Research and Development. Research and development ("R&D") expenses include the cost of designing, developing or reducing the manufacturing cost of amplifiers and RF semiconductors. The Company's R&D expenses increased by 15% to $5.6 million in the three months ended July 2, 2000 from $4.9 million in the three months ended June 27, 1999. As a percentage of revenues, R&D expenses declined to 13% of revenues for the three months ended July 2, 2000 as compared to 16% of revenues for the three months ended June 27, 1999. The increase in R&D expenses on a dollar basis reflects new product development initiatives required to meet current and future market and customer requirements. The decrease in R&D expenses on percentage of revenues basis reflects substantially higher revenue levels. Selling, General and Administrative. Selling, general and administrative ("SG&A") expenses include compensation and benefits for sales, marketing, senior management and administrative personnel, commissions paid to 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) independent sales representatives, professional fees and other expenses. The Company's SG&A expenses increased by 32% to $5.7 million in the three months ended July 2, 2000 from $4.3 million in the three months ended June 27, 1999. As a percentage of revenues, SG&A expenses declined to 13% of revenues for the three months ended July 2, 2000 as compared to 14% of revenues for the three months ended June 27, 1999. The increase in SG&A expenses on a dollar basis was principally due to increased commissions, marketing efforts to diversify the customer base, creation of the UltraRF sales force and network, and added maintenance and support for the new enterprise resource planning ("ERP") system. The decrease in SG&A expenses on percentage of revenues basis reflects substantially higher revenue levels. Interest Income. Interest income for the three months ended July 2, 2000 decreased to $0.6 million from $1.1 million for the three months ended June 27, 1999. The decrease in interest income resulted from lower interest-bearing investment balances associated with reduced average cash and cash equivalent balances. Interest Expense. Interest expense for the three months ended July 2, 2000 decreased to $46,000 from $158,000 for the three months ended June 27, 1999. The decrease in interest expense resulted from substantially reduced average borrowings levels. Income Taxes. Due to the losses incurred by the Company in prior years and the related net operating loss carryforwards available to the Company, the Company did not record an income tax expense except for the minimum state income tax expense for the three months ended July 2, 2000. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established a new model for accounting for derivative and hedging activities. In July, 1999 the Financial Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until the first fiscal year beginning after June 15, 2000. SFAS 133 is not expected to have any material impact on the Company's consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin: No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company has until the fourth quarter of fiscal 2001 to comply with the guidance in SAB 101. SAB 101 is not expected to have any material impact on the Company's consolidated financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions involving Stock Compensation" an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of certain provisions prior to July 1, 2000 did not have a material effect. The Company believes that the adoption of the remaining provisions of FIN 44 will not have a material effect on its financial position or results of operations. Liquidity and Capital Resources The Company has financed its growth through sales of common stock, private sales of equity securities, capital equipment leases, bank lines of credit and cash flows from operations. Principal sources of liquidity at July 2, 2000 consisted of cash, cash equivalents and short-term investments of $42.4 million and bank borrowing arrangements. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has a revolving line of credit of $10.0 million with a bank collateralized by the majority of the Company's assets. The line of credit expires on June 30, 2001. Under the terms of the master agreement governing this credit instrument, the Company is required to maintain certain minimum working capital, net worth, profitability and other specific financial ratios. The master agreement also has certain restrictions on other indebtedness and the payment of dividends. The Company was in default of certain of the covenants and the bank has granted a waiver of the default effective through September 30, 2000. The amount available to borrow at July 2, 2000 was $10.0 million. The Company can borrow at either (i) a variable rate equal to the prime rate or (ii) a fixed rate equal to 200 basis points above the LIBOR rate, which at July 2, 2000 was 9.5% and 8.79%, respectively. The Company had no borrowings under the line of credit at July 2, 2000. In January 1997, the Company borrowed $6.0 million under a term collaterized by certain capital equipment. Under the terms of the loan agreement, which expires in January 2002, the Company is required to make a series of uneven monthly principal payments ranging from $42,000 to $136,000, plus interest at a rate of 9.1%, and must maintain certain minimum working capital, net worth and other specific ratios for which the Company was in compliance as of July 2, 2000. The Company's working capital decreased by $2.0 million to $77.4 million as of July 2, 2000 from $79.4 million as of March 31, 2000. The decrease was primarily attributable to a $5.2 million decrease in cash, cash equivalents and short-term investments, a $2.9 million increase in accounts payable, which were partially offset by a $3.5 million increase in accounts receivable, a $1.8 million increase in prepaid expenses and other current assets, and a $1.0 million decrease in accrued liabilities. The Company's short-term investments were principally invested in investment grade, interest-bearing securities. Cash used by operations was $4.1 million for the three months ended July 2, 2000 compared to cash used by operations for the three months ended June 27, 1999 of $6.3 million. Cash used by operations for the three months ended July 2, 2000 was principally the result of a $3.8 million net loss, a $3.5 million increase in accounts receivable, which increased as a result of the timing of shipments late in the quarter, a $1.8 million increase in prepaid expenses and other current assets and a $1.0 million reduction in accrued liabilities which were partially offset by a $2.9 million increase in accounts payable, which increased proportionately with production levels, and depreciation and amortization of $2.9 million. The Company's investing activities during the three months ended July 2, 2000 provided cash of approximately $2.6 million as compared to using $0.8 million of cash during the comparable period in the prior year. Cash provided by investing activities during the three months ended July 2, 2000 resulted primarily from $4.9 million in proceeds from sale and maturities of short-term investments which were partially offset by $2.2 million in additions to property and equipment. Capital additions for the three months ended July 2, 2000 included manufacturing test and production equipment required to support new products and test equipment to support various research and development projects. The Company's financing activities during the three months ended July 2, 2000 provided cash of approximately $1.1 million as compared to cash provided of $0.8 million during the comparable period in the prior year. Cash provided by financing activities during the three months ended July 2, 2000 was the result of $1.2 million in proceeds from the issuance of common stock, through the exercise of employee stock options and employee stock purchase plan activity, which was partially offset by $0.1 million in repayments of debt and capital lease obligations. The Company anticipates spending approximately $7.3 million over the next three months for capital additions primarily to support manufacturing production and test requirements and development projects. Based on the Company's current working capital position, the cash flows the Company expects to generate from the remainder of fiscal 2001 operations, and the available line of credit, 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 future periods will depend on the Company's profitability, timing and level of capital expenditures, working capital requirements and rate of growth. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Factors Affecting Future Operating Results Customer Concentration; Dependence on Nortel and Verizon. The wireless infrastructure equipment market is dominated by a small number of large OEMs, including Ericsson, Lucent, Motorola, Nortel, Verizon and Siemens. The Company's revenues are derived primarily from sales to a limited number of these OEMs, in particular, Nortel and Verizon. Furthermore, a substantial portion of revenues from Nortel in the past has resulted from sales of a limited number of the Company's products. The Company's business, financial condition and results of operations have been materially adversely affected in the past by anticipated orders failing to materialize and by deferrals or cancellations of orders as a result of changes in OEM requirements. The Company and Nortel have a supply agreement, renegotiated annually, pursuant to which Nortel commits to purchase a certain volume of its annual power amplifier requirements for specified prices from the Company. This agreement allows Nortel to change the product mix requirements, which can significantly affect the Company's gross margins, and to change requested delivery dates without significant financial consequences to Nortel, which affect the Company's ability to efficiently manage production schedules and inventory levels and to accurately forecast product sales. In September 1999, the Company announced that it expected that it would not be developing products for Nortel but that it will continue to supply Nortel with existing products. There can be no assurance that Nortel will purchase existing products from the Company in the future or otherwise agree to purchase the same or similar levels of its power amplifier requirements from the Company or purchase its power amplifier requirements at the same or similar pricing. Any reduction in the level of purchases of the Company's amplifiers by Nortel or Verizon, or any material reduction in pricing without significant offsets, would have a material adverse effect on the Company's business, financial condition and results of operations. If the Company's current or new customers do not generate sufficient demand for the Company's new products replacing prior demand from Nortel, the Company's business financial condition and results of operations could be materially adversely affected. Further, if the Company were to lose Nortel or any other major OEM customer, or if orders by Nortel or Verizon or any other major OEM customer were to otherwise materially decrease, the Company's business, financial condition and results of operations would be materially adversely affected. In addition, wireless infrastructure equipment OEMs have come under increasing price pressure from wireless service providers, which in turn has resulted in downward pricing pressure on the Company's products. The Company expects to incur increasing pricing pressures from Nortel, Verizon and other major OEM customers in future periods, which could result in declining average sales prices and gross margins for the Company's products. Fluctuations in Operating Results. The Company's quarterly and annual results have in the past been, and will continue to be, subject to significant fluctuations due to a number of factors, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the Company's results of operations are likely to vary due to the timing, cancellation, delay or rescheduling of OEM customer orders and shipments; the timing of announcements or introductions of new products by the Company, its competitors or their respective OEM customers; the acceptance of such products by wireless equipment OEMs and their customers; relative variations in manufacturing efficiencies, yields and costs; competitive factors such as the pricing, availability, and demand for competing amplification products; changes in average sales prices and related gross margins which vary significantly based upon product mix; subcontractor performance; variations in operating expenses; changes in manufacturing capacity and variations in the utilization of this capacity; shortages of key supplies; the long sales cycles associated with the Company's customer specific products; the timing and level of product and process development costs; changes in inventory levels; and the relative strength or weakness of international financial markets. Anticipated orders from the Company's OEM customers have in the past failed to materialize and delivery schedules have been deferred or canceled as a result of changes in OEM customer requirements and the Company expects this pattern to continue as customer requirements continue to change and industry standards continue to evolve. Reduced demand for wireless infrastructure equipment in the past has caused significant fluctuations in the Company's product sales. There can be no assurance that the Company will not experience such fluctuations in the future. The Company does not believe that it will have the annual revenue growth it experienced in fiscal 2000, in the future, if at all. The Company establishes its expenditure levels for product development and other operating expenses based on its expected revenues, and expenses are relatively fixed in the short term. As a result, variations in timing of revenues can cause significant variations in quarterly results of operations. There can be no assurance that the Company will be profitable on a quarter to quarter basis in the future. The Company believes that period to period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to all the foregoing factors, it is likely that in some future quarter or quarters the Company's revenues or operating results will not meet the 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) expectations of public stock market analysts or investors. In such event, the market price of the Company's Common Stock would be materially adversely affected. Declining Average Sales Prices. The Company has experienced, and expects to continue to experience, declining average sales prices for its products. Wireless infrastructure equipment manufacturers have come under increasing price pressure from wireless service providers, which in turn has resulted in downward pricing pressure on the Company's products. In addition, competition has increased the downward pricing pressure on the Company's products. Since wireless infrastructure equipment manufacturers frequently negotiate supply arrangements far in advance of delivery dates, the Company often must commit to price reductions for its products before it is aware of how, or if, cost reductions can be obtained. To offset declining average sales prices, the Company believes that it must achieve manufacturing cost reductions. If the Company is unable to achieve such cost reductions, the Company's gross margins will decline, and such decline will have a material adverse effect on the Company's business, financial condition and results of operations. Product Quality, Performance and Reliability. The Company expects that its customers will continue to establish demanding specifications for quality, performance and reliability that must be met by the Company's products. Power amplifiers as complex as those offered by the Company often encounter development delays and may contain undetected defects or failures. The Company has from time to time in the past experienced product quality, performance and reliability problems. In addition, multicarrier power amplifiers have a higher probability of malfunction than single carrier power amplifiers because of their greater complexity. There can be no assurance that defects or failures relating to the Company's product quality, performance and reliability will not occur in the future that may have a material adverse effect on the Company's business, financial condition and results of operations. Internal Amplifier Design and Production Capabilities of OEMs. The Company believes that a majority of the present worldwide production of power amplifiers is captive within the manufacturing operations of wireless equipment OEMs, many of which have chosen not to purchase amplifiers from outside suppliers. In addition, these manufacturers could decide to sell amplifiers to other wireless equipment OEMs. If this should occur, the competition for power amplifiers would significantly increase and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also believes that those OEMs that purchase from third party amplifier vendors are reluctant to switch once committed to a particular merchant vendor. Consequently, the Company has only limited opportunities to increase revenues by replacing internal OEM amplifier production or displacing other merchant amplifier suppliers. Moreover, given the limited opportunities for merchant power amplifier suppliers, any decision by an OEM to employ a second source merchant supplier for a product currently purchased from a merchant supplier may reduce the existing merchant supplier's ability to maintain a given level of product sales to such OEM or, possibly, to retain the OEM as a customer due to price competition from the second source merchant supplier. There can be no assurance that the Company's major OEM customers will continue to rely, or increase their reliance, on the Company as an external source of supply for their power amplifiers, or that other wireless equipment OEMs will become customers of the Company. If the major wireless infrastructure equipment suppliers do not purchase or continue to purchase their power amplifiers from merchant suppliers, the Company's business, results of operations and financial condition will be materially adversely affected. Rapid Technological Change; Evolving Industry Standards; Dependence on New Products. The markets in which the Company and its OEM customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. In particular, because the Company's strategy of rapidly bringing to market products customized for numerous and evolving modulation standards requires developing and achieving volume production of a large number of distinct products, the Company's ability to rapidly design and produce individual products for which there is significant OEM customer demand will be a critical determinant of the Company's future success. A softening of demand in the markets served by the Company or a failure of modulation standard in which the Company has invested substantial development resources may have a material adverse effect on the Company's business, financial condition and results of operations. No assurance can be given that the Company's product development efforts will be successful, that its new products will meet customer requirements and be accepted or that its OEM customers' product offerings will achieve customer acceptance. If a significant number of development projects, including the Company's new multicarrier products, do not result in substantial volume production or if technologies or standards supported by the Company's or its customers' products 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) become obsolete or fail to gain widespread commercial acceptance, the Company's business may be materially adversely affected. Sole or Limited Sources of Materials and Services. The Company currently procures from single sources certain components and services for its products including, but not limited to, turnkey amplifier assemblies and specialized components. The Company purchases these products, components and services on a purchase order basis, does not carry significant inventories of these components and does not have any long-term supply contracts with its sole source vendors. Furthermore, the Company began outsourcing assembly of some of its higher volume power amplifiers during the third fiscal quarter of 1999 and will transfer the remaining power amplifier production during fiscal 2001 to a contract manufacturer. The Company issues non-cancelable purchase orders to the contract manufacturer 60 days in advance of requested delivery which is greater than the committed delivery schedule of some of its customers, such as Nortel. The Company's reliance on sole sources for certain components and its migration to an outsourced, turnkey manufacturing strategy entail certain risks including reduced control over the price, timely delivery, reliability and quality of the components. If the Company were to change any of its sole source vendors or contract manufacturer, the Company would be required to requalify the components with each new vendor or contract manufacturer, respectively. Any inability of the Company to obtain timely deliveries of components or assembled amplifiers of acceptable quality in required quantities or a significant increase in the prices of components for which the Company does not have alternative sources could materially and adversely affect the Company's business, financial condition and results of operations. The Company has occasionally experienced difficulties in obtaining some components, and no assurance can be given that shortages will not occur in the future. Risks of International Sales. The Company operates in an international market and expects that international sales will continue to account for a significant percentage of the Company's total revenues for the foreseeable future. These sales involve a number of inherent risks, including imposition of government controls, currency exchange fluctuations, potential insolvency of international distributors, representatives and customers, reduced protection of intellectual property rights in some countries, the impact of recessionary environments in economies outside the United States, political instability and generally longer receivables collection periods, as well as tariffs and other trade barriers. In addition, because substantially all of the Company's foreign sales are denominated in U.S. dollars, increases in the value of the dollar relative to the local currency would increase the price of the Company's products in foreign markets and make the Company's products relatively more expensive and less price competitive than competitors' products that are priced in local currencies. There can be no assurance that these factors will not have a material adverse effect on the Company's future international sales and, consequently, on the Company's business, financial condition and results of operations. The Company anticipates that turmoil in financial markets and the deterioration of the underlying economic conditions in certain countries where the Company has significant sales may have an impact on its sales to customers located in or whose projects are based in those countries due to the impact of currency fluctuations on the relative price of the Company's products and restrictions on government spending imposed by the International Monetary Fund (the "IMF") on those countries receiving the IMF's assistance. In addition, customers in those countries may face reduced access to working capital to fund component purchases, such as the Company's products, due to higher interest rates, reduced funding of wireless infrastructure by domestic governments, reduced bank lending due to contractions in the money supply or the deterioration in the customer's or its bank's financial condition or the inability to access equity financing. A substantial majority of the Company's products are sold to OEMs who incorporate the Company's products into systems sold and installed to end-user customers. These OEMs are not required by contract and do not typically provide the Company with information regarding the location and identity of their end-user customers, and, therefore, the Company is not able to determine what portion of its product sales have been or future orders will be incorporated into OEM sales to end-users in countries experiencing financial market turmoil and/or deterioration of economic conditions. Furthermore, a large portion of the Company's existing customers and potential new customers are servicing new markets in developing countries that the Company's customers expect will deploy wireless communication networks as an alternative to the construction of a wireline infrastructure. If such countries decline to construct wireless communication systems, or construction of such systems is delayed for any reason, including business and economic conditions and changes in economic stability due to factors such as increased inflation and political turmoil, such delays could have a material adverse effect on the Company's business, financial condition and results of operations. Reliance upon Growth of Wireless Services. Sales of power amplifiers to wireless infrastructure equipment suppliers have in the past accounted, and are expected in the future to account, for substantially all of the Company's 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) product sales. Demand for wireless infrastructure equipment is driven by demand for wireless service. Although demand for power amplifiers has grown in recent years, if demand for wireless services fails to increase or increases more slowly than the Company or its OEM customers currently anticipate, the Company's business, financial condition and results of operations would be materially and adversely affected. Market for the Company's Products Is Highly Competitive. The wireless communications equipment industry is extremely competitive and is characterized by rapid technological change, new product development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. The ability of the Company to compete successfully and sustain profitability depends in part upon the rates at which wireless equipment OEMs incorporate the Company's products into their systems and the Company captures market share from other merchant suppliers. The Company's major OEM customers continuously evaluate whether to manufacture their own amplification products or purchase them from outside sources. There can be no assurance that these OEM customers will incorporate the Company's products into their systems or that in general they will continue to rely, or expand their reliance, on external sources of supply for their power amplifiers. These customers and other large manufacturers of wireless communications equipment could also elect to enter the merchant market and compete directly with the Company, and at least one OEM, NEC, has already done so. Such increased competition could materially adversely affect the Company's business, financial condition and results of operations. The Company's principal competitors in the market for wireless amplification products provided by merchant suppliers currently include AML Communications, Amplidyne, Microwave Power Devices, NEC and Powerwave Technologies. No assurance can be given that the Company's competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features compared to the Company's products. Uncertain Protection of Intellectual Property. The Company's ability to compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The Company has a policy of seeking patents on inventions resulting from its ongoing research and development activities. There can be no assurance that the Company's pending patent applications will be allowed or that the issued or pending patents will not be challenged or circumvented by competitors. Notwithstanding the Company's active pursuit of patent protection, the Company believes that the success of its business depends more on the collective value of its patents, specifications, computer aided design and modeling tools, technical processes and employee expertise. The Company generally enters into confidentiality and nondisclosure agreements with its employees, suppliers, OEM customers, and potential customers and limits access to and distribution of its proprietary technology. However, there can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, or that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors. The failure of the Company to protect its proprietary technology could have a material adverse effect on its business, financial condition and results of operations. Risk of Third Party Claims of Infringement. The communications equipment industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in significant and often protracted and expensive litigation. Although there is currently no pending intellectual property litigation against the Company, the Company or its suppliers may from time to time be notified of claims that the Company may be infringing patents or other intellectual property rights owned by third parties. If it is necessary or desirable, the Company may seek licenses under such patents or other intellectual property rights. However, there can be no assurance that licenses will be offered or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain a license from a third party for technology used by the Company or otherwise secure rights to use such technology could cause the Company to incur substantial liabilities, to suspend the manufacture of products or expend significant resources to develop noninfringing technology. There can be no assurance that the Company would be successful in such development or that such licenses would be available on reasonable terms, if at all. In the event that any third party makes a successful claim against the Company or its customers and either a license is not made available to the Company on commercially reasonable terms or a "design around" is not practicable, the Company's business, financial condition and results of operations would be materially adversely affected. Furthermore, the Company may initiate claims or litigation against third parties for infringement of the Company's proprietary rights or to establish the validity of the Company's proprietary rights. Litigation by or against 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the Company could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation results in a favorable determination for the Company. In the event of an adverse result in any such litigation, the Company could be required to pay substantial damages, indemnify its customers, cease the manufacture, use and sale of infringing products, expend significant resources to develop noninfringing technology, discontinue the use of certain processes or obtain licenses to the infringing technology. Government Regulation of Communications Industry. Radio frequency transmissions and emissions, and certain equipment used in connection therewith are regulated in the United States, Canada and throughout the rest of the world. Regulatory approvals generally must be obtained by the Company in connection with the manufacture and sale of its products, and by wireless service providers to operate the Company's products. The United States Federal Communications Commission (the "FCC") and regulatory authorities abroad constantly review RF emission issues and promulgate standards based on such reviews. If more stringent RF emission regulations are adopted, the Company and its OEM customers may be required to alter the manner in which radio signals are transmitted or otherwise alter the equipment transmitting such signals, which could materially adversely affect the Company's products and markets. The enactment by federal, state, local or international governments of new laws or regulations or a change in the interpretation of existing regulations could also materially adversely affect the market for the Company's products. Although deregulation of international communications industries along with radio frequency spectrum allocations made by the FCC have increased the potential demand for the Company's products by providing users of those products with opportunities to establish new wireless personal communications services, there can be no assurance that the trend toward deregulation and current regulatory developments favorable to the promotion of new and expanded personal communications services will continue or that other future regulatory changes will have a positive impact on the Company. The increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for such products, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in this governmental approval process have in the past caused, and may in the future cause, the cancellation, postponement or rescheduling of the installation of communications systems by the Company's OEM customers. These delays have had in the past, and in the future may have, a material adverse effect on the sale of products by the Company to such OEM customers. Environmental Regulations. The Company is subject to a variety of local, state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, the failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. Compliance with such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses. Any failure by the Company to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject the Company to significant liabilities, including joint and several liabilities under certain statutes. The imposition of such liabilities could materially adversely affect the Company's business, financial condition and results of operations. Management of Growth; Dependence on Key Personnel. The Company's business and growth has placed, and is expected to continue to place, a significant strain on the Company's personnel, management and other resources. The Company's ability to manage any future growth effectively will require it to attract, motivate, manage and retain new employees successfully, especially in the highly competitive northern California job market, to integrate new employees into its overall operations and to retain the continued service of its key technical, marketing and management personnel, and to continue to improve its operational, financial and management information systems. Although the Company has employment contracts with several of its executive officers, these agreements do not obligate such individuals to remain in the employment of the Company. The Company does not maintain key person life insurance on any of its key technical personnel. The competition for such personnel is intense. The Company has experienced loss of key employees in the past and could in the future. Such losses could have a material adverse effect on the Company. On March 31, 2000, the Company employed Mr. Thomas H. Waechter as its President and Chief Executive Officer. There can be no assurance that Mr. Waechter will operate effectively with existing management nor that he will be able to retain or attract additional executive officers as needed. As a result of the plan to discontinue manufacturing operations in Sunnyvale, California, and the other restructuring activities, several key executives will cease to be employees of the Company. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's ability to manage its growth will require it to continue to invest in its operational, financial and management information systems, procedures and controls. The Company can give no assurance that it will be able to manage its growth effectively. Failure to manage growth effectively would have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, from time to time, pursue the acquisition of other companies, assets or product lines that complement or expand its existing business. The Company may also, from time to time, pursue divestitures of existing operations. Acquisitions and divestitures involve a number of risks that could adversely affect the Company's operating results. These risks include the diversion of management's attention from day-to-day business, the difficulty of combining and assimilating the operations and personnel of the acquired companies, charges to the Company's earnings as a result of the purchase of intangible assets, and the potential loss of key employees as a result of an acquisition. Should any acquisition take place, we can give no assurance that this acquisition will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. Volatility of Stock Price. The market price of the shares of Common Stock has been and is likely to continue to be highly volatile, and is affected significantly by factors such as fluctuations in the Company's quarterly and annual operating results, customer concentration, the timing difference between Nortel's requested delivery dates and its vendor purchase commitments to support the customer's delivery requirements, reliance on international markets, the absence of the economies of scale achieved by some of its competitors, announcements of technological innovations, new customer contracts or new products by the Company or its competitors, announcements by the Company's customers regarding their business or prospects, changes in analysts' expectations, estimates and recommendations, news reports regarding the Company, its competitors and its markets, governmental regulatory action, developments with respect to patents or proprietary rights, announcements of significant acquisitions or strategic partnerships by the Company or its competitors, announcements of significant divestitures of existing businesses or product lines, general market conditions and other factors. In addition, the stock market in general, and the market prices for power amplifier manufacturers in particular, have experienced extreme volatility that is often unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the price of the Company's common stock, regardless of actual operating performance. The market price of the Company's Common Stock has fluctuated significantly in the past. Legal Proceedings. On May 19, 2000, the Company announced that it had reached a settlement in principle of the shareholder class action lawsuits which were filed in the United States District Court for the Northern District of California and the Superior Court of the State of California for Santa Clara County. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. The final settlement agreement is subject to Court approval and class notice provisions. Shareholder Rights Plan; Issuance of Preferred Stock. The Board of Directors of the Company adopted a Shareholder Rights Plan in October 1996 (the "Rights Plan"). Pursuant to the Rights Plan, the Board declared a dividend of one Preferred Stock Purchase Right per share of Common Stock (the "Rights") and each such Right has an exercise price of $126.00. The Rights become exercisable upon the occurrence of certain events, including the announcement of a tender offer or exchange offer for the Company's Common Stock or the acquisition of a specified percentage of the Company's Common Stock by a third party. The exercise of the Rights could have the effect of delaying, deferring or preventing a change in control of the Company, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of the Company's Common Stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. The Board of Directors has the authority to issue up to 5,000,000 shares of undesignated Preferred Stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the Company's stockholders. For example, in connection with the Company's Shareholder Rights Plan, the Board of Directors designated 20,000 shares of Preferred Stock as Series A Participating Preferred Stock although none of such shares have been issued. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of Common Stock. The issuance of Preferred Stock under certain circumstances could have the effect of delaying, deferring or preventing a change in control of the Company. Additional Factors Affecting Future Operating Results of UltraRF 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Capacity Constraints. UltraRF's facilities have a level of capacity beyond which it cannot cost effectively produce its products. Although UltraRF is not currently approaching those constraints, it may be unable to further expand its business if it fails to plan and build sufficient capacity. UltraRF may attempt to increase its capacity by converting its existing facility to accommodate equipment that uses six-inch wafers. UltraRF does not have any experience processing six-inch wafers in UltraRF's fabrication facilities. UltraRF may be required to redesign its processes and procedures substantially to accommodate the larger wafers. As a result, implementing additional capacity for six-inch wafers may take longer than planned, which could harm UltraRF's results of operations. The process of converting to six-inch wafers must begin substantially prior to receiving actual customer demand for products. If the customer demand for products is not realized or implementation takes longer than planned, the results will have a material adverse effect on the Company's business, financial condition and results of operations. Risks Associated with UltraRF's Wafer and Device Fabrication. UltraRF's operation of its wafer and device fabrication facilities entails a number of risks, including a high level of fixed and variable costs, the management of complex processes, dependence on a single source of supply for certain components and services, and a strict regulatory environment. During periods of low demand, high fixed wafer fabrication costs are likely to have a material adverse effect on UltraRF's business, financial condition and results of operations. The design and fabrication of RF semiconductors is a complex and precise process. Such manufacturing is sensitive to a wide variety of factors, including variations and impurities in the raw materials, quality control of the packages, difficulties in the fabrication process, performance of the manufacturing equipment, defects in the masks used to print circuits on a wafer and the level of contaminants in the manufacturing environment. As a result of these and other factors, semiconductor manufacturing yields from time to time in the past have suffered, and there can be no assurance that UltraRF will be able to achieve acceptable production yields in the future. In addition, UltraRF's wafer and device fabrication facility represents a single point of failure in its manufacturing process that would be costly and time consuming to replace if its operation were interrupted. The interruption of wafer fabrication operations, the loss of key employees dedicated to the wafer and device fabrication facilities, or any failure to maintain acceptable wafer and device production levels could have a material adverse effect on UltraRF's business, financial condition and results of operations. Risks Associated with Development of LDMOS RF. UltraRF's business could be adversely affected by its failure to develop and market its LDMOS RF power transistors competitively UltraRF sells its products in an industry characterized by rapid technological changes, frequent new product and service introductions and evolving industry standards. UltraRF can provide no assurance that its development efforts will result in commercially successful LDMOS products in a timely or cost-effective manner, if at all. UltraRF's competitors are also expected to develop and sell devices suitable for these markets and may produce devices with superior performance to UltraRF's planned developments. Failure by UltraRF to develop competitive devices could adversely affect its business. Risks Associated with Relationship with the Company. UltraRF's close relationship with the Company could limit UltraRF's potential to do business with the Company's competitors. The Company currently is UltraRF's largest customer, and UltraRF expects to have a variety of ongoing contractual relationships with the Company. UltraRF cannot predict whether existing or potential customers who are competitors of the Company will be deterred by the existence of such a relationship between the Company and UltraRF. If they are deterred, UltraRF's future growth could be hindered. Risks Associated with the Cyclical Nature of the Semiconductor Industry. From time to time, the semiconductor industry has experienced significant downturns and wide fluctuations in product supply and demand. This cyclicality has led to significant imbalances in demand and production capacity. It has also accelerated the decrease of average selling prices per unit. UltraRF may experience periodic fluctuations in its future financial results because of these or other industry-wide conditions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company develops products in the United States and markets its products in North America, Europe and the Asia-Pacific region. Thus, the financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make the Company's products less competitive in foreign markets. The Company's exposure to market rate risk for changes in interest rates relate primarily to its investment portfolio. The Company does not hold derivative financial instruments in its investment portfolio. The Company 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) places its investments with high quality institutions and limits the amount of credit exposure to any one issuer. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default, market and reinvestment risk. The Company classifies its short-term investments as "fixed-rate" if the rate of return on such instruments remains fixed over their term. These "fixed-rate" investments include fixed-rate U.S. government securities and corporate obligations with contractual maturity dates ranging from less than one year to greater than 10 years. The table below presents the amounts and related weighted interest rates of the Company's short-term investments at July 2, 2000 and March 31, 2000 (dollars in thousands). July 2, March 31, 2000 2000 ---- ---- Average fixed interest rate 5.9% 6.0% ======= ======= Amortized cost $31,722 $36,644 ======= ======= Fair value $31,220 $36,027 ======= ======= Contractual maturity dates: Less than 1 year $ -- $ 3,500 1 to 5 years 31,220 32,527 ------- ------- $31,220 $36,027 ======= ======= 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 19, 2000, the Company announced that it had reached a settlement in principle of the shareholder class action lawsuits which were filed in the United States District Court for the Northern District of California and the Superior Court of the State of California for Santa Clara County. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. The final settlement agreement is subject to Court approval and class notice provisions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description ------ ----------------------------------------------------- 3.6 Amended and Restated Bylaws of Spectrian Corporation (a Delaware Corporation) dated June 9, 2000 10.46 Sublease Agreement by and between American Microwave Technology and the Registrant dated May 31, 2000. 21.1 Subsidiaries of the Registrant 27.1 Financial Data Schedule. (b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K during the quarter ended July 2, 2000. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPECTRIAN CORPORATION --------------------- (Registrant) Dated: August 11, 2000 By: /s/ MICHAEL D. ANGEL ------------------------- Michael D. Angel Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary (Authorized Officer and Principal Financial and Accounting Officer) 26 INDEX TO EXHIBITS
Exhibits Description -------- ------------------------------------------------------------------------------- 3.6 Amended and Restated Bylaws of Spectrian Corporation (a Delaware Corporation) dated June 9, 2000 10.46 Sublease Agreement by and between American Microwave Technology and the Registrant dated May 31, 2000. 21.1 Subsidiaries of the Registrant 27.1 Financial Data Schedule
27 EX-3.6 2 0002.txt AMENDED BYLAWS AMENDED AND RESTATED BYLAWS OF SPECTRIAN CORPORATION (a Delaware corporation) (Amended and Restated as of June 9, 2000)
TABLE OF CONTENTS Page ARTICLE I - CORPORATE OFFICES...................................................................1 1.1 REGISTERED OFFICE.............................................................1 1.2 OTHER OFFICES.................................................................1 ARTICLE II - MEETINGS OF STOCKHOLDERS...........................................................1 2.1 PLACE OF MEETINGS.............................................................1 2.2 ANNUAL MEETING................................................................1 S 2.3 SPECIAL MEETING...............................................................3 2.4 NOTICE OF STOCKHOLDERS' MEETINGS..............................................3 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...............3 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................3 2.7 QUORUM........................................................................4 2.8 ADJOURNED MEETING; NOTICE.....................................................4 2.9 VOTING........................................................................4 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT.........................................5 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING....................................5 2.12 PROXIES.......................................................................5 2.13 ORGANIZATION..................................................................6 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.........................................6 ARTICLE III - DIRECTORS.........................................................................7 3.1 POWERS........................................................................6 3.2 NUMBER OF DIRECTORS...........................................................6 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS......................................7 3.4 RESIGNATION AND VACANCIES.....................................................7 3.5 REMOVAL OF DIRECTORS..........................................................8 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................8 3.7 FIRST MEETINGS................................................................9 3.8 REGULAR MEETINGS..............................................................9 3.9 SPECIAL MEETINGS; NOTICE......................................................9 3.10 QUORUM........................................................................9 3.11 WAIVER OF NOTICE.............................................................10 3.12 ADJOURNMENT..................................................................10 3.13 NOTICE OF ADJOURNMENT........................................................10 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................10 3.15 FEES AND COMPENSATION OF DIRECTORS...........................................10 3.16 APPROVAL OF LOANS TO OFFICERS................................................10 3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION.......................11 -i- TABLE OF CONTENTS (continued) Page ARTICLE IV - COMMITTEES......................................................................11 4.1 COMMITTEES OF DIRECTORS......................................................11 4.2 MEETINGS AND ACTION OF COMMITTEES............................................12 4.3 COMMITTEE MINUTES............................................................12 ARTICLE V - OFFICERS...........................................................................12 5.1 OFFICERS.....................................................................12 5.2 ELECTION OF OFFICERS.........................................................12 5.3 SUBORDINATE OFFICERS.........................................................13 5.4 REMOVAL AND RESIGNATION OF OFFICERS..........................................13 5.5 VACANCIES IN OFFICES.........................................................13 5.6 CHAIRMAN OF THE BOARD........................................................13 5.7 CHIEF EXECUTIVE OFFICER AND PRESIDENT........................................14 5.8 VICE PRESIDENTS..............................................................14 5.9 SECRETARY....................................................................14 5.10 CHIEF FINANCIAL OFFICER......................................................15 5.11 ASSISTANT SECRETARY..........................................................15 5.12 ADMINISTRATIVE OFFICERS......................................................15 5.13 AUTHORITY AND DUTIES OF OFFICERS.............................................15 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND HER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................16 6.2 INDEMNIFICATION OF OTHERS....................................................17 6.3 INSURANCE....................................................................17 ARTICLE VII - RECORDS AND REPORTS..............................................................17 7.1 MAINTENANCE AND INSPECTION OF RECORDS........................................17 7.2 INSPECTION BY DIRECTORS......................................................18 7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................................18 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...............................18 7.5 CERTIFICATION AND INSPECTION OF BYLAWS.......................................18 ARTICLE VIII - GENERAL MATTERS.................................................................18 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........................18 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS....................................19 -ii- TABLE OF CONTENTS (continued) 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...........................19 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES.............................19 8.5 SPECIAL DESIGNATION ON CERTIFICATES..........................................20 8.6 LOST CERTIFICATES............................................................20 8.7 TRANSFER AGENTS AND REGISTRARS...............................................21 8.8 CONSTRUCTION; DEFINITIONS....................................................21 ARTICLE IX - AMENDMENTS........................................................................20
-iii- AMENDED AND RESTATED BYLAWS OF SPECTRIAN CORPORATION (a Delaware corporation) ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be fixed in the certificate of incorporation of the corporation. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected, and any other proper business may be transacted. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a stockholder. For nominations or other business to be properly brought before a stockholders meeting by a stockholder pursuant to clause (C) of the preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the first anniversary of the preceding year's annual meeting; provided, however, that in the event that (i) no annual meeting was held in the previous year or (ii) the date of the annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the later of: (i) the day one hundred twenty (120) calendar days in advance of such meeting or (ii) the day ten (10) calendar days following the day on which public announcement of the date of the meeting is first made. In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class number of shares of the corporation which are owned beneficially by such stockholder, (d) any material interest of the stockholder in such business, and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") (or any successor thereto) in such stockholder's capacity as a proponent of a stockholder proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to 2 Regulation 14A under the 1934 Act (or any successor thereto) (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 2.2. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors or the chairman of the board. Special meetings of the stockholders may not be called by any other person or persons. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of directors or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors or (c) otherwise properly brought before the meeting by a stockholder. 3 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.7 QUORUM The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.7 of these bylaws. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time and place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 4 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners, and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to as many votes as shall equal the number of votes which such stockholder would be entitled to cast for the election of directors with respect to his or her shares of stock multiplied by the number of directors to be elected and may cast all such votes for any director or for any two or more of them as such stockholder may see fit. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT Any action which may be taken at any meeting of stockholders may be taken without a meeting and without prior notice, except as required by the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, if a consent in writing, setting forth the actions so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. The record date for any other purpose shall be as provided in Section 8.1 of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. A proxy shall be deemed 5 signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, tele-facsimile or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.13 ORGANIZATION The president, or in the absence of the president, the chairman of the board, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the president, the chairman of the board, and all of the vice presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 6 3.2 NUMBER OF DIRECTORS The board of directors shall consist of five (5) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. (iii) A vacancy created by the removal of a director, except a removal by the stockholders for cause, may be filled by a majority of directors then in office or the stockholders. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree 7 summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, if and so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors, pursuant to Delaware General Corporation Law Section 141(k)(2). For purposes of the foregoing paragraph, "cause" shall mean (i) continued willful failure to perform obligations of a director, (ii) gross negligence by a director, (iii) engaging in transactions that defraud the corporation, (iv) fraud or intentional misrepresentation, including falsifying use of funds and intentional misstatements made in financial statements, books, records or reports to stockholders or governmental agencies, (v) material violation of any agreement between the director and the corporation, (vi) knowingly causing the corporation to commit violations of applicable law (including by failure to act), (vii) acts of moral turpitude or (viii) conviction of a felony. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting of the board, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such participating directors shall be deemed to be present in person at the meeting. 8 3.7 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.8 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time as shall from time to time be determined by the board of directors. If any regular meeting day shall fall on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. 3.9 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, telecopy or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.10 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.12 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the certificate of incorporation and applicable law. 9 A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the quorum for that meeting. 3.11 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice, whether before or after the meeting, or (ii) who attends the meeting other than for the express purposed of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. All such waivers shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.12 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the board to another time and place. 3.13 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting of the board need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.9 of these bylaws, to the directors who were not present at the time of the adjournment. 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board of directors. 3.15 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 10 3.16 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION In the event only one director is required by these bylaws or the certificate of incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to the board of directors. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have and may exercise all the powers and authority of the board, but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to 11 authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the following provisions of Article III of these bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13 (notice of adjournment) and Section 3.14 (board action by written consent without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. 4.3 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE V OFFICERS 5.1 OFFICERS The Corporate Officers of the corporation shall be a chief executive officer and president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents (however denominated), one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. In addition to the Corporate Officers of the Company described above, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation in accordance with the provisions of Section 5.12 of these bylaws. 12 5.2 ELECTION OF OFFICERS The Corporate Officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment, and shall hold their respective offices for such terms as the board of directors may from time to time determine. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or may empower the president to appoint, such other Corporate Officers as the business of the corporation may require, each of whom shall hold office for such period, have such power and authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. The president may from time to time designate and appoint Administrative Officers of the corporation in accordance with the provisions of Section 5.12 of these bylaws. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of a Corporate Officer under any contract of employment, any Corporate Officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of a Corporate Officer chosen by the board of directors, by any Corporate Officer upon whom such power of removal may be conferred by the board of directors. Any Corporate Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Corporate Officer is a party. Any Administrative Officer designated and appointed by the president may be removed, either with or without cause, at any time by the president. Any Administrative Officer may resign at any time by giving written notice to the president or to the secretary of the corporation. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise such other powers and perform such other duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If 13 there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 CHIEF EXECUTIVE OFFICER AND PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, and if there is no chairman of the board, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of the board of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He or she shall keep the 14 seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director for a purpose reasonably related to his position as a director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He or she shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.11 ASSISTANT SECRETARY The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.12 ADMINISTRATIVE OFFICERS In addition to the Corporate Officers of the corporation as provided in Section 5.1 of these bylaws and such subordinate Corporate Officers as may be appointed in accordance with Section 5.3 of these bylaws, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation. Administrative Officers shall perform such duties and have such powers as from time to time may be determined by the president or the board of directors in order to assist the Corporate Officers in the furtherance of their duties. In the performance of such duties and the exercise of such powers, however, such Administrative Officers shall have limited authority to act on behalf of the corporation as the board of directors shall establish, including but not limited to limitations on the dollar amount and on the scope of agreements or commitments that may be made by such Administrative Officers on behalf of the corporation, which limitations may not be exceeded by such individuals or altered by the president without further approval by the board of directors. 15 5.13 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing powers, authority and duties, all officers of the corporation shall respectively have such authority and powers and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the board of directors of the corporation. The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section 6.1 or otherwise. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 16 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records of its business and properties. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent 17 to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, if any, the president, any vice president, the chief financial officer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of the stock of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.5 CERTIFICATION AND INSPECTION OF BYLAWS The original or a copy of these bylaws, as amended or otherwise altered to date, certified by the secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the stockholders of the corporation, at all reasonable times during office hours. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted and which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to 18 exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided by law. If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the applicable resolution. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize and empower any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such power and authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Certificates for shares shall be of such form and device as the board of directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, 19 limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.6 LOST CERTIFICATES Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 20 8.7 TRANSFER AGENTS AND REGISTRARS The board of directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, each of which shall be an incorporated bank or trust company -- either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the board of directors may designate. 8.8 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, as used in these bylaws, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both an entity and a natural person. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book. 21 CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS OF SPECTRIAN CORPORATION a Delaware corporation Certificate by Secretary of Adoption by Board of Directors The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Spectrian Corporation, a Delaware corporation, and that the foregoing Bylaws, comprising twenty-seven (27) pages, were adopted as the Bylaws of the corporation on June 9, 2000, by the members of the corporation's Board of Directors. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 9th day of June, 2000. /s/ Michael D. Angel ------------------------------------------- Michael D. Angel, Executive Vice President, Chief Financial Officer and Secretary EX-10.46 3 0003.txt SUBLEASE SUBLEASE THIS SUBLEASE (this "Sublease") is dated as of May 31, 2000, and is made by and between AMERICAN MICROWAVE TECHNOLOGY, a California corporation ("Sublessor"), and SPECTRIAN CORPORATION, a California corporation ("Sublessee"). Sublessor and Sublessee hereby agree as follows: 1. Recitals: This Sublease is made with reference to the fact that Sunrise Gold , as landlord ("Master Lessor"), and Sublessor, as tenant, entered into that certain Standard Industrial Lease (the "Master Lease") dated as of February 20, 1998, with respect to premises consisting of approximately 3,600 square feet, located at 11315 Sunrise Gold Circle, Suite I, Rancho Cordova, California (the "Premises"). A copy of the Master Lease is attached hereto as Exhibit A and incorporated by reference herein. 2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, all of the Premises on the terms set forth herein. Sublessor represents that, as of the Commencement Date, to the best of Sublessor's knowledge: (i) the Premises and the Building will comply with all applicable laws, rules, regulations, codes, ordinances, underwriters' requirements, covenants, conditions and restrictions ("Laws"), (ii) the Premises will be in good and clean operating condition and repair, (iii) the electrical, mechanical, HVAC, plumbing, sewer, elevator and other systems serving the Premises and the Building will be in good operating condition and repair, and (iv) the roof of the Building will be in good condition and water tight. Sublessor shall, promptly after receipt of notice from Sublessee, remedy any non-compliance with such representations at Sublessor's sole cost and expense, or cause Master Lessor to remedy any such non-compliance. Sublessee's acceptance of the Premises shall not be deemed a waiver of the above representations. Sublessee shall not be required to comply with or cause the Premises to comply with any Laws unless such compliance is necessitated solely due to Sublessee's particular use of the Premises. 3. Term: The term (the "Term") of this Sublease shall commence on the later of (i) May 22, 2000, or (ii) (unless waived by Sublessee in writing) the date by which Sublessor has delivered possession of the Premises to Sublessee in the condition required herein, or (iii) the date on which Master Lessor's written consent to this Sublease has been obtained (the "Commencement Date"), and shall expire on March 29, 2001, (the "Expiration Date") unless this Sublease is sooner terminated pursuant to its terms or the Master Lease is sooner terminated pursuant to its terms. If the Commencement Date has not occurred for any reason on or before July 1, 2000, then in addition to Sublessee's other rights or remedies, Sublessee may terminate this Sublease by written notice to Sublessor, whereupon any monies previously paid by Sublessee to Sublessor shall be reimbursed to Sublessee, or, at Sublessee's election, the date Sublessee is otherwise obliged to commence payment of rent shall be delayed by one (1) day after the Commencement Date for each day that the Commencement Date is delayed beyond such date. Sublessor shall deliver possession of the Premises to Sublessee on May 22, 2000 in good, vacant, broom clean condition, and otherwise in the condition as of the date hereof. 4. Rent: A. Base Rent. Sublessee shall pay to Sublessor as base rent for the Premises for each month during the Term the amount of Two Thousand Two Hundred Forty-Nine Dollars ($2,249) per month ("Base Rent"). Base Rent and any other amounts due under this Sublease shall be paid directly to Sublessor at 2570 East Cerritos Avenue, Anaheim, California 92806, Attention:______________________, or such other address as may be designated in writing by Sublessor. B. Additional Rent. Sublessee shall also pay to Sublessor the costs for taxes, insurance premiums and expenses for the operation, management, maintenance and repair of the Premises due under Section 4.2 of the Master Lease, which shall not exceed One Hundred Seventy-Five Dollars ($175) per month. Sublessee shall pay such amounts as and when the same are due and payable to Master Lessor under the Master Lease. Sublessee shall be entitled to all credits, if any, given by Master Lessor to Sublessor for Sublessor's overpayment of such amounts. Notwithstanding the foregoing, Sublessee shall not be required to pay any Additional Rent or perform any obligation that is (i) fairly allocable to any period of time prior to the Commencement Date of the Sublease or following the expiration or sooner termination of the Sublease or (ii) payable as a result of a default by Sublessor of any of its obligations under the Master Lease. C. Rent Abatement. Sublessee shall be entitled to, and benefit from, any rental abatement granted Sublessor under the Master Lease for whatever reason to the extent that such abatement relates to the Sublease term. D. Prepayment of Rent. Upon execution hereof by Sublessee, Sublessee shall pay to Sublessor the sum of Two Thousand Two Hundred Forty-Nine Dollars ($2,249), which shall constitute Base Rent for the first (1st) month of the Term. 5. Security Deposit: Prior to the Commencement Date, Sublessee shall deposit with Sublessor the sum of Two Thousand Five Hundred Dollars ($2,500) (the "Security Deposit"), in cash, as security for the performance by Sublessee of the terms and conditions of this Sublease. The Security Deposit shall be held by Sublessor in accordance with the provisions of Section 5 of the Master Lease. 6. Indemnity: Sublessee shall indemnify Sublessor as set forth in Section 8.7 of the Master Lease. Notwithstanding anything to the contrary herein, Sublessor shall not be released or indemnified from, and shall indemnify, defend, protect and hold harmless Sublessee from, all damages, liabilities, losses, claims, attorneys' fees, costs and expenses arising from the negligence or willful misconduct of Sublessor or its agents, contractors, licensees or invitees or a breach of Sublessor's obligations or representations under this Sublease or the Master Lease. 7. Incorporation By Reference. Except as set forth below, the terms and conditions of this Sublease shall include all of the terms of the Master Lease and such terms are incorporated into this Sublease as if fully set forth herein, except that: (a) each reference in such incorporated sections to "Lease" shall be deemed a reference to "Sublease"; (b) each reference to "Lessor" and "Lessee" shall be deemed a reference to "Sublessor" and "Sublessee", respectively, except as otherwise expressly set forth herein; (c) the following provisions shall not be included: Sections 1, 3, 4.1, 10.1 (except for the first line and last sentence only), 12.5, 56, 58, 59, 65, and 67; and (d) references in the following provisions to "Lessor" shall mean "Master Lessor" only: Sections 2.2-2.6, 4.2(b), 4.2(d), 9, 10, 14, 16(c), 17, 40, 41, 52, 61, 68, Exhibit A and C. In the event of a conflict between the provisions of this Sublease and the Master Lease, as between Sublessor and Sublessee, the provisions of this Sublease shall control. 8. Sublessor's Obligations: Sublessor shall fully perform all of its obligations under the Master Lease to the extent Sublessee has not expressly agreed to perform such obligations under this Sublease. Sublessor shall not terminate the Master Lease or take any actions which could give rise to a termination of the Master Lease, amend or waive any provisions under the Master Lease or make any elections, exercise any right or remedy or give any consent or approval under the Master Lease without, in each instance, Sublessee's prior written consent. Sublessor, with respect to the obligations of Master Lessor under the Master Lease, shall use Sublessor's diligent good faith efforts to cause Master Lessor to perform such obligations for the benefit of Sublessee. Such diligent good faith efforts shall include, without limitation: (a) upon Sublessee's written request, immediately notifying Master Lessor of its nonperformance under the Master Lease, and requesting that Master Lessor perform its obligations under the Master Lease; and (b) permitting Sublessee to commence a lawsuit or other action in Sublessor's name to obtain the performance required from Master Lessor under the Master Lease; provided, however, that if Sublessee commences a lawsuit or other action, Sublessee shall pay all costs and expenses incurred in connection therewith, and Sublessee shall indemnify -2- Sublessor against, and hold Sublessor harmless from, all reasonable costs and expenses incurred by Sublessor in connection therewith. 9. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the Premises, subject to the terms and conditions of this Sublease, provided that there is not an event of default by Sublessee. In the event, however, that Sublessor defaults in the performance or observance of any of Sublessor's remaining obligations under the Master Lease or fails to perform Sublessor's stated obligations under this Sublease, then Sublessee shall give Sublessor notice specifying in what manner Sublessor has defaulted, and if such default shall not be cured by Sublessor within thirty (30) days thereafter (except that if such default cannot be cured within said thirty (30) day period, this period shall be extended for an additional reasonable time, provided that Sublessor commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure as quickly as possible), then Sublessee shall be entitled to cure such default and promptly collect from Sublessor Sublessee's reasonable expenses in so doing (including, without limitation, reasonable attorneys' fees and court costs), or, at Sublessee's option, to offset such reasonable expenses against all future payments of rent due under this Sublease. Sublessee shall not be required, however, to wait the entire cure period described herein if earlier action is required to comply with the Master Lease or with any applicable governmental law, regulation or order. 10. Termination of Master Lease: Without limiting any other right or remedy of Sublessee under this Sublease, if Master Lessor seeks to terminate the Master Lease because of an event of default by Sublessor under the Master Lease, Sublessor shall use its reasonable good faith efforts to maintain the Master Lease in full force and effect for the benefit of Sublessee, and Sublessor shall take all action required to reinstate the Master Lease and/or to claim and pursue any right of redemption or relief from forfeiture of the Master Lease (and as a consequence thereof any forfeiture of this Sublease) to which Sublessor may be entitled at law or in equity. To the extent that the Master Lease gives Sublessor any right to terminate the Master Lease in the event of a casualty or condemnation affecting the Premises, Sublessor shall not cancel or terminate the Master Lease without the prior written consent of Sublessee, in Sublessee's sole discretion. Sublessee shall have the right to terminate the Sublease hereunder if Sublessor has the right to terminate the Master Lease thereunder. 11. Sublessor's Representations and Warranties: As an inducement to Sublessee to enter into this Sublease, Sublessor represents and warrants that (a) the Master Lease is in full force and effect, and there exists under the Master Lease no default or event of default by either Master Lessor or Sublessor, nor has there occurred any event which, with the giving of notice or passage of time or both, could constitute such a default or event of default and (b) the copy of the Master Lease attached hereto as Exhibit A is a true, correct and complete copy of the Master Lease. 12. Authorization to Direct Sublease Payments: Sublessee shall have the right to pay all rent and other sums owing by Sublessee to Sublessor hereunder for those items which also are owed by Sublessor to Master Lessor under the Master Lease directly to Master Lessor, provided (a) Sublessee reasonably believes that Sublessor has failed to make any payment required to be made by Sublessor to Master Lessor under the Master Lease and Sublessor fails to provide adequate proof of payment within two (2) business days after Sublessee's written demand requesting such proof, or (b) Sublessee reasonably believes that Sublessor shall fail to make any payment required to be made by Sublessor to Master Lessor under the Master Lease and Sublessor fails to provide assurance of future performance in form reasonably satisfactory to Sublessee within two (2) business days after Sublessee's written demand requesting such assurance. Sublessee shall provide to Sublessor concurrently with any payment to Master Lessor reasonable evidence of such payment. Any sums paid directly by Sublessee to Master Lessor in accordance with this paragraph shall be credited toward the amounts payable by Sublessee to Sublessor under this Sublease. In the event Sublessee tenders payment directly to Master Lessor in accordance with this paragraph and Master Lessor refuses to accept such payment, -3- Sublessee shall have the right to deposit such funds in an account with a national bank for the benefit of Master Lessor and Sublessor, and the deposit of said funds in such account shall discharge Sublessee's obligation under this Sublease to make the payment in question. 13. Hazardous Materials. To the best knowledge of Sublessor, (a) no Hazardous Material is present in the Building or the soil, surface water or groundwater thereof, (b) no underground storage tanks are present on the Industrial Center, and (c) no action, proceeding or claim is pending or threatened regarding the Building concerning any Hazardous Material or pursuant to any environmental Law. Under no circumstance shall Sublessee be liable for, and Sublessor shall indemnify, defend, protect and hold harmless Sublessee, its agents, contractors, stockholders, directors, successors, representatives, and assigns from and against, all losses, costs, claims, liabilities and damages (including attorneys' and consultants' fees) of every type and nature, directly or indirectly arising out of or in connection with any Hazardous Material present at any time in, on or about the Building, the Industrial Center, or the soil, air, improvements, groundwater or surface water thereof, or the violation of any environmental Law, except to the extent that any of the foregoing actually results from the release or emission of Hazardous Material by Sublessee or Sublessee's Parties in violation of applicable environmental Laws. 14. Assignment of Rights: Sublessor hereby assigns to Sublessee all warranties given and indemnities made by Master Lessor to Sublessor under the Master Lease which would reduce Sublessee's obligations hereunder, and shall cooperate with Sublessee to enforce all such warranties and indemnities. 15. Conditions Precedent: This Sublease and Sublessor's and Sublessee's obligations hereunder are conditioned upon the written consent of Master Lessor in a form reasonably satisfactory to Sublessee. If Sublessor fails to obtain Master Lessor's consent within thirty (30) days after execution of this Sublease by Sublessor, then Sublessee may terminate this Sublease by giving Sublessor written notice thereof, and Sublessor shall return to Sublessee the Security Deposit and any other amounts previously paid by Sublessee. 16. Authority to Execute: Sublessee and Sublessor each represent and warrant to the other that each person executing this Sublease on behalf of each party is duly authorized to execute and deliver this Sublease on behalf of that party. 17. Counterparts: This Sublease may be executed in counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and year first above written. SUBLESSOR: SUBLESSEE: AMERICAN MICROWAVE SPECTRIAN CORPORATION TECHNOLOGY, INC. a California corporation a California corporation -4- By: /s/ Peter Manno By: /s/ Michael Angel ----------------------------- ------------------------------ Name: Peter L. Manno Name: Michael Angel ----------------------------- ------------------------------ Its: President and CEO Its: CFO ----------------------------- ------------------------------ Address: 2570 East Cerritos Ave. Address: 350 W. Java Drive Anaheim, CA 92806 Sunnyvale, California 94089 Attn: President and CEO Attn: Director of Facilities -5- CONSENT TO SUBLEASE Master Lessor hereby acknowledges receipt of a copy of this Sublease, and consents to the terms and conditions of this Sublease. By this consent, Master Lessor shall not be deemed in any way to have entered the Sublease or to have consented to any further assignment or sublease. Master Lessor further agrees that, notwithstanding anything to the contrary in the Master Lease: (a) Master Lessor shall deliver to Sublessee at the address set forth in the Sublease notices of any defaults under the Master Lease at the same time such notices are sent to Sublessor as set forth in the Master Lease and shall permit Sublessee to cure such defaults. (b) Master Lessor agrees that the waiver of subrogation in Section 8.6 of the Master Lease shall apply as between Master Lessor and Sublessee. (c) In the event that the Master Lease terminates prior to the expiration of the term thereof, the Sublease will not terminate but will instead continue in full force and effect as a direct lease between Master Lessor and Sublessee upon all of the terms, covenants and conditions of the Sublease. (d) Master Lessor hereby agrees that Sublessee may assign or sublease the Premises without Master Lessor's consent to an entity as set forth in Section 12 of the Master Lease. MASTER LESSOR: CTL MANAGEMENT, INC. A Randall Apartment Community By: /s/ Robert Ortega Jr. ----------------------------------- Name: Robert Ortega, Jr. ----------------------------------- Its: Property Manger ----------------------------------- Address: 11285 Sunrise Gold Circle, Suite B Rancho Cordova, CA. 95742 -6- STANDARD INDUSTRIAL LEASE--MULTI-TENANT AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION [OMIT GRAPHIC] 1. Parties. This Lease, dated for reference purposes only, February 20, 1998, is made by and between SUNRISE GOLD ASSOCIATES, A California Limited Partnership (herein called "LESSOR") and AMERICAN MICROWAVE TECHNOLOGY, Inc., A California Corporation (herein called "LESSEE"). 2. Premises, Parking and Common Areas. 2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the County of Sacramento, State of California commonly known as 11315 Sunrise Gold Circle, Suite I, Rancho Cordova, CA 95742 and described as office/warehouse space herein referred to as the "Premises", as may be outlined on a Exhibit attached hereto, including rights to the Common Areas as hereinafter specified but not including any rights to the roof of the Premises or to any Building in the Industrial Center. The Premises are portion of a building, herein referred to as the "Building". The Premises, the Building, the Common Areas the land upon which the same are located along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center" 2.2 Vehicle Parking. Lessee shall be entitled to common vehicle parking spaces, unreserved and unassigned, on those portions of the Common Areas designated by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2.2 of this Lease, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 Common Areas -- Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center that are provided and designated by the Lessor from time to time for general non-exclusive use of Lessor, Lessee and of other lessees of the Industrial Center and their respective employees, suppliers, shippers customers and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 Common Areas -- Lessee's Rights. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.5 Common Areas -- Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Lessee agrees to abide by and conform to all such rules and regulations, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. 2.6 Common Areas -- Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 2.6.1 Lessor shall at all times provide the parking facilities required by applicable law and in no event shall the number of parking spaces that Lessee is entitled to under paragraph 2.2 be reduced. 3. Term. 3.1 Term. The term of this Lease shall be for thirty six months (36) commencing on April 1 1998 and ending on March 31, 2001 unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date. Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case. Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may otherwise provided in this Lease, until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date. Lessee may at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter; cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. Rent. 4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly provided in this Lease, on the first day of each month of the term hereof, monthly payments in advance of $2,040.00 plus estimated Common Area Maintenance ("CAM') Charges in the amount of $159.00 per month. See also paragraph 58 for Base Rent Adjustments. Lessee shall pay Lessor upon execution hereof $8,399.00 as Base Rent for first month's rent & CAM, SEC Dep, Sign, TI contrib. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as 3.21% percent. (b) "Operating Expenses" is defined, for purposes of this Lease, as all costs incurred by Lessor, if any, for: (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Commons Areas lighting facilities and fences and gates: (bb) Trash disposal services; (cc) Tenant directories; (dd) Fire detection systems including sprinkler system maintenance and repair; Initials: HGW BW (ee) Security services:, management, roof repair, HVAC - maintenance (ff) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense." (ii) The cost of water, gas and electricity to service the Common Areas. (c) The inclusion of the improvements, facilities and services set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Industrial Center already has the same. Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each twelve-month period of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next falling due. If Lessee's payment under this paragraph during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $2,500.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease. Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not therefore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for design and manufacture of microwave power amplifiers or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was an owner or occupant of the Premises and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises and of the Common Areas. Lessee shall not use nor permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuissance or shall tend to disturb other occupants of the Industrial Center. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee selling forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was an owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs, Alterations and Common Area Services. 7.1 Lessor's Obligations. Subject to the provisions of paragraphs 4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's employers, suppliers, shippers, customers, or invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2 shall keep in good condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and roof of the Premises, as well as the parking lots, walkways, driveways, landscaping, fences, signs and utility installations of the Common Areas and all parts thereof, as well as providing the services for which there is an Operating Expense pursuant to paragraph 4.2 Lessor shall not, however, be obligated to paint the exterior or interior surface of exterior walls, nor shall Lessor be required to maintain, repair or replace windows, doors or plate glass of the Premises. Lessor shall have no obligation to make repairs under this paragraph 7.1 until a reasonable time after receipt of written notice from Lessee of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. Lessor shall not be liable for damages or loss of any kind or nature by reason of Lessor's failure to furnish any Common Area Services when such failure is caused by accident, breakage, repairs, strikes, lockout, or other labor disturbances or disputes of any character, or by any other cause beyond the reasonable control of Lessor. 7.2 Lessee's Obligations. (a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessable to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, ventilating and air conditioning systems (Lessor shall procure and maintain, at Lessee's expense, a ventilating and air conditioning system maintenance contract), electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises. Lessor reserves the right to procure and maintain the ventilating and air conditioning system maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor, upon demand for the cost thereof. Lessee shall be responsible for all pest control services on or about the premises, i.e., ants, rodents. (b) If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of emergency, in which no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next Base Rent installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear expected, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease. Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, or the Industrial Center, except for nonstructural alterations to the Premises not exceeding $2,500 in cumulative costs, during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the Building nor the Industrial Center without Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, Initials: HGW BW -2- additions or Utility Installations at the expiration of the term, and restore the Premises and the Industrial Center to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the Industrial Center that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, or the Industrial Center, or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises or the Industrial Center, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory in Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises and the Industrial Center free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest to do so. (d) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall be the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. 7.4 Utility Additions. Lessor reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of Lessor or Lessee, or any other lessee of the Industrial Center, including, but not by way of limitation, such utilities as plumbing, electrical systems, security systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. 8. Insurance; Indemnity. 8.1 Liability Insurance -- Lessee. Lessee shall, at Lessee's expenses, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Laverty Property Management and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and the Industrial Center. Such insurance shall be in an amount not less than $1,000,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance -- Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership use, occupancy or maintenance of the Industrial Center in an amount not less than $500,000.00 per occurence. 8.3 Property Insurance. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Industrial Center improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry), plate glass insurance and such other insurance as Lessor deems advisable. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. 8.4 Payment of Premium Increase. (a) After the term of this Lease has commenced. Lessee shall not be responsible for paying Lessee's Share of any increase in the property insurance premium for the Industrial Center specified by Lessor's insurance carrier as being caused by the use, acts or omissions of any other lessee of the Industrial Center, or by the nature of such other lessee's occupancy which create an extraordinary or unusual risk. (b) Lessee, however, shall pay the entirety of any increase in the property insurance premium for the Industrial Center over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. (c) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, Lessee's Share (as defined in paragraph 4.2(a)) of the amount of any increase in premiums for the insurance required under Paragraph 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been occupied previously, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $____________. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $500,000 procured under paragraph 8.2. (d) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. 8.5 Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the commencement date of this Lease. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof. 8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Industrial Center, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon noticed from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense, Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Industrial Center arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Industrial Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Industrial Center, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Industrial Center, nor from the failure of Lessor to enforce the provisions of any other lease of the Industrial Center. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is less than fifty percent of the then replacement cost of the Premises. Initials: HGW BW -3- (b) "Premises Total Destruction" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Premises. (c) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent of the then replacement cost of the Building. (d) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent or more of the then replacement cost of the Building. (e) "Industrial Center Building" shall mean all of the buildings on the Industrial Center site. (f) "Industrial Center Buildings Total Destruction" shall mean if the Industrial Center Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Industrial Center Buildings. (g) "Insured Loss" shall mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8 The fact that an insured Loss has a deductible amount shall not make the loss an uninsured loss. (h) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring excluding all improvements made by lessees. 9.2 Premises Partial Damage; Premises Building Partial Damage. (a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. (b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from using the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.3 Premises Total Destruction; Premises Building Total Destruction; Industrial Center Buildings Total Destruction. (a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, and which falls into the classifications of either (i) Premises Total Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial Center Buildings Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible at Lessor's expense, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Damage Near End of Term. (a) Subject to paragraph 9.4(b), if any time during the last six months of the term of this Lease there is substantial damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 Abatement of Rent; Lessee's Remedies. (a) In the event Lessor repairs or restores the Premises pursuant to the provisions of this paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue. Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.6 Termination -- Advance Payments. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 Waiver. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Industrial Center; provided, however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined in paragraph 4.2(a)) of the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1997-1998. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional Improvements. Lessee shall not be responsible for paying Lessee's Share of any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Industrial Center or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Industrial Center or in any portion thereof, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Industrial Center. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Industrial Center or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Industrial Center is not separately assessed, Lessee's Share of the real property tax liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. Initials: HGW BW -4- 12. Assignment and Subletting. 12.1 Lessor's Content Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's Interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease without the need for notice to Lessee under paragraph 13.1. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate," provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 Terms and conditions of Assignment. Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to perform all other obligations to be performed by Lessee hereunder Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of their terms or conditions of this paragraph 12 or this Lease. Consent to one assignment shall not be deemed consent to any subsequent assignment in the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof. Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Terms and Conditions Applicable to Subletting. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and withstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) If Lessee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (d) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. (e) The consent by Lessor to any subletting shall not constitute a consent to any subsequent subletting by Lessee or to any assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or anyone else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (h) Each and every consent required of Lessee under a sublease shall also require the consent of Lessor. (i) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (j) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgment that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (k) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such subelessee, and the sublessee shall have the right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Default; Remedies. 13.1 Default. The occurence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such a failure shall continue for a period of three (30) days after written notice thereof form Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) Except as otherwise provided in this Lease, the failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter dilligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (d) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. s.s. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant or Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, was materially false. 13.2 Remedies. In the event of any such material default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case the Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession for the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. Initials: HGW BW -5- (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state where in the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter dilligently prosecutes the same to completion. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Industrial Center. Accordingly, if any installment of Base Rent, Operating Expenses, or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of any of the aforesaid monetary obligations of Lessee, then Base Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease to the contrary. 14. Condemnation. If the Premises or any portion thereof or the Industrial Center are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent of the floor area of the Premises, or more than twenty-five percent of that portion of the Common Areas designated as parking for the Industrial Center is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the premises remaining, except that the rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. No reduction of rent shall occur if the only area taken is that which does not have the Premises located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 16. Estoppel Certificate. (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice from the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or of the business of the requesting party. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance, and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Industrial Center, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Industrial Center, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time for such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time if of the essence with respect to the obligations to be performed under this Lease. 21. Additional Rent. All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to lessee's Share of Operating Expenses and insurance and tax expenses payable shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease. Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Industrial Center and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. Initials: HGW BW -6- 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all Options, if any, granted under the terms of this Lease shall be deeded terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, whatsoever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Industrial Center is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Industrial Center is located. 30. Subordination. (a) This Lease, and any Option granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Industrial Center and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgage, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such mortgage, deed or trust or ground lease, whether this Lease or such Options are dated prior to subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact, Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fees. If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right thereunder. 32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the Industrial Center as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises or the Industrial Center without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Industrial Center. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenencies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed an performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Industrial Center. 39. Options. 39.1 Definition. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any Lease that Lessee has on other property of Lessor, (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Industrial Center or other property of Lessor or the right of first offer to lease other space within the Industrial Center or other property of Lessor, (3) the right or option to purchase the Premises or the Industrial Center, or the right of first refusal to purchase the Premises or the Industrial Center, or the right of first offer to purchase the Premises or the Indudtrial Center or the right of option to purchase other property of Lessor or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property. 39.2 Options Personal. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) at any time after the event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 1.31(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured. 40. Security Measures. Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Industrial Center. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Industrial Center or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b); Initials: HGW BW -7- 41. "Easements" Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part to said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. 46. Addendum. Attached hereto is an addendum or addends containing paragraphs 47 through 66 which constitute a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. LESSOR LESSEE SUNRISE GOLD ASSOCIATES, A California AMERICAN MICROWAVE TECHNOLOGIES, A Limited Partnership California Corporation By /s/ Barry K. Williams By /s/ Hans Gregory Wood ----------------------------------- --------------------------------- Barry K. Williams, General Partner Hans Gregory Wood, Vice President & Chief Financial Officer By By ----------------------------------- --------------------------------- Executed on 3/3/98 Executed on 2-26-98 -------------------------- ------------------------ (Corporate Seal) (Corporate Seal) ADDRESS FOR NOTICES AND RENT ADDRESS 1601 Dove Street, Suite 190 2570 East Cerritos Avenue - -------------------------------------- ------------------------------------ Newport Beach, CA 92660 Anaheim, CA 92806 - -------------------------------------- ------------------------------------ - -------------------------------------- ------------------------------------ American Industrial Real Estate Association, Los Angeles, CA (213)687-8777 47. Outside Storage. No items shall be allowed to be left outside of the building or on any of the common areas as pertains to landscaping, driveways, parking lots, fences and all sidewalks and parkways adjacent to the Premises. This includes, but is not limited to, supplies, materials, goods, pallets, dunnage and equipment. No vehicles, including boats and trailers, may be parked or stored outside the building overnight. Violation of this Paragraph shall constitute a material breach of this Lease. 48. Outside Work. No work shall be permitted on the sidewalks, roofs, streets, driveways, parking, outside roll up doors, or landscaped areas. This includes, but is not limited to, assembly, construction, mechanical work, painting, drying, layout, cleaning, or repair of goods or materials. Violation of this Paragraph shall constitute a material breach of this Lease. 49. Service Fees. Without altering Paragraph 13.1, Lessee agrees to reimburse Lessor Fifty Dollars ($50.00) each time Lessor serves Lessee a Three Day Notice to Pay Rent or Quit, an amount acknowledged as a reasonable minimum charge. Further, in addition to the remedies outlined in Paragraph 13.2, Lessee agrees to pay to Lessor Thirty Five Dollars ($35.00) each time a payment is returned by his bank for any reason, such as insufficient funds. 50. Occupancy Type. Should any governmental authority require any additional improvements, modifications, licenses and/or permits of any kind, including but not limited to, a conditional use permit due to Lessee's use and/or occupancy of the Premises, it shall be provided by Lessee, at Lessee's sole expense. It is Lessor's understanding that Lessee will not be using flammable solvents or utilizing the Premises in any way that would cause Lessee's occupancy to be considered anything other than a B-1 or B-2 type occupant. In the event that Lessee is classified under any other occupancy type (such as an H-2 or H-3 type for example) which requires any additional improvements to the space (i.e., additional fire sprinkler drops, ventilation equipment and/or ducting, additional Sheetrock, etc.), or by Lessee's use of the Premises, increases the fire insurance premiums on the building, Lessee shall be responsible to pay for and/or provide the same. 51. Asphalt/Concrete. Lessee agrees to use only forklifts equipped with pneumatic tires in order to minimize the wear and tear on asphalt areas. Any wear and tear to the asphalt or concrete areas inside or outside of roll up door area shall be maintained and repaired at Lessee's sole cost and expense. 52. Re-keying of Locks. Lessee acknowledges that the Trade Center Associates is set up on a "Master Key" lock system. In the event Lessee desires to re-key the locks after lease execution, then Lessee shall use only Professional Lock and Safe, Fair Oaks, (916) 929-5595, to perform said locksmith service. Lessee shall have all locks keyed to Lessor's master key system and pay all costs associated herein directly to Professional Lock and Safe. Lessor shall not incur any cost related thereto. At the end of the Lease term, Lessor shall have the premises rekeyed at Lessee's expense. 53. Telephone Line Capacity. Lessee shall not be entitled to more than his proportionate share, (see paragraph 1.6(b)) for share) of the building's telephone line capacity. 54. Application of Late Payments. In the event Lessee is late on any rental payments required under the terms of this Lease, Lessor shall apply any moneys received by Lessee first to any outstanding payments due, including, but not limited to, any legal fees, court costs, late charges, CAM charges, etc. The balance of said funds shall be applied to rent. If Lessor receives two (2) late payments, or one (1) Non-Sufficient Fund check throughout the lease term, then Lessor may elect to have all future rental payments paid by Cash, Cashier's Check or Money Order for the balance of the lease term. 55. Smoke Free Environment. Lessee acknowledges that the building, in which the premises is a part, has been designated a "smoke free environment" in accordance with Sacramento County Smoking Pollution Control Ordinance. 56. Tenant Improvements. Lessor, at Lessor's expense, shall complete the following tenant improvements prior to the commencement date: A. Install standard grade industrial carpet, color to be selected by Tenant (See Exhibit A) B. Install new VCT, color to be selected by Tenant (See Exhibit B) C. Paint throughout (See Exhibit C) D. Replace any stained ceiling tiles E. Modify existing layout (See Exhibit D) F. Clean & paint all HVAC covers Upon lease execution Lessee shall submit to Lessor, three thousand four hundred and no/100 dollars ($3,400.00) as Lessee's contribution towards the Tenant Improvements shown above. 10A Initials: HGW BW 57. Tenant Improvement Construction Specifications. Subject to Lessor's improvements per Paragraph 56, Lessee hereby accepts the premises in an "AS IS" condition. Lessee may do construction, within in the Premises, upon obtaining a building permit, submission of a plan, and written approval from Lessor. Any alterations, improvements, and additions shall be according to all appropriate governmental agencies, at Lessee's sole expense. Any Tenant Improvements shall conform to Lessor's existing standard. All alterations, improvements and additions shall become the property of Lessor at the expiration of the Lease term or earlier termination of the Lease and shall be surrendered with the Premises. A. Office partitions shall be metal or wood studs 2" X 4" at 16" on center covered each side with 5/8" thick drywall. Taped, light texture, and painted to match existing. All concrete walls shall be furred out. B. All walls shall have R-11 insulation and all ceiling shall have R-19 insulation throughout. C. Doors shall be 3'0" X 6'8" hollow core to match existing. D. Ceiling shall be a suspended T-Bar system; using 2' X 4' white acoustic tile with black grids throughout office areas. E. Ceiling height to be 8'0 in private offices and general office areas. F. Electrical and telephone outlets shall be installed in metal conduit at a minimum of one (1) pair per wall section or every 8' whichever is less. No electrical or telephone outlets shall be surface mounted on interior office/bathroom walls. G. Floor coverings in office areas shall be carpeted with Lessor's standard Light Gray, 4' Rubber Base shall be light gray to match. H. Lessee acknowledges that window and door coverings can have a major impact on how a business is perceived by customers and other visitors to surrounding businesses, therefore, Lessee agrees to the following conditions: 1. Lessee must have Lessor's prior written approval of all window and door coverings prior to installation. 2. Window and door coverings shall be 1" mini-blinds installed inside each individual window section; color to match existing or light beige only. no wrought iron shall be added to the exterior of the building, nor mounted into any interior or exterior window frame (mullion). 3. Any windows installed shall be 4' wide X 3' tall (tempered glass), installed at 42" above finished floor. The opening shall be drywall and textured to match the existing drywall surfaces with a 1" black aluminum frame installed in the middle of the window opening. 4. Office shall have a Central HVAC system. HVAC unit is to be located on roof in a location approved by Lessor. 58. Base Rent Adjustments. The minimum monthly Base Rent during the second twelve (12) months of this lease shall be two thousand one hundred forty two and no/100 dollars (2,142.00), plus Common Area Maintenance Charges ("CAM") not to exceed the amount of one hundred sixty seven and no/100 dollars ($167.00). The minimum monthly Base Rent during the third twelve (12) months of this lease shall be two thousand two hundred forty nine and no/100 dollars ($2,249.00), plus Common Area Maintenance Charges ("CAM") not to exceed the amount of one hundred seventy five and no/100 dollars ($175.00). 59. Option to Extend. If Lessee is not in default in performing any of its obligations under the Lease, Lessee shall have and is hereby granted an option to extend the term of this Lease for one additional three year period, to begin upon the expiration of the term of this Lease upon the same terms, provisions and conditions as contained in this Lease, except the rental payable during such option period. Notice of the exercise of any options to extend shall be in writing and shall be given in the manner provided in the Lease for the giving of notices not less than three (3) months prior to the expiration of the then term in effect. The rental to be paid by Lessee during the first twelve (12) months of the option term shall be two thousand three hundred sixty one and no/100 dollars ($2,361.00) commencing April 1, 2001 and ending March 31, 2002. 10B Initials: HGW BW The rental to be paid by Lessee during the second twelve (12) months of the option term shall be two thousand four hundred seventy nine and no/100 dollars ($2,479.00) commencing April 1, 2002 and ending March 31, 2003. The rental to be paid by Lessee during the third twelve (12) months of the option term shall be two thousand six hundred three and no/100 dollars ($2,603.00) commencing April 1, 2003 and ending March 31, 2004. 60. Overhead Doors. Lessor warrants overhead doors to be in proper working order at the time of occupancy. Notwithstanding any warranties by the overhead door manufacturer, Lessee hereby agrees to maintain, in proper working order during the term of the lease, the overhead doors, and all associated hardware, brackets and mechanisms associated with their operation. Lessor shall have no responsibility to repair, replace or maintain the overhead doors. Lessee also warrants that said overhead doors shall be in proper working order at such time as Lessee vacates the Premises. 61. Lessor Partnership. Lessor hereby advises Lessee that Lessor is a partnership (the "Partnership"). Lessee hereby agrees that, if a claim of any kind arising out of this Lease or Lessee's use or occupancy of the Premises is made by or on behalf of Lessee, Lessee will (a) look solely to the assets of the Partnership and not the assets of the partners of the Partnership, for the satisfaction of the claim and (b) not name any of the partners of the Partnership in any litigation arising out of any such claim. The word "claim" is used herein in its broadest sense and shall cover (a) assertion of damages based on any acts or omissions of Lessor or the partners of the Partnership, (b) all types of damages including, but not limited to, compensatory, consequential and exemplary (punitive) damages and (c) all nature of damages, whether to persons or property. Lessor has entered into this Lease in specific reliance on the foregoing agreements by Lessee. 62. No Warranty As To Use or Zoning. Lessee hereby acknowledges that lessor has not made any representation or warranty to Lessee with regard to the suitability of the Premises for Lessee's intended use, or the applicability of any zoning or other land use law, regulation or other restrictions which may be applicable to Lessee's intended use of the Premises. This Lease, and Lessee's leasehold interest in the Premises, are subject to all easements and other matters of record as of the date of this Lease. 63. Hazardous Substances. Lessee agrees to comply, at Lessee's expense, with all laws and regulations (Federal, State and Local) relating to Lessee's storage or use of hazardous substances, materials, waste and toxic substances (as such are described, defined and identified in the laws and regulations regarding such substances now or in force during any portion of the Lease Term). "Compliance" includes obtaining and maintaining all required permits from the appropriate authorities. Upon termination of this Lease, Lessee agrees, at Lessee's expense, to remove and, if necessary, transport all such material from the Premises, conforming in such removal to the requirements of the applicable laws and regulations. Lessee shall not take any remedial action (including consent decrees, settlement agreements or compromises) without giving reasonable written notice to Lessor to afford Lessor the opportunity to protect Lessor's interest. Lessee shall give Lessor prompt written notice of any enforcement activity (threatened or otherwise) by and enforcement agency; any claim for damages made against Lessee and any report to any environmental agency regarding Lessee's activities or use of these substances. Lessee will indemnify and defend (by counsel reasonably acceptable to Lessor) Lessor, Lessor's partners, employees, agents, attorneys' and successors and assigns, and to hold them free and harmless from all claims for damages, penalties and forfeitures for Lessee's violation, or alleged, violation of any such law or regulation. Indemnification shall include the cost of any required or necessary repair, cleanup, removal, detoxification or decontamination of the Premises to completion. The acts of omissions of Lessee's agent, employees, assignees, contractors or subcontractors (of Lessee or others), whether negligent, intentional or unlawful, shall be strictly attributable to Lessee. The provisions of this Paragraph shall survive the expiration or termination of this Lease. Lessor shall have the right to require Lessee to provide reasonable security for the performance of Lessee's obligations under this Paragraph. 64. Mezzanine Storage. The Premises consists of office and warehouse areas. The stairs and upstairs office area (the "Mezzanine") above the ground level office area, was designed and constructed by a previous tenant. Lessee has asked Lessor for it's consent to utilize the Mezzanine in connection with Lessee's use of the Premises without additional charge and Lessor has agreed to do so in reliance on the following acknowledgments and agreements by Lessee: A. Lessee acknowledges that Lessor has made no representation as to the suitability of the Mezzanine for any potential use thereof by Lessee. B. Lessee acknowledges that Lessor has made no investigation concerning the load capacity 10C Initials: HGW BW of the Mezzanine. Lessee agrees to use discretion and care in the selection and distribution of items to be stored on the Mezzanine. Heavy loads shall not be permitted. C. Lessee assumes all responsibility for the use of the Mezzanine and agrees to indemnify and hold Lessor free and harmless from any and all costs, liabilities and claim, whether to persons or property, arising out of or connected with Lessee's use of the Mezzanine or the stairs to the Mezzanine. 65. First Right of First Offer. At any time during the term of this Lease, so long as Lessee is not in default under the terms and conditions thereof, and additional space in 11315 Sunrise Gold Circle should become available, adjacent to Lessee's existing space, then, and in that event, Lessor shall advise Lessee of said availability. Said notice shall contain the terms and conditions under which said space is, or will become available, at which time Lessee shall have five (5) business days within which to advise Lessor of its intent to lease said space. In the event Lessee chooses not to lease said space, the space will be made available through Lessor's marketing program and Lessee shall continue to have the same rights as any other potential tenant to lease said space. 66. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations. Paragraph 7.1 shall be modified as follows regarding the HVAC units. Lessor shall be responsible for the replacement of condensers, compressors or new HVAC units. Lessee shall be responsible for all other repair and maintenance of the units not covered by Lessor's HVAC Maintenance contract. Initials: HGW BW 10D SIGN CRITERIA - SUNRISE BUSINESS PARK - -------------------------------------------------------------------------------- This Sign Criteria has been established for the mutual benefit of all Lessees and to maintain a professional business complex appearance. Compliance will be strictly enforced. Any non-conforming or unapproved signs must be brought into conformance with this Criteria, at the Lessee's expense. 1. All costs incurred in the making, installation and removal of Lessee's initial sign lettering shall be at Lessee's expense, which is currently $300, and which shall be due upon execution of this Lease. 2. As outlined in Paragraph 34, sign dimensions, color, location and design shall be determined by Lessor and may be changed at any time at the discretion and sole cost of Lessor. Lessee shall be responsible only for the initial cost of installing sign and any cost of alterations initiated by Lessee. 3. Any damage caused to the sign will be repaired by Lessee. If Lessee refuses to make repairs upon notice by Lessor, Lessor may make repairs and change Lessee the cost, in accordance with Paragraph 13.1.c. 4. The sign canister and sign blank shall remain the property of Lessor. 5. Except as provided herein, no advertising placards, banners, pennants, names, insignias or trademarks or other descriptive material, nor any security insignias or decals, shall be affixed or maintained upon the glass panes or exterior walls or doors of the building or in the landscaped areas, or affixed to automobiles, trucks or trailers in the parking areas. This restriction does not apply to magnetic or painted identification signs placed on company or private vehicles for use in the normal course of business. -------------------------------------- AMERICAN MICROWAVE TECHNOLOGY -------------------------------------- EXHIBIT A Initials: HGW BW [GRAPHIC OMITTED] EXHIBIT B Initials: HGW BW RULES AND REGULATIONS (SUPPLEMENTAL TO LEASE PROVISIONS) 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the Building without the written consent of Lessor. Lessor shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Lessee. 2. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Lessee by a person approved of by Lessor. Lessee shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises as determined by Lessor; provided, however, that Lessor may furnish and install a Building Standard window covering at all exterior windows. Lessee shall not without prior written consent of Lessor cause or otherwise sunscreen any window. 3. To keep common area maintenance charges ("CAM") to a minimum, there is no window washing service provided. It is, therefore, the Tenant's responsibility to keep windows clean, both inside and out. 4. The sidewalks, exits, entrances, and driveways shall not be obstructed by any of the Lessees, or used by them for any purpose other than for ingress and egress from their respective Premises. No work related to the Tenant's business shall be performed outside of Tenant's space. Do not park cars or dumpsters in these areas. Automobiles illegally parked will be towed at the Owner of the vehicle's sole cost and expense. 5. Lessee shall not alter any lock or install any new or additional locks or any bolts on any doors or windows of the Premises. Should you need to rekey, please call the management. 6. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee, who, or whose employees or invitees shall have caused it. 7. Lessee shall not in any way deface the Premises or any part thereof. 8. Lessee shall not use; keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Lessor or other occupants of the Building by reason of noise, odors, and/or vibrations, or interfere in any way with other Lessees or those having business therein, nor shall any animals or birds to brought in or kept in or about the Premises of the Building. 9. Lessee shall not use or keep in the Premises or Building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Lessor. 10. Lessor reserves the right to exclude or expel from the Premises any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 11. Lessor shall have the right, exercisable without notice and without liability to Lessor to change the name and street address of the Building of which the Premises are a part. 12. Lessee shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent same. 13. Without the written consent of Lessor, Lessee shall not use the name of the Building in connection with or in promoting or advertising the business of Lessee except as Lessee's address. 14. Dumpsters are available for Lessee's office-related garbage, and are not be used for Lessee's business related garbage, i.e., a landscaper may not use the dumpster to dispose of lawn and grass clippings generated by his business. All garbage and refuse, generated by Lessee's office use, shall be placed by Lessee in containers or dumpsters. To keep the dumpster areas clean, all cardboard boxes must be broken down and placed inside the dumpster with the lids closed. If the dumpster is full, management should be notified. Do not leave anything outside of the dumpster. All tenants are expected to assist in keeping the dumpster areas clean. 15. No aerial, satellite dish or antenna shall be erected on the roof or exterior walls of the Leased Premises, or on the grounds, without, in each instance, the written consent of Lessor first being obtained. Any aerial or antenna so installed without such written consent shall be subject to removal by lessor at any time without notice. 16. No loud speakers, television, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the Leased Premises without the prior written consent of Lessor. 17. The outside areas immediately adjoining the Leased Premises shall be kept clean and free from dirt and rubbish by Lessee, to the satisfaction of the Lessor, and Lessee shall not place or permit any obstruction or materials in such areas. No exterior storage shall be allowed including, without limitation, the storage of motor vehicles, trucks, boats, trailers, pallets, drums, or equipment of any kind or nature, without the prior written consent of Lessor. 18. Lessee shall use, at Lessee's cost, such pest extermination contractor as Lessor may direct and at such intervals as Lessor may require. 19. Lessee shall not burn any trash or garbage of any kind in or about the Leased Premises or the Project. 20. No residential uses, including, without limiting the generality of the foregoing, residing, sleeping or cooking are permitted on the premises or anywhere on the Project. 21. No animals of any type, including, without limiting the generality of the foregoing, pets, guard dogs, exotic animals, reptiles or birds, are permitted on the Premises or anywhere on the Project. 22. As a courtesy to your neighbors who wish to leave the parking spaces directly in front of their premises open for their customers, we ask that you and your employees use only those parking areas that are directly in front of your own space. Should you need additional parking there is always plenty of additional parking behind the buildings. EXHIBIT C-1 Initials: HGW BW Sunrise Gold Business Park EXISTING LAYOUT MAP OF EXISTING LAYOUT 11315 Sunrise Gold Circle Suite I EXHIBIT D Initials: HGW BW EXHIBIT A TENANT IMPROVEMENT Sunrise Gold Business Park MAP OF NEW CARPET 11315 Sunrise Gold Circle Suite I Initials: HGW BW EXHIBIT B TENANT IMPROVEMENT Sunrise Gold Business Park MAP OF NEW VCT FLOORING 11315 Sunrise Gold Circle Suite I Initials: HGW BW EXHIBIT C TENANT IMPROVEMENT Sunrise Gold Business Park MAP OF NEW PAINT 11315 Sunrise Gold Circle Suite I Initials: HGW BW EXHIBIT D TENANT IMPROVEMENT Sunrise Gold Business Park MAP OF PROPOSED LAYOUT 11315 Sunrise Gold Circle Suite I Initials: HGW BW EX-21.1 4 0004.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SPECTRIAN CORPORATION SUBSIDIARIES (All 100% Owned) Registrant's significant consolidated subsidiaries and the state or jurisdiction of organization of each subsidiary are show below: Spectrian Foreign Sales Corporation (Incorporated in United States Virgin Islands) Spectrian Korea Corporation (Incorporated in the Republic of South Korea) UltraRF, Inc. (Incorporated in Delaware) EX-27.1 5 0005.txt FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS REPORTED IN FORM 10-Q FOR THE PERIOD ENDED JULY 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000925054 SPECTRIAN CORP /DE/ 1,000 3-MOS MAR-31-2001 APR-01-2000 JUL-02-2000 11,179 31,220 27,748 420 34,584 110,473 68,380 49,400 130,721 33,108 959 0 0 12 96,642 130,721 42,190 42,190 35,268 35,268 5,601 0 46 (3,788) 12 (3,800) 0 0 0 (3,800) (0.35) (0.35) Securities, Item 5-02(2), are net of accrued interest and unrealized gain/loss. Item consists of research and development. Item consists of basic earnings per share.
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