-----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, HYTt2ke9zj2Fs/EYAxnFRroH/YXEvqs0gOcjEWR3OdbuXL1x7F4sMiIU59VslNtk thngyZWQ1i2rDyZa36nALQ== 0001047469-99-035185.txt : 19990910 0001047469-99-035185.hdr.sgml : 19990910 ACCESSION NUMBER: 0001047469-99-035185 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANADIGICS INC CENTRAL INDEX KEY: 0000940332 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 222582106 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-83889 FILM NUMBER: 99708350 BUSINESS ADDRESS: STREET 1: 35 TECHNOLOGY DR CITY: WARREN STATE: NJ ZIP: 07059 BUSINESS PHONE: 9086685000 MAIL ADDRESS: STREET 1: 35 TECHNOLOGY DRIVE CITY: WARREN STATE: NJ ZIP: 07059 S-3/A 1 S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1999 REGISTRATION NO. 333-83889 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ANADIGICS, INC. (Exact name of registrant as specified in its charter) ------------------------------ DELAWARE 35 TECHNOLOGY DRIVE 22-2582106 (State or other jurisdiction WARREN, NEW JERSEY 07059 (I.R.S. Employer of (908) 668-5000 Identification incorporation or organization) (Address, including zip code, and telephone number, No.) including area code, of registrant's principal executive offices)
------------------------ DR. BAMI BASTANI CHIEF EXECUTIVE OFFICER AND PRESIDENT ANADIGICS, INC. 35 TECHNOLOGY DRIVE WARREN, NEW JERSEY 07059 (908) 668-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ With copies of all orders, notices and communications to: STEPHEN A. GREENE, ESQ. ROBERT S. RISOLEO, ESQ. CAHILL GORDON & REINDEL SULLIVAN & CROMWELL 80 PINE STREET 125 BROAD STREET NEW YORK, NY 10005 NEW YORK, NEW YORK 10004 (212) 701-3000 (212) 558-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED SEPTEMBER 9, 1999. 3,000,000 Shares [LOGO] ANADIGICS, INC. Common Stock ------------------ The common stock is traded on the Nasdaq National Market under the symbol "ANAD". The last reported sale price of the common stock on July 26, 1999 was $30.81 per share. SEE "RISK FACTORS" ON PAGE 4 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
Per Share Total ----------- ----- Initial price to public.................................................. $ $ Underwriting discount.................................................... $ $ Proceeds, before expenses, to ANADIGICS.................................. $ $
To the extent that the underwriters sell more than 3,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 450,000 shares from ANADIGICS at the initial price to public less the underwriting discount. ------------------------ The underwriters expect to deliver the shares against payment in New York, New York on , 1999. GOLDMAN, SACHS & CO. PRUDENTIAL SECURITIES CIBC WORLD MARKETS NEEDHAM & COMPANY, INC. ------------------------ Prospectus dated , 1999. PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. BEFORE INVESTING IN OUR COMMON STOCK, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND THE RISKS OF INVESTING IN OUR COMMON STOCK DESCRIBED UNDER "RISK FACTORS". TECHNICAL TERMS USED IN THIS PROSPECTUS ARE EXPLAINED IN THE GLOSSARY BEGINNING ON PAGE 36. MARKET DATA INCLUDED IN THIS PROSPECTUS HAVE BEEN OBTAINED FROM INDEPENDENT SOURCES THAT WE BELIEVE ARE RELIABLE. ANADIGICS We are a leading supplier of radio frequency/microwave integrated circuit solutions for the communications industry. Our products are used to send and receive signals in a variety of wireless and broadband communications applications. Our innovative high frequency integrated circuits enable manufacturers of communications equipment to enhance overall system performance and reduce manufacturing cost and time to market. In the wireless market we focus on applications for cellular and personal communications systems, or PCS, handsets. The global proliferation of wireless communication has substantially enhanced the attractiveness of this market for our products. According to Gartner Group's Dataquest, the worldwide market for cellular/PCS wireless handsets has grown from 18.7 million units produced in 1993 to 175.4 million units in 1998. This represents a compound annual growth rate of 56%. Dataquest projects that cellular/PCS handset production will exceed 550 million units per year by 2003. In the broadband market we focus on applications for cable television systems, cable modems and fiber optic communication systems. We believe the broadband communications market offers significant growth opportunities driven by the emergence of interactive cable systems offering increased video content, internet connection services and telephony and fiber optic networks providing capacity for internet and communications services. We serve these standards-driven markets with strong customer relationships, radio frequency/microwave integrated circuit design expertise, short development and production cycle time and competitive pricing. We design, develop and manufacture our integrated circuits primarily using gallium arsenide, or GaAs, semiconductor material, providing our products with several advantages over products based on silicon. GaAs-based integrated circuits can operate at three to five times higher frequency, have lower noise figures, are better at facilitating integration of passive components and are more power efficient than silicon-based products. The industry transition from analog to digital data processing has resulted in products that require faster digital integrated circuits which, in turn, require higher performing analog interfaces to the outside world. We manufacture integrated circuits using metal semiconductor field effect transistor, or MESFET, and pseudomorphic high electron mobility transistor, or PHEMT, technologies and are in the process of developing products using heterojunction bipolar transistor, or HBT, technology, which we expect to introduce in the first half of 2000. We recently began production in our new six-inch analog GaAs wafer fabrication facility, which we believe to be the first and only six-inch analog GaAs wafer fabrication facility in our industry. Using a six-inch wafer allows us to produce, at a small incremental cost, more than twice the integrated circuit dice per wafer than can be produced from the current industry norm four-inch wafer. With our strong fabrication capability, significant management experience and innovative designs, we believe we can rapidly develop products in line with market requirements. We believe our competitive advantages are our radio frequency/microwave integrated circuit design, development and applications expertise, our high volume, low-cost GaAs technology 1 manufacturing expertise, as well as our strong working relationships with leading original equipment manufacturers in each of our target markets. Our principal customers, based on net sales, include LM Ericsson AB, General Instrument Corp., Lucent Technologies, Inc., Methode Electronics, Inc., Motorola Inc., Nortel Ltd., Scientific-Atlanta, Inc. and Toshiba Corp. Our goal is to become the leading supplier of radio frequency/microwave integrated circuit solutions for the wireless and broadband markets. The key elements of our strategy are to: - be first-to-market with proprietary value-added products that provide cost-effective integrated circuit solutions; - capitalize on our world class manufacturing capabilities; - forge new relationships and leverage existing customer relationships with original equipment manufacturers; and - pursue strategic acquisitions and alliances to access and benefit from complementary technologies. ANADIGICS was incorporated in Delaware in 1984. Our executive offices are located at 35 Technology Drive, Warren, New Jersey 07059. Our telephone number is (908) 668-5000. Our internet site is http://www.anadigics.com. Our internet site does not form a part of this prospectus. THE OFFERING The following information assumes that the underwriters do not exercise the option granted by ANADIGICS to purchase additional shares in the offering. See "Underwriting". Common stock offered by ANADIGICS............ 3,000,000 shares Common stock to be outstanding after the offering................................... 17,871,937 shares (1) Use of proceeds.............................. We expect to use the net proceeds from this offering for general corporate purposes, including capital expenditures and working capital. We may use all or a portion of the net proceeds to acquire complementary businesses or technologies. Pending these uses, we intend to invest the net proceeds from this offering in investment-grade, income-producing securities. Nasdaq National Market symbol................ ANAD
- ------------------------ (1) Based on shares outstanding as of July 4, 1999. Excludes 4,731,666 shares of common stock reserved for issuance under our stock purchase and stock option plans and warrants outstanding on July 4, 1999, of which 3,826,541 shares of common stock are issuable upon exercise of options and warrants outstanding on July 4, 1999. See notes 1, 7, 8 and 11 to the audited consolidated financial statements. 2 SUMMARY FINANCIAL DATA
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ---------------------------------- ---------------------------- 1996 1997 1998 JUNE 28, 1998 JULY 4, 1999 ---------- ---------- ---------- -------------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales........... $ 68,864 $ 102,536 $ 86,075 $ 41,460 $ 55,582 Gross profit........ 29,977 46,443 19,847 14,827 19,434 Income (loss) from operations........ 9,735 17,539 (19,029) (2,428) (1,278) Net income (loss) (2)............... 11,991 15,329 (9,558) (752) (4,541) Diluted earnings per share (1)(2)...... $ 0.93 $ 1.02 $ (0.65) $ (0.05) $ (0.31) Weighted average common and dilutive securities outstanding....... 12,907,851 15,063,879 14,723,941 14,711,323 14,811,687
AT JULY 4, 1999 -------------------------- ACTUAL AS ADJUSTED(3) --------- --------------- BALANCE SHEET DATA: Working capital................................................. $ 53,527 $ 140,604 Total assets.................................................... 169,255 256,332 Current maturities of long-term debt............................ 1,000 1,000 Current maturities of capital lease obligations................. 160 160 Long-term debt, less current portion............................ 3,500 3,500 Capital lease obligations, less current portion................. 117 117 Stockholders' equity............................................ 134,809 221,886
- ------------------------ (1) Includes recognition of a net deferred tax benefit of approximately $3.6 million and $1.9 million in 1996 and 1997, respectively. (2) Includes a restructuring charge of $7.1 million for fiscal year ended December 31, 1998, a restructuring charge of $1.1 million for the six months ended June 28, 1998 and a provision for litigation settlement of $6.9 million for the six months ended July 4, 1999. See "Management's Discussion and Analysis of Results of Operations." (3) Adjusted to reflect our sale of 3,000,000 shares of common stock in this offering at an estimated initial price to public of $30.81 per share and the application of the estimated net proceeds from this offering. See "Use of Proceeds". 3 RISK FACTORS BEFORE PURCHASING SHARES, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE ARE FACING. WE MAY HAVE OTHER RISKS AND UNCERTAINTIES OF WHICH WE ARE NOT YET AWARE OR WHICH WE CURRENTLY BELIEVE ARE IMMATERIAL THAT MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. BUSINESS RISKS WE DEPEND ON A SMALL NUMBER OF CUSTOMERS AND A LOSS OF OR A DECREASE IN PURCHASES BY ONE OF THESE CUSTOMERS WOULD MATERIALLY AND ADVERSELY AFFECT OUR REVENUES. We receive most of our revenues from a few significant customers. Sales to Ericsson, General Instrument and Qualcomm Personal Electronics accounted for 16%, 16% and 12%, respectively, of 1996 net sales, and 33%, 13% and 16%, respectively, of 1997 net sales. Ericsson and General Instrument accounted for 34% and 17%, respectively, of 1998 net sales, and 40% and 21%, respectively, of net sales during the six month period ended July 4, 1999. No other customer accounted for greater than 10% of net sales during these periods. Substantially all of our sales of wireless applications are to Ericsson. Our operating results have been materially and adversely affected in the past by the failure of anticipated orders to be realized and by deferrals or cancellations of orders as a result of changes in customer requirements. If we were to lose Ericsson, General Instrument or another major customer, or if sales to Ericsson, General Instrument or another major customer were to decrease materially, our results of operations would be materially and adversely affected. See "Business--Target Markets and Products". OUR BUSINESS COULD BE ADVERSELY AFFECTED BY OUR FAILURE TO DEVELOP AND MARKET GAAS HBT TECHNOLOGY. We are developing GaAs HBT process technology to manufacture power amplifiers and certain other integrated circuits. Some of our competitors already offer products using this technology. We are pursuing our development effort initially with a third party foundry. We hope to begin production of GaAs HBT products in our own manufacturing facility in the year 2000. We cannot assure you that our efforts will result in commercially successful GaAs HBT products in a timely or cost effective manner, if at all. Our in-house design efforts may be delayed or fail to deliver viable GaAs HBT products. Our third party foundry may delay or fail to deliver GaAs HBT technology or products to us. Our results of operations could be materially and adversely affected by our failure to develop this technology. Even if we are successful, our customers may purchase their GaAs HBT requirements from our competitors. DECREASES IN OUR CUSTOMERS' SALES VOLUMES COULD RESULT IN DECREASES TO OUR SALES VOLUMES. A substantial portion of our sales are derived from sales to original equipment manufacturers. Where our products are designed into an original equipment manufacturer's product, our sales volumes depend upon the commercial success of the original equipment manufacturer's product. Our operating results have been materially and adversely affected in the past by the failure of anticipated orders to be realized and by deferrals or cancellations of orders as a result of changes in demands for our customers' products. WE WILL NEED TO KEEP PACE WITH RAPID PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGES TO BE COMPETITIVE. Rapid changes in both product and process technologies characterize the markets for our products. Because these technologies are continually improving, we believe that our future success 4 will depend, in part, upon our ability to continue to improve our product and process technologies and develop new products and process technologies. If a competing technology emerges that is superior to our existing technology and we are unable to develop and/or implement the new technology successfully or to develop and implement a competitive and economic alternative technology, our results of operations would be materially and adversely affected. We will need to make substantial investments to develop these enhancements and technologies, and we cannot assure you that funds for these investments will be available or that these enhancements and technologies will be successful. See "Business--Competition" and "--Research and Development". OUR PRODUCTS HAVE EXPERIENCED RAPIDLY DECLINING UNIT PRICES. In each of the markets where we compete, prices of established products tend to decline significantly over time. Accordingly, in order to remain competitive, we believe that we must continue to develop product enhancements and new technologies that will either slow the price declines of our products or reduce the cost of producing and delivering our products. If we fail to do so, our results of operations would be materially and adversely affected. THE VARIABILITY OF OUR MANUFACTURING YIELDS MAY AFFECT OUR GROSS MARGINS. Our manufacturing yields vary significantly among products, depending on the complexity of a particular GaAs integrated circuit's design and our experience in manufacturing that type of GaAs integrated circuit. Although our process technology uses standard silicon semiconductor manufacturing equipment, aggregate production quantities of GaAs integrated circuits manufactured by us and the GaAs integrated circuit industry in general have been relatively low compared with silicon integrated circuit production volumes. We have in the past experienced difficulties in achieving planned yields, which have adversely affected our gross margins. Regardless of the process technology used, the fabrication of integrated circuits is a highly complex and precise process. Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous integrated circuits on each wafer to be nonfunctional, thereby reducing yields. These difficulties can include: - defects in masks, which are used to transfer circuit patterns onto our wafers; - impurities in the materials used; - contamination of the manufacturing environment; and - equipment failure. Because a large portion of our costs of manufacturing are relatively fixed and average selling prices for our products tend to decline over time, it is critical for us to improve the number of shippable integrated circuits per wafer and increase the production volume of wafers in order to maintain and improve our results of operations. Yield decreases can result in substantially higher unit costs, which could materially and adversely affect our operating results and have done so in the past. We cannot assure you that we will be able to continue to improve yields in the future or that we will not suffer periodic yield problems, particularly during the early production of new products or introduction of new process technologies. In either case, our results of operations could be materially and adversely affected. See "Business--Manufacturing, Assembly and Testing". DELAYS IN COMPLETING THE TRANSITION OF PRODUCTION FROM OUR FOUR-INCH WAFER FABRICATION FACILITY TO OUR SIX-INCH WAFER FABRICATION FACILITY COULD RESULT IN DELAYS IN PRODUCT SHIPMENTS AND A LOSS OF CUSTOMERS AS A RESULT OF SUCH DELAYS. Some of our customers are currently in the process of qualifying our six-inch wafer fabrication facility. We expect qualification activities to be completed by the end of 1999. We cannot assure you that all of our customers will qualify our products produced in the six-inch wafer fabrication facility. 5 We also face numerous risks in the successful operation of our new six-inch wafer fabrication facility as well as in our overall production operations. We will need to train and manage production personnel successfully in order to effectively operate our new six-inch wafer fabrication facility. Our failure to accomplish any of the foregoing could result in delays in product shipments, adversely affect our relations with our customers and have a material and adverse effect on our results of operations. WE MAY FACE CONSTRAINTS ON OUR MANUFACTURING CAPACITY WHICH WOULD LIMIT OUR ABILITY TO INCREASE SALES VOLUMES. We believe that our new six-inch wafer fabrication facility should be able to satisfy our production needs for the next twelve months. However, if production volumes were to increase significantly from expected levels, we might be required to hire, train and manage additional production personnel in order to successfully increase production capacity at this facility. We cannot assure you that we would be able to implement these changes successfully. A delay for any reason in capacity increase would limit our ability to increase sales volumes. In addition, if we fail to increase production and do not have sufficient capacity to satisfy the demand for our products, our relationships with customers could be harmed. WE DEPEND ON FOREIGN SEMICONDUCTOR ASSEMBLY CONTRACTORS AND A LOSS OF AN ASSEMBLY CONTRACTOR COULD RESULT IN DELAYS OR REDUCTIONS IN PRODUCT SHIPMENT. We do not assemble our integrated circuits or our multi-chip modules. Instead, we provide the GaAs integrated circuit dice and, in some cases, packaging and other components to assembly vendors located primarily in Asia. We maintain one qualified service supplier for each assembly process. If we are unable to obtain sufficient high quality and timely assembly service, or if we lose any of our current assembly vendors, we would experience delays or reductions in product shipment, and/or reduced product yields that could materially and adversely affect our results of operations. WE MAY FACE CONSTRAINTS ON OUR TEST CAPACITY WHICH COULD RESULT IN MANUFACTURING DELAYS. We use automated test equipment that is currently in short supply. As a result, we need to order the test equipment from the manufacturer far in advance of our anticipated need. We cannot assure you that we can obtain the appropriate equipment in a timely or cost effective manner. Our inability to obtain appropriate test equipment in a timely manner could result in manufacturing delays which would have a material and adverse effect on our results of operations. THE SHORT LIFE CYCLES OF SOME OF OUR PRODUCTS MAY LEAVE US WITH OBSOLETE OR EXCESS INVENTORIES. The life cycles of some of our products depend heavily upon the life cycles of the end products into which our products are designed. We estimate that current life cycles for cellular and PCS telephone handsets, and in turn our cellular and PCS products, are approximately 12 to 24 months. Products with short life cycles require us to manage closely production and inventory levels. We cannot assure you that obsolete or excess inventories, which may result from unanticipated changes in the estimated total demand for our products and/or the estimated life cycles of the end products into which our products are designed, will not affect us. In 1998, we recorded a significant charge for obsolete inventory. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1998 Compared to 1997--Gross Margin". 6 SOURCES FOR CERTAIN COMPONENTS, MATERIALS AND EQUIPMENT ARE LIMITED WHICH COULD RESULT IN DELAYS OR REDUCTIONS IN PRODUCT SHIPMENTS. We do not manufacture any of the starting wafers or packaging components used in the production of our GaAs integrated circuits. Starting wafers and packaging components are available from a limited number of sources. If we are unable to obtain these wafers or components in the required quantities and quality we could experience delays or reductions in product shipments, which would materially and adversely affect our results of operations. Although we have not experienced any significant difficulty to date in obtaining wafers or components, we cannot assure you that shortages will not arise in the future. We depend on a limited number of vendors to supply equipment used in our manufacturing processes. When demand for semiconductor manufacturing equipment is high, lead times for delivery of such equipment can be substantial. We cannot assure you that we would not lose potential sales if required manufacturing equipment is unavailable and, as a result, we are unable to maintain or increase our production levels. See "We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes". OUR INTERNATIONAL SALES AND OPERATIONS INVOLVE FOREIGN EXCHANGE RISKS. Sales to customers located outside North America (based on shipping addresses and not on the locations of ultimate end users) accounted for approximately 65%, 57%, 58% and 61% of total net sales for 1996, 1997, 1998 and the six month period ended July 4, 1999, respectively. We expect that revenues derived from international sales will continue to represent a significant portion of our total net sales. In addition, independent third parties located in Asia supply a substantial portion of the starting wafers and packaging components that we use in the production of GaAs integrated circuits, and assemble nearly all of our products. Due to our reliance on international sales and on foreign suppliers and assemblers, we are subject to risks of conducting business outside of the United States, including primarily those arising from currency fluctuations, which could affect the price of our products and/or the cost of producing them. OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAY MAKE IT HARDER FOR US TO BE ACQUIRED WITHOUT THE CONSENT AND COOPERATION OF OUR BOARD OF DIRECTORS AND MANAGEMENT. Several provisions of our certificate of incorporation and our by-laws may deter or prevent a takeover attempt, including a takeover attempt in which the potential purchaser offers to pay a per share price greater than the current market price for our common stock. These provisions include: - PREFERRED STOCK--our board of directors can issue preferred stock senior to our common stock at any time. This may make it more difficult and more expensive to acquire us; - STAGGERED BOARD--only a minority of the total number of board members can be elected each year. This may make it more difficult for a potential purchaser to elect enough directors to assure control of ANADIGICS; and - STOCKHOLDER RIGHTS PLAN--our stockholder rights plan may make it more difficult and more expensive to acquire us, unless the stockholder rights are first redeemed by our board. In addition, we are subject to Section 203 of the Delaware General Corporation Law which restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. 7 INDUSTRY RISKS WE FACE INTENSE COMPETITION WHICH COULD RESULT IN A DECREASE OF OUR PRODUCTS' PRICES AND SALES. The semiconductor industry is intensely competitive and is characterized by rapid technological change. We compete with manufacturers of discrete GaAs and silicon semiconductors and with manufacturers of GaAs and silicon integrated circuits. We expect increased competition from: - other GaAs integrated circuit manufacturers who may replace us as a single source supplier to an original equipment manufacturer or otherwise dilute our sales to an original equipment manufacturer; - silicon analog integrated circuit manufacturers; and - companies which may penetrate the radio frequency/microwave integrated circuit communications market with other technologies, such as those based on silicon germanium. In addition, some of our customers compete with us and we have lost business in the past to this type of competition. We expect that sales of low data rate fiber optic products used in SONET fiber optic transmissions, could decline significantly over the next few quarters, as current customers begin to source their requirements for these products from in-house supply sources. Increased competition could result in: - decreased prices of GaAs integrated circuits; - reduced demand for our products; and - a reduction in our ability to recover development-engineering costs. Any of these developments could materially and adversely affect our results of operations. Most of our current and potential competitors, which include Alpha Industries, Inc., Conexant Systems, Inc., Fujitsu Compound Semiconductor Inc., Hitachi Ltd., Lucent, Maxim Integrated Products, RF Micro Devices, Inc., Royal Philips Electronics, N.V., TriQuint Semiconductor, Inc. and Vitesse Semiconductor Corporation, have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot assure you that we will be able to compete successfully with our existing or new competitors. See "Business--Competition". OUR OPERATING RESULTS CAN VARY SIGNIFICANTLY. The semiconductor industry has been characterized by cyclicality. The industry has experienced significant economic downturns at times, involving diminished product demand, accelerated erosion of average selling prices and production over-capacity. Although the semiconductor industry in general, and the portion of the industry serving the communications industry in particular, are currently experiencing a period of increased demand, we cannot assure you that these conditions will continue. We may experience substantial period-to-period fluctuations in future operating results. You should not rely on our operating results for the six months ended July 4, 1999 as an indicator of our results for the year ending December 31, 1999. WE MAY NOT BE SUCCESSFUL IN AVOIDING CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS OR IN PROTECTING OUR OWN INTELLECTUAL PROPERTY RIGHTS. Our success depends in part on our ability to obtain patents and copyrights, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. As is typical in the semiconductor industry, we have been notified, and may be notified in the future, that we are infringing certain patent and/or other intellectual property rights of others. If it is determined that we have infringed on others' intellectual property rights, we cannot assure you that we would be able to obtain any required licenses on commercially reasonable terms. 8 Currently, there are two unresolved notices claiming that we are infringing intellectual property rights of others. We intend to defend ourselves vigorously against these allegations. One such assertion is LEMELSON V. ANADIGICS, ET AL., brought against Lucent Technologies, Cypress Semiconductor, LSI Logic and a number of other companies in the U.S. District Court for the District of Arizona in February 1999. The other is an assertion by Rockwell International Corporation that we are infringing upon a patent on the processing of semiconductor wafers. The patent will expire in March 2000. In addition to patent and copyright protection, we also rely on trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities which we seek to protect, in part, by confidentiality agreements with our collaborators and employees. We cannot assure you that these agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and proprietary know-how will not otherwise become known or independently discovered by others. See "Business--Patents, Licenses and Proprietary Rights" and "--Legal Matters". RISKS RELATED TO THIS OFFERING THE VOLATILITY OF OUR STOCK PRICE COULD AFFECT YOUR INVESTMENT IN OUR STOCK. The market price of our stock has fluctuated widely. Between January 29, 1998 and October 8, 1998 our common stock price dropped from approximately $33.81 to $5.13 per share. Between October 8, 1998 and July 14, 1999 the price of our common stock rose from approximately $5.13 to $39.25 per share. The current market price of our common stock may not be indicative of future market prices and we may not be able to sustain or increase the value of your investment in our common stock. 9 FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements concerning - the development of new communication technologies and services; - the trend in communication systems toward higher operating frequencies; - the evolution of communication systems from analog to digital modulation; - the growth opportunities in markets for our products; - the manufacturing capability of our new six-inch wafer fabrication facility; - descriptions of our plans and objectives for our business and the assumptions that underlie these plans and objectives; - our future financial performance; and - other statements regarding matters that are not historical facts. They also include statements relating to acquisitions and other business development activities, future capital expenditures, manufacturing capacity, financing sources and availability and the effects of regulation and competition. We base these statements on our current expectations, but many factors and uncertainties, including changes in the securities or financial markets or in general economic conditions, the availability of equity and debt financing, competition and the other factors described in this prospectus could cause actual results to differ materially from those described in the forward-looking statements. We caution you not to place undue reliance on any forward-looking statements. 10 USE OF PROCEEDS The net proceeds from the sale of the 3,000,000 shares of our common stock offered with this prospectus after deducting the underwriting discount and estimated offering expenses are estimated to be $87,077,000, or $100,214,000 if the underwriters' over-allotment option is exercised in full, assuming an initial price to public of $30.81 per share. We expect to use the net proceeds from this offering for general corporate purposes, including capital expenditures and working capital. We may use all or a portion of the net proceeds to acquire complementary businesses or technologies. However, we currently have no agreements or understandings with respect to any acquisitions. Pending these uses, we intend to invest the net proceeds from this offering in investment-grade, income-producing securities. DIVIDEND POLICY We have never paid cash dividends on our capital stock. Our bank credit agreement prohibits the payment of cash dividends without the consent of our bank credit agreement lender. We currently anticipate that we will retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any cash dividends in the foreseeable future. PRICE RANGE OF COMMON STOCK Our common stock is traded on the Nasdaq National Market under the symbol "ANAD". The following table shows for the periods indicated the high and low sale prices for our common stock.
HIGH LOW --------- --------- 1997 First Quarter.............................................. $ 37.68 $ 24.00 Second Quarter............................................. 35.50 22.50 Third Quarter.............................................. 54.25 30.50 Fourth Quarter............................................. 51.38 21.00 1998 First Quarter.............................................. $ 33.81 $ 13.19 Second Quarter............................................. 16.81 11.00 Third Quarter.............................................. 21.00 7.81 Fourth Quarter............................................. 14.19 5.13 1999 First Quarter.............................................. $ 18.63 $ 11.29 Second Quarter............................................. 37.19 16.00 Third Quarter (through July 26, 1999)...................... 39.25 28.50
On July 26, 1999 the last reported sale price of our common stock on the Nasdaq National Market was $30.81 per share. As of July 4, 1999, there were approximately 340 holders of record of our common stock. 11 CAPITALIZATION The following table sets forth our capitalization at July 4, 1999 (1) on an actual basis and (2) as adjusted to give effect to our sale of 3,000,000 shares of our common stock at the initial price to public of $30.81 per share, after deducting the underwriting discount and estimated offering expenses. This table should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
AT JULY 4, 1999 ----------------------- ACTUAL AS ADJUSTED --------- ------------ (IN THOUSANDS) Current maturities of long-term debt............................... $ 1,000 $ 1,000 Current maturities of capital lease obligations.................... 160 160 --------- ------------ --------- ------------ Long-term debt, less current portion............................... $ 3,500 $ 3,500 Capital lease obligations, less current portion.................... 117 117 Stockholders' equity(1): Common stock, par value $.01 per share, 68,000,000 shares authorized; 14,871,937 shares issued and outstanding; 17,871,937 shares issued and outstanding as adjusted........... 149 179 Additional paid-in capital....................................... 161,843 248,890 Accumulated deficit................................................ (27,139) (27,139) Accumulated other comprehensive income (loss)...................... (44) (44) --------- ------------ Total stockholders' equity..................................... 134,809 221,886 --------- ------------ Total capitalization............................................... $ 139,586 $ 226,663 --------- ------------ --------- ------------
- ------------------------ (1) Excludes 4,731,666 shares of common stock reserved for issuance under our stock purchase and stock option plans and warrants outstanding on July 4, 1999, of which 3,826,541 shares of common stock are issuable upon exercise of options and warrants outstanding on July 4, 1999. See notes 1, 7, 8 and 11 to the audited consolidated financial statements. 12 SELECTED FINANCIAL DATA The selected financial data for the fiscal years ended December 31, 1994, 1995, 1996, 1997 and 1998 are derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, independent auditors. See "Experts". The selected financial data for the six months ended June 28, 1998 and July 4, 1999 are derived from our unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended July 4, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. You should read the following selected financial data together with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements, including related notes, and other financial information, all of which are included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED --------------------------------------------------------- ------------------------ JUNE 28, JULY 4, 1994 1995 1996 1997 1998 1998 1999 --------- ---------- ---------- ---------- ---------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales......................... $34,832 $51,460 $68,864 $102,536 $86,075 $41,460 $55,582 Cost of sales..................... 18,454 24,995 38,887 56,093 66,228 26,633 36,148 Gross profit...................... 16,378 26,465 29,977 46,443 19,847 14,827 19,434 Research and development.......... 9,195 11,733 12,036 16,765 18,824 9,750 11,968 Selling and administrative expense......................... 4,530 6,640 8,206 12,139 12,926 6,405 8,744 Restructuring charges............. -- -- -- -- 7,126 1,100 -- Operating income (loss)........... 2,653 8,092 9,735 17,539 (19,029) (2,428) (1,278) Interest income (expense), net.... (488) 728 1,368 3,229 2,296 1,225 995 Provision for litigation settlement...................... -- -- -- -- -- -- 6,925 Income (loss) before income taxes........................... 2,165 8,820 11,103 20,768 (16,733) (1,203) (7,208) Provision (benefit) for income taxes(1)........................ 300 1,527 (888) 5,439 (7,175) (451) (2,667) Net income (loss) (1)............. $1,865 $7,293 $11,991 $15,329 $(9,558) $(752) $(4,541) Basic earnings per share.......... $0.23 $0.67 $0.97 $1.07 $(0.65) $(0.05) $(0.31) Diluted earnings per share(1)..... $0.23 $0.64 $0.93 $1.02 $(0.65) $(0.05) $(0.31) Weighted average common and dilutive securities outstanding..................... 8,260,430 11,374,745 12,907,851 15,063,879 14,723,941 14,711,323 14,811,687
AT DECEMBER 31, AT JULY 4, ----------------------------------------------------- ----------- 1994 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital.............................................. $ 11,349 $ 35,953 $ 37,825 $ 65,061 $ 57,123 $ 53,527 Total assets................................................. 30,885 66,250 86,996 168,084 154,098 169,255 Current maturities of long-term debt......................... -- -- -- -- 1,000 1,000 Current maturities of capital lease obligations.............. 3,829 1,718 1,292 425 229 160 Long-term debt, less current portion......................... -- -- -- -- 4,000 3,500 Capital lease obligations, less current portion.............. 2,807 1,919 627 389 183 117 Total stockholders' equity................................... 20,520 53,823 70,557 146,463 137,807 134,809
- ------------------------------ (1) Includes recognition of a net deferred tax benefit of approximately $1.2 million, $3.6 million and $1.9 million in 1995, 1996 and 1997, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1997 Compared to 1996" and note 9 to the audited consolidated financial statements. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We were organized in 1984 and initially focused on the development and manufacture of GaAs integrated circuits for low volume defense and aerospace applications. In 1988 we began shifting our strategy to focus on radio frequency/microwave communications systems for high volume applications, and began production for these applications in 1989. In 1992 we introduced integrated circuits for cable television. In late 1994 we entered the wireless communications market with the introduction of cellular telephone integrated circuits. In 1998 we expanded our fiber optic product offerings with the introduction of transimpedence amplifiers for the gigabit ethernet market. In the next few years, we believe there are opportunities to develop integrated circuits in silicon or silicon germanium which would enhance our GaAs integrated circuits in modules. The recently established RF Standard Products Group at ANADIGICS will be exploring the use of these technologies in the wireless application. We strive to achieve market advantage through application of radio frequency/microwave design and application knowledge. With our design expertise we have led the industry with the introduction of innovative products. Recent examples include dual-band power amplifiers for use in wireless handsets, cable television 256 QAM upconverters, and cable television reverse amplifiers, all of which offer greater levels of product performance and reduce original equipment manufacturers' production costs. We aim to achieve cost advantage through the scale and efficiency of our manufacturing operations. We recently began production in our new six-inch analog GaAs wafer fabrication facility, which we believe to be the first and only six-inch analog GaAs wafer fabrication facility in our industry. Using a six-inch wafer allows us to produce, at a small incremental cost, more than twice the integrated circuit dice per wafer than can be produced from the industry norm four-inch wafer. RESULTS OF OPERATIONS The following table sets forth statements of operations data as a percentage of net sales for the periods indicated:
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------- ------------------------ JUNE 28, JULY 4, 1996 1997 1998 1998 1999 --------- --------- --------- ----------- ----------- Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales..................................... 56.5 54.7 76.9 64.2 65.0 --------- --------- --------- ----- ----- Gross profit...................................... 43.5 45.3 23.1 35.8 35.0 Research and development.......................... 17.5 16.4 21.9 23.5 21.6 Selling and administrative expense................ 11.9 11.8 15.0 15.5 15.7 Restructuring charges............................. -- -- 8.3 2.7 -- --------- --------- --------- ----- ----- Operating income (loss)........................... 14.1 17.1 (22.1) (5.9) (2.3) Interest income, net.............................. 2.0 3.1 2.7 3.0 1.8 Provision for litigation settlement............... -- -- -- -- 12.5 --------- --------- --------- ----- ----- Income (loss) before income taxes................. 16.1 20.2 (19.4) (2.9) (13.0) Provision (benefit) for income taxes.............. (1.3) 5.3 (8.3) (1.1) (4.8) --------- --------- --------- ----- ----- Net income (loss)................................. 17.4% 14.9% (11.1)% (1.8)% (8.2)% --------- --------- --------- ----- ----- --------- --------- --------- ----- -----
14 SIX MONTHS 1999 COMPARED TO SIX MONTHS 1998 NET SALES. Net sales during the six month period ended July 4, 1999 increased 34% to $55.6 million from $41.5 million in the six month period ended June 28, 1998. Sales of integrated circuits for cellular and PCS applications increased 36% during the six month period ended July 4, 1999 to $22.5 million from $16.5 million in the six month period ended June 28, 1998 as demand for our dual-band power amplifiers increased. Sales of integrated circuits for cable and broadcast applications increased 25% during the six month period ended July 4, 1999 to $20.5 million from $16.4 million in the six month period ended June 28, 1998. Included in the sales of integrated circuits for cable and broadcast applications are sales of low noise block converters (which we ceased production of during the third quarter of 1998) of $0.7 million and $2.8 million during the six month period ended July 4, 1999 and June 28, 1998, respectively. The increase in sales of integrated circuits for cable and broadcast applications during the six month period ended July 4, 1999 was due to increases in demand for our chip sets used in digital set-top converters and cable modems, and our line amplifiers used as a repeater in cable television distribution networks. Sales of integrated circuits for fiber optic telecommunication and data communication applications increased 52% during the six month period ended July 4, 1999 to $12.5 million from $8.2 million in the six month period ended June 28, 1998 as demand for transimpedence amplifiers for SONET fiber optic telecommunications applications and data communication applications increased. We expect increased competition from internally sourced silicon integrated circuits at certain of our customers for SONET OC-12 and OC-24 fiber optic transimpedence amplifiers. Increased competition could result in decreased prices of our integrated circuits and/or reduced demand for our products. Sales of SONET OC-12 and OC-24 fiber optic transimpedence amplifiers were approximately $4.5 million during the first half of 1999. Engineering service sales, which reflect customers' contributions to research and development, decreased $0.3 million during the six month period ended July 4, 1999 to $0.1 million from $0.4 million in the six month period ended June 28, 1998. Generally, selling prices for same product sales were lower during the six month period ended July 4, 1999 compared to the six month period ended June 28, 1998. GROSS MARGIN. Gross margin during the six month period ended July 4, 1999 declined to 35.0% from 35.8% in the six month period ended June 28, 1998. Excluding the accelerated depreciation expense of $5.3 million, gross margin during the six month period ended July 4, 1999 was 44.5%. The accelerated depreciation expense was due to a reduction in the useful lives of the fabrication facility equipment and leasehold improvements with original lives ranging from five to twenty years that were reduced to a life of nine months beginning October 1, 1998. The reduction in estimated useful life followed our October 1998 decision to close our four-inch wafer fabrication facility. The accelerated depreciation expense associated with the closing of our four-inch wafer fabrication facility that was recorded during the first half of 1999, was mostly offset by increased sales volume, manufacturing cost structure improvements and improved yields. RESEARCH AND DEVELOPMENT. ANADIGICS-funded research and development expense increased 23% during the six month period ended July 4, 1999 to $12.0 million from $9.8 million in the six month period ended June 28, 1998. The increase was primarily attributable to increased research and development (1) of integrated circuits for cellular and PCS, cable television and fiber optic applications and (2) of new process technologies. As a percent of sales, ANADIGICS-funded research and development decreased to 21.6% during the six month period ended July 4, 1999 from 23.5% in the six month period ended June 28, 1998. 15 SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 37% during the six month period ended July 4, 1999 to $8.7 million from $6.4 million in the six month period ended June 28, 1998. The increase was due in part to increases in performance-related compensation costs, consulting fees and costs related to our marketing activities. As a percentage of sales, selling and administrative expenses increased to 15.7% during the six month period ended July 4, 1999 from 15.5% in the six month period ended June 28, 1998. RESTRUCTURING CHARGES. During the first quarter of 1998, we recorded a charge of $1.1 million associated with a reduction in staff of 100 employees. The employees who were involuntarily terminated were notified, received information regarding their benefit arrangement and were severed on March 2, 1998. The terminated employees represented all areas of our operations, including production, research and development, and selling and administrative areas. The reduction in work force charge primarily consisted of severance pay, extended medical coverage and outplacement service costs. The $1.1 million was paid during 1998. INTEREST INCOME, NET. Interest income, net decreased 19% during the six month period ended July 4, 1999 to $1.0 million from $1.2 million in the six month period ended June 28, 1998. PROVISION FOR LITIGATION SETTLEMENT. We recorded a provision for litigation settlement of $6.9 million during the second quarter of 1999, as we reached an agreement in principle with the plaintiffs' counsel to settle a consolidated class action lawsuit and a derivative lawsuit. The $6.9 million provision consists of an expected payment of $11.75 million offset by insurance proceeds of $5.3 million, and $0.4 million of additional legal, settlement, notification and court related fees, of which $0.2 million was paid as of July 4, 1999. BENEFIT FOR INCOME TAXES. The benefit for income taxes during the six month period ended July 4, 1999 was recorded at an estimated annual effective tax rate of 37.0% of the loss before income taxes. 1998 COMPARED TO 1997 NET SALES. Net sales during 1998 decreased 16% to $86.1 million from $102.5 million in 1997. Net sales consist of product sales and engineering service sales. Net product sales decreased 15% to $85.4 million in 1998 from $101.0 in 1997. Engineering service sales, which reflect customers' contributions to research and development, decreased 54% during 1998 to $0.7 million from $1.5 million in 1997. Sales of integrated circuits for cellular and PCS applications decreased 44% during 1998 to $33.7 million from $59.7 million during 1997. The lower demand was due to several factors, including increased competition, a shift in demand to lower cost phones not using our parts, customer delays in ramp-up of new generation dual-band phones using our new parts, and in part, the effect of the Asian financial crisis on the wireless communications markets. Sales of integrated circuits for cable and broadcast applications increased 36% during 1998 to $28.3 million from $20.8 million in 1997. The increase in sales of integrated circuits for cable and broadcast applications during 1998 was due to increases in demand for our integrated circuits used in digital set-top converters and cable modems, and our integrated circuit line amplifier used as a repeater in hybrid fiber coaxial distribution networks. Sales of integrated circuits for fiber optic telecommunication and data communication applications increased 53% during 1998 to $17.6 million from $11.5 million in 1997. The increase was primarily due to an increase in demand for transimpedence amplifiers for SONET fiber optic telecommunications applications and sales of a new family of integrated circuits for data 16 communication applications. ANADIGICS expects increased price competition for lower data rate fiber optic telecommunications products from other silicon-based solution providers during 1999. Sales of integrated circuits for direct broadcast satellite applications decreased 36% during 1998 to $5.7 million from $9.0 million in 1997. During the third quarter of 1998, we decided to cease production of our low noise block converter integrated circuits that were used in direct broadcast satellite applications because of reduced demand for low noise block converter integrated circuits and the effects of the Asian financial crisis. Generally, selling prices for same product sales were lower during 1998 compared to 1997. GROSS MARGIN. Gross margin during 1998 declined to 23.1% from 45.3% in 1997. The reduction in gross margin was primarily due to increased inventory reserves totalling $13.8 million, including a special charge of $6.6 million (substantially all of which was scrapped prior to December 31, 1998) and accelerated depreciation charges (related to the planned closing of our existing wafer fabrication facility) of $2.7 million that were recorded during 1998. The inventory special charges (which were primarily work-in-progress and finished goods) consisted of the following: $3.4 million of older generation, single-band power amplifier integrated circuits used in cellular applications, $2.1 million of low noise block converter integrated circuits used in direct broadcast satellite applications, and $1.1 million of older generation line amplifiers used in cable television applications. ANADIGICS was aggressively attempting to sell these integrated circuits in certain markets (primarily secondary communications markets in Asia). ANADIGICS experienced limited success in selling these integrated circuits during 1998 and reevaluated our selling efforts and the potential markets for these products during 1998. Based upon this reevaluation, we decided during the third quarter of 1998 that we would curtail our efforts to sell these products. The remaining portion of the reserves recorded during 1998 of $7.2 million (which were primarily work-in-progress and finished goods) consists of inventory reserves for excess or obsolete inventory which were recorded based upon the Company's on-going analysis of its inventory during 1998. We are currently not aware of any known or expected additional inventory reserves. Lower factory utilization and higher fixed costs associated with our new test and manufacturing administration facilities placed into service during the second quarter of 1998 also contributed to the reduction in gross margin during 1998, compared to 1997. RESEARCH AND DEVELOPMENT. ANADIGICS-funded research and development expenses increased 12% during 1998 to $18.8 million from $16.8 million in 1997. The increase was primarily attributable to increased research and development of integrated circuits for fiber optic and cellular and PCS applications. As a percent of sales, ANADIGICS-funded research and development increased to 21.9% during 1998 from 16.4% in 1997. SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 6% during 1998 to $12.9 million from $12.1 million in 1997. The increase was due in part to executive relocation costs, an increase in operating costs associated with our information systems, and other consulting costs. As a percentage of sales, selling and administrative expenses increased to 15.0% during 1998 from 11.8% in 1997. RESTRUCTURING CHARGES. In connection with our plan to lower manufacturing costs and streamline our manufacturing operations, we recorded restructuring charges totaling $7.1 million during 1998. The restructuring charges consisted of writedowns of impaired assets of $4.5 million, reductions in force of $1.6 million and wafer fabrication facility shutdown and removal costs of $1.0 million. 17 WRITEDOWNS OF IMPAIRED ASSETS. We evaluated the on-going value of certain assets. Based upon our plan to dispose of certain assets with a carrying amount of $4.6 million and our estimate of sales value, net of related costs to sell, at $0.1 million, we recorded an impairment loss of $4.5 million, which consisted of the following items (in millions): Write-down of assets associated with the conversion of the new wafer fabrication facility from four-inch to six-inch wafers......................................... $ 2.2 Write-down of assets associated with the closure of our in-house assembly operations......................................................................... 1.0 Write-off of software in connection with our on-going information systems improvements....................................................................... 0.8 Unused production assets previously used in the production of direct broadcast satellite low noise block converter integrated circuits............................ 0.5 --- Total write-down on impairment of long-lived assets.............................. $ 4.5 --- ---
REDUCTIONS IN FORCE. We recorded charges of $1.1 million during the first quarter of 1998 and $0.5 million during the fourth quarter of 1998 associated with reductions in our workforce. The workforce reduction charges primarily consisted of severance pay, extended medical coverage and outplacement service costs for approximately 165 employees primarily involved in our production operations. Approximately $1.1 million of severance pay, extended medical coverage, and outplacement service costs were paid through December 31, 1998 for the termination of approximately 120 employees. We expect to pay the remaining liability of $0.5 million during the first half of 1999. FACILITY SHUTDOWN AND REMOVAL COSTS. We recorded charges of $1.0 million associated with the shutdown and removal of our existing wafer fabrication facility. See "Business--Manufacturing, Assembly and Testing". INTEREST INCOME, NET. Interest income, net decreased 29% during 1998 to $2.3 million from $3.2 million in 1997. The reduction in interest income, net of $0.9 million was primarily due to a lower amount of investments during 1998, caused by plant and equipment purchases that were primarily for our new wafer fabrication facility, compared to 1997. BENEFIT FOR INCOME TAXES. We recorded a benefit for income taxes during 1998 of $7.2 million, or 42.9% of the loss before income taxes. The benefit for income taxes primarily related to the 1998 federal and state net operating losses, federal and state research and development credits and state manufacturing credits, all of which we plan to carry forward. 1997 COMPARED TO 1996 NET SALES. Net sales during 1997 increased 49% to $102.5 million from $68.9 million in 1996. Net sales consist of product sales and engineering service sales. Net product sales increased 54% to $101.0 million from $65.7 million in 1996. Engineering service sales decreased 51% during 1997 to $1.5 million from $3.2 million in 1996. Sales of integrated circuits for cellular and PCS applications increased 144% during 1997 to $59.7 million from $24.5 million in 1996 as a result of higher volumes. During 1997, we sold power amplifier integrated circuits for all three major wireless digital standards, including GSM, TDMA and CDMA. As a percentage of total sales, sales of integrated circuits for the GSM, TDMA and CDMA frequency bands were approximately 37%, 24% and 28%, respectively in 1997. Sales of integrated circuits for cable television applications in 1997 increased 51% to $20.8 million from $13.8 million in 1996 as demand for integrated circuits used in set top converters and cable modems increased. Sales of integrated circuits for fiber optic SONET, SDH and asynchronous transfer mode telecommunication applications decreased 1% during 1997 to $11.5 million from $11.6 million in 1996. Sales of integrated circuits for DBS television applications decreased 43% during 1997 to 18 $9.0 million from $15.8 million in 1996 as demand from European manufacturers of direct broadcast satellite equipment for the European market decreased. Generally, selling prices for same product sales were lower in 1997 compared to 1996. GROSS MARGIN. Gross margin during 1997 increased to 45.3% from 43.5% in 1996. The increase was due to manufacturing efficiencies, which resulted in part from the conversion from three-inch wafers used in 1996 to four-inch wafers used during 1997, higher production volume and improved production yields. These factors were partially offset by additional costs associated with assembly and packaging quality problems on certain products that were incurred during the fourth quarter of 1997 and a shift in sales mix to lower margin products during 1997 compared to 1996. RESEARCH AND DEVELOPMENT. Research and development expenses we sponsored increased 39% during 1997 to $16.8 million from $12.0 million during 1996. The increase was primarily attributable to increased research and development of integrated circuits for cellular, PCS and other wireless applications. As a percentage of sales, these expenses declined to 16.4% during 1997 from 17.5% during 1996. During 1997, approximately two-thirds of our research and development expenses were for the development of integrated circuits for cellular, PCS and other wireless applications, compared to approximately one-half in 1996. SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 48% during 1997 to $12.1 million from $8.2 million during 1996. As a percentage of sales, these expenses declined during 1997 to 11.8% from 11.9% during 1996. Administrative expenses increased 64% in 1997 due in part to increased compensation, recruiting and training costs. Selling expenses increased by 32% in 1997 due to staffing increases primarily associated with the expansion of our wireless integrated circuit sales efforts, increased consulting fees and increased sales commission expense. INTEREST INCOME, NET. Interest income increased $1.7 million during 1997 to $3.4 million from $1.7 million during 1996. The increase was due to higher invested cash balances following the receipt of proceeds from the public offering of our common stock in February, 1997. Interest expense decreased by $0.2 during 1997 to $0.2 million from $0.4 million during 1996 on lower levels of indebtedness. PROVISION (BENEFIT) FOR INCOME TAXES. The provision for income taxes during 1997 was $5.4 million, or 26.2% of pre-tax income. The benefit for income taxes in 1996 was $0.9 million, or 8% of pre-tax income. The provision for income taxes in 1997 included a $1.9 million reduction in the valuation allowance, which is explained below, which had been recorded prior to 1997 with respect to deferred tax assets (primarily federal net operating loss net operating loss carryforwards). The benefit for income taxes in 1996 arose from a $5.2 million reduction in the valuation allowance, which had been recorded prior to 1996 with respect to deferred tax assets (primarily net operating loss carryforwards). As of December 31, 1996, we had net deferred tax assets of approximately $15.7 million, which primarily consisted of federal net operating loss carryforwards of $12.6 million and general business credit carryforwards of $0.8 million. A valuation allowance of $10.8 million was provided for the federal net operating loss and general business credit carryforwards as of December 31, 1996. As of December 31, 1997, we had net deferred tax assets of approximately $3.5 million and no valuation allowance. The reductions in the net deferred tax assets and the valuation allowance from 1996 to 1997 primarily resulted from: (1) our determination that certain pre-1989 federal net operating loss and general business credit carryforwards that were severely restricted under Section 382 of the Internal Revenue Code would not be utilized prior to their expiration, and (2) the results of an Internal 19 Revenue Service examination completed in 1997 which resolved uncertainties regarding possible limitations of federal net operating loss carryforwards and general business credit carryforwards generated between 1989 and 1992. We had been providing taxes in 1996 and prior years as if the use of these federal net operating loss and general business carryforwards were restricted. The reduction in the pre-1989 net operating loss and general business credit carryforwards noted above had no effect on net income. The reduction in the federal net operating loss and general business credit carryforwards generated between 1989 and 1992 resulted in a reduction of the current federal provision for income tax expense. The effect of this reduction was an increase in net income in 1997 of approximately $1.9 million. LIQUIDITY AND SOURCES OF CAPITAL As of July 4, 1999, we had $25.3 million in cash and cash equivalents and $18.3 million in marketable securities. We have $4.5 million of bank debt outstanding as of the end of the second quarter of 1999. We entered into an interest rate swap agreement, which effectively fixes the interest rate on this debt at 7.09%. The swap effectively changed the variable interest rate of this bank debt to a fixed rate for which the present value of the cash flow is approximately the same. As of the end of the second quarter of 1999, we also have available $15.0 million under a term loan facility. The term loan facility drawdown period expires on July 1, 2001. The outstanding bank debt and the term loan facility are subject to a number of financial covenants. Substantially all of our assets are pledged as security for repayments of the outstanding bank debt and borrowings, if any, under the term loan facility. Net cash provided by operating activities was $10.1 million during the six month period ended July 4, 1999. Net cash used in investing activities (to purchase equipment) was $9.8 million during the six month period ended July 4, 1999. Net cash provided by financing activities was $1.0 million during the six month period ended July 4, 1999. Cash provided by financing activities was primarily from the issuance of our common stock from stock options exercised during the period. We expect to spend approximately $30.0 million on equipment, furniture and fixtures and leasehold improvements during the twelve month period ending June 30, 2000. At July 4, 1999, we have committed to purchase approximately $7.5 million of equipment, furniture and fixtures and leasehold improvements through the remainder of 1999. We believe that our current cash and cash equivalent balances, together with cash anticipated to be generated from operations and the equity offering described in this prospectus will satisfy anticipated capital needs for the next twelve months and beyond. IMPACT OF YEAR 2000 The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of our computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Our year 2000 initiative is being managed by a senior team of internal staff and outside consultants. The team's activities are designed to ensure that there is no adverse effect on our core business operations and that transactions with customers, suppliers, and financial institutions are fully supported. 20 Over the past year, we have invested in new computer hardware and software to improve our business operations. To date we have upgraded the majority of our critical information systems such that they are now year 2000 ready. Remaining critical systems are on target for their year 2000 upgrades at the end of September 1999. As a result of this effort, we do not believe that any year 2000-related failures of critical systems will cause a significant interruption to our business. We have also completed a comprehensive review of our equipment and facilities. Based on this review, we do not believe that any year 2000-related failures of critical systems will result in a significant disruption to our business. A number of minor upgrades will be completed by the end of September 1999. The total cost of the year 2000 project is estimated at $1.6 million and is being funded through operating cash flows. Of the total project cost, approximately $1.0 million is for the purchase of new hardware and software, which will be capitalized. To date, we have spent approximately $0.8 million on hardware and software purchases and the remaining amount represents equipment purchases expected to be delivered and installed during the third quarter of 1999. To date, we have incurred and expensed approximately $0.4 million, primarily for assessment of the year 2000 issue, development of a modification plan and remediation efforts. The remaining $0.2 million is expected to be incurred and expensed in the third quarter of 1999. We have contacted our material customers, our significant suppliers, and other third party vendors with which we have a material relationship in order to determine whether those entities have adequate plans in place to ensure their year 2000 readiness. To date, we have not identified any major issues with respect to our material customers, our significant suppliers or other third party vendors. We believe that a "worst case" scenario would involve third parties' failures to address year 2000 issues. Such failures could result in, but not limited to, any of the following: (1) Our utility services are interrupted resulting in our inability to continue our manufacturing operations (2) Our shipping services are interrupted preventing us from getting our product to and from our off-shore packaging facility and to our customers on a timely basis (3) Our off-shore assembly contractors operations are interrupted resulting in our inability to obtain our packaged products on a timely basis As of July 4, 1999, we have not developed an overall contingency plan. We do not intend on doing so unless, as a result of ongoing tests, we determine that contingency plans are warranted. Based on our assessment to date and our expectations that our year 2000 initiative will be substantially complete by the end of September 1999, we believe that adequate time will be available to ensure alternatives can be assessed, developed and implemented, if necessary, prior to a year 2000 issue having a negative impact on our operations. However, we can not guarantee that such contingencies, if required, will be completed on a timely basis. While we believe our efforts will be adequate to address our year 2000 concerns, there can be no guarantee that we will not experience unanticipated negative consequences or material costs caused by undetected errors or defects in the technology used in our internal systems or that third parties upon which we rely will not experience similar negative consequences. Our products do not have specific date functions or date dependencies and will operate according to specifications through the year 2000 and beyond. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 2000. The 21 statement permits early adoption as of the beginning of any fiscal quarter after its issuance. We expect to adopt the new statement effective January 1, 2001. The statement will require us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. We do not anticipate that the adoption of this statement will have a significant effect on our results of operations or financial position. 22 BUSINESS We supply radio frequency/microwave integrated circuit solutions to the communications industry, enabling manufacturers to enhance overall system performance and reduce manufacturing cost and time to market. In the wireless market we focus on applications for cellular and personal communications systems handsets. In the broad band market we focus on applications (or solutions) for cable television systems, cable modems and fiber optic communications systems. We believe our competitive advantages are our design, development and applications expertise, our high volume, low cost GaAs technology manufacturing expertise and our strong working relationships with leading original equipment manufacturers in our target markets. We design, develop and manufacture our integrated circuits primarily using GaAs semiconductor material with MESFET and PHEMT technology. We are currently in the process of developing products using HBT technology, which we believe will reduce design complexity and power usage for our next-generation power amplifiers. We recently began production in our new six-inch analog GaAs wafer fabrication facility, which we believe to be the first and only six-inch analog GaAs wafer fabrication facility in our industry. Using a six-inch wafer allows us to produce, at a small incremental cost, more than twice the integrated circuit dice per wafer than can be produced from the industry norm four-inch wafer. With our strong fabrication capability, significant management expertise and innovative designs, we believe we can rapidly develop products in line with market requirements. INDUSTRY OVERVIEW Over the last decade there have been remarkable developments in electronic communications, as evidenced by the emergence of wireless communications, internet services and digital television services. Radio frequency/microwave and integrated circuit technologies have enabled increases in communications capacity and significant reductions in systems costs. The wireless and broadband communications markets are beneficiaries of current technological trends, including higher frequencies, digital modulation and higher levels of electronic integration. Wireless communications, led by cellular and PCS telephone services, are growing rapidly and wireless services are replacing wire line telephone services in some markets. According to Gartner Group's Dataquest, the worldwide market for cellular/PCS wireless handsets has grown from 18.7 million units produced in 1993 to 175.4 million units in 1998. This represents a compound annual growth rate of 56%. Dataquest projects that cellular/PCS handset production will exceed 550 million units per year in 2003. Broadband markets are also benefiting from these technological changes. Cable television systems are moving from one-way analog TV signal distribution systems to interactive digital systems offering increased and new video content, internet connection services and telephony. The increased demand for communication services, such as the internet, is also driving expansion of fiber optic telecommunications networks. Given these developments, original equipment manufacturers are facing the following challenges: - SHORTER CYCLE TIMES. In the wireless communications market, handset manufacturers must bring new products to market quickly in order to maintain their market position. We see new handset platforms being introduced every six months; - NEED FOR LOW-COST PRODUCTS. Handset and set-top boxes are increasingly becoming consumer-driven products. The wide use of these products forces original equipment manufacturers to offer them at attractive prices. As a result, suppliers of components must be cost effective in order for original equipment manufacturers to stay competitive; and 23 - STRONGER SUPPLIER RELATIONSHIPS. The digital, wireless, cable and fiber optic industries are standards driven. Companies in the communications industry must work very closely with their suppliers in order to develop new products. Companies therefore limit themselves to a small number of suppliers in order to keep their competitive advantages. THE GAAS ADVANTAGE Over the past fourteen years, through our research and development efforts, we have developed expertise in producing cost-effective GaAs-based integrated circuits for high-volume commercial applications which offer the performance attributes required for radio frequency/ microwave applications that are not easily obtainable with silicon-based integrated circuits. GaAs transistors can operate at frequencies up to three to five times greater than those possible with silicon and therefore can handle the requirements of radio frequency/microwave applications. GaAs integrated circuits have a lower noise figure than silicon-based integrated circuits, providing increased sensitivity, less distortion and interference and better dynamic range, thereby enabling systems to handle a wide range of signal strengths. GaAs is a semi-insulating material which facilitates integration of the passive components required in radio frequency/microwave applications. Finally, GaAs integrated circuits used in transmitter applications are also more power-efficient than silicon-based circuits, allowing for longer battery life or use of smaller batteries. In addition, we believe there are opportunities to develop integrated circuits in silicon or silicon germanium which would enhance our GaAs integrated circuits in modules. Further we believe some of these integrated circuits may have significant market potential as stand alone integrated circuits. The recently established RF Standard Products Group at ANADIGICS will be exploring the use of these technologies in the wireless application. We do not intend to manufacture in either of these technologies as we believe there will be adequate foundry capacity available. OUR STRATEGY Our objective is to be the leading supplier of radio frequency integrated circuits for the wireless and broadband communications markets. The cornerstone of our strategy is to capitalize on opportunities in the wireless and broadband communications markets by addressing applications which leverage our radio frequency integrated circuit design and manufacturing expertise and our established relationships with leading original equipment manufacturers in these markets. The key elements of our strategy are to: BE FIRST-TO-MARKET WITH PROPRIETARY VALUE-ADDED PRODUCTS We intend to continue to design timely, cost-effective integrated circuit solutions for our target markets. The combination of our experienced engineering staff and our "quick-turn" wafer fabrication and assembly service allows us to develop prototypes that can be ready for testing in less than one month. This design efficiency contributes to customer satisfaction and allows us to improve product designs rapidly for manufacturing efficiency. For example, we were the first manufacturer to offer an integrated circuit chip set for tuner applications in cable television set-top boxes. We were also the first manufacturer to offer a dual-band power amplifier that combines the functions of two power amplifiers for cellular telephones into a single integrated circuit. CAPITALIZE ON OUR WORLD CLASS MANUFACTURING CAPABILITIES We will continue to focus on improving manufacturing performance and customer service, while reducing costs. We believe that we can effectively control the critical phases of our production process in order to realize high manufacturing yields, product quality and customer satisfaction. A key element of our manufacturing strategy is our new six-inch fabrication facility. We believe this new facility will provide increased manufacturing capacities at a low incremental cost and will allow us to maintain short cycle times. 24 FORGE STRONG CUSTOMER RELATIONSHIPS We have developed strong working relationships with our customers, many of whom are leading original equipment manufacturers in their markets. Because our target markets are standards-driven, customer relationships are important. We have been working with Ericsson on wireless handsets since 1994 and with General Instrument on set-top boxes since 1992. These relationships provide us with product development opportunities and the ability to anticipate future market needs. The rapid feedback we receive from customers during the product design phase increases the likelihood that our products will meet our customers' cost and performance requirements. PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES We intend to pursue strategic acquisitions and alliances to expand and improve upon our technologies, industry expertise, products and market share. We expect that our alliances and acquisitions will be complementary to our current businesses and will enhance our ability to work with leading original equipment manufacturers to develop next generation solutions. We have formed strategic alliances with several firms to accelerate our capabilities in our core wireless and broadband markets. For example, we entered into an agreement with Global Communication Semiconductors, Inc. to develop HBT products, which we anticipate will accelerate our introduction of GaAs HBT products to the first half of 2000. We also entered into an agreement with TEMIC Semiconductor GmbH to develop HBT products suitable for fabrication with silicon germanium. TARGET MARKETS AND PRODUCTS WIRELESS COMMUNICATIONS. The wireless communications market is a growing, dynamic market as a result of increasing demand for: - portable voice and data communications; - smaller, lighter, less expensive handsets; - reliable access and voice quality comparable to land lines; and - longer talktime and standby time. Our radio frequency integrated circuit products are used in transmitters and receivers of cellular and PCS handsets where small size, multi-band operation and low power consumption are key features. In the United States, there are two primary digital cellular standards, TDMA and CDMA. GSM is the most widely deployed digital standard in the world with a high degree of acceptance in Europe and Asia. In addition, some GSM systems have been deployed in North America. We currently provide power amplifiers primarily for the TDMA and GSM standards and plan to introduce power amplifiers for the CDMA standard in 2000. We also offer infrastructure products for the GSM standard. We are actively developing single- and multi-band HBT power amplifier modules for all major digital standards. HBT technology offers high efficiency and low power consumption, and will allow our customers to build the transmitter section of the wireless handset more easily and more quickly by reducing design complexity and component counts. Initially we are developing our HBT products using an external foundry. We intend to begin production of HBT wafers in our own manufacturing facilities in the first half of 2000. We are also developing a family of standard radio frequency switches targeting handset applications using both GaAs MESFET and PHEMT technologies. We believe that the market for radio frequency/microwave switches will grow rapidly with the move to multi-band, multi-mode handsets. 25 Our principal customer in the wireless market is Ericsson. Ericsson accounted for 16%, 33%, 34% and 40% of net sales during 1996, 1997, 1998 and the six month period ended July 4, 1999, respectively. The following table sets forth information regarding our principal products in the wireless communications market:
PRODUCT APPLICATION POWER AMPLIFIERS - Single-band, single-mode Used in the transmitter section of cellular handsets to send voice or power amplifiers data - Multi-band, multi-mode Used in the transmitter section of cellular handsets to send voice or power amplifiers data over multiple frequencies and standards thereby allowing a service provider to handle more calls - Integrated high power Used in cellular base stations in the transmit chain amplifiers - Modules* A "plug in" package, containing a power amplifier along with necessary components otherwise provided externally to the amplifier, which provides ease of use for our customer RADIO FREQUENCY STANDARD PRODUCTS - Switches* Used in cellular handsets to switch from receive and transmit modes and multiband functions - Receivers Used in cellular handsets to receive voice or data * These products are at the sampling stage.
CABLE TELEVISION/CABLE MODEMS. The trends that currently drive product development in the cable television and cable modem markets are: - shift to digital cable television with interactive services; - demand for internet access; and - the emergence of cable telephony. The convergence of these trends, enabled by digital transmission, creates the need for innovative radio frequency integrated circuits for cable television and cable modem applications. Our cable products are used in cable modem, cable television set-top box and cable television infrastructure applications. Cable television systems which traditionally delivered one way analog television programming, limited to a few channels, are increasingly used to deliver a wide array of interactive video and other services, such as high speed internet access and telephony. In order to support these new applications, cable system operators must upgrade the bandwidth (i.e., capacity) of both the infrastructure and terminal equipment. The new equipment must also be able to handle digital as well as analog modulations. For cable modems and cable television set-top boxes we currently offer tuner integrated circuits which can receive analog and digital signals in the 50-860 megahertz frequency band. Our reverse amplifiers are used in cable modems and in cable set-top boxes which require a reverse path to provide interactivity. These tuner and reverse amplifier integrated circuits enable our customers to accelerate and simplify their designs, and reduce manufacturing complexity and 26 costs. We are actively engaged in developing integrated multi-chip double conversion tuner modules. We expect that these modules will be cost-competitive with single conversion tuners and will provide improved performance for cable modem and other single-conversion tuner applications. We have also developed GaAs integrated circuit line amplifiers for use by operators in 50-860 megahertz cable television distribution systems. We have recently expanded our product offerings in this area by introducing line amplifiers which operate at 24 volts. The following table sets forth information regarding our principal products in the cable television/cable modems market:
PRODUCT APPLICATION CABLE AND BROADCAST TERMINAL PRODUCTS: - Upconverters Used in set-top box video tuner, cable modems and cable telephony in the - Downconverters video tuner - Synthesizers* See above - 256 QAM upconverters Used in the digital set-top box video tuner, providing a more efficient use of bandwidth and thus the transmission of more channels of digital TV signals - Reverse amplifiers Used in set-top boxes, cable modems and cable telephony to transmit signals from a set-top box to a cable company for interactive applications CABLE AND BROADCAST INFRASTRUCTURE PRODUCTS: - Line amplifiers Used in cable television systems to distribute signals from cable headends to neighborhoods - Drop amplifiers Used in cable television systems to amplify signals at the home
* These products are at the sampling stage. Our principal customers in the cable television and cable modem markets are Com21, Inc., General Instrument, Komatsu Murata Manufacturing Company, Ltd., Motorola, Scientific-Atlanta and 3Com, Inc. In addition, we have been selected by Cisco Systems for their Global Alliance cable modem design. The Global Alliance includes customers such as Samsung and Sony. FIBER OPTIC MARKET. Growth in the fiber optic market is being driven by: - the rapid increase in data traffic driven by internet use; - the increasing implementation of corporate local area networks which require high speed data transfer capability; and - the ongoing upgrade of existing telecommunication and data communication systems with fiber optic systems. Fiber optic telecommunications systems use low loss fiber optic cable to link central office switches with one another and to connect the central office to the serving area. Most telecommunication networks today are based on SONET (United States and Japan) or SDH (Europe) standards. These standards require high sensitivity, high bandwidth, and wide dynamic range receivers. 27 The front end of most fiber optic receivers contains a photodetector and a transimpedance amplifier. Our transimpedance amplifier integrated circuits are used in both fiber optic telecommunications and data communications networks. Our GaAs integrated circuit transimpedance amplifiers are designed to meet the requirements of SONET systems covering data speeds of OC-3, OC-12, OC-24 and OC-48. We also sell products for use in the growing DWDM systems. We are currently developing GaAs PHEMT-based next generation transimpedance amplifiers specifically for DWDM and 3 volt applications. For data communications receivers we sell integrated photodiode and transimpedance amplifier products for the short wavelength (850 nanometer) and long wavelength (1300 nanometer) gigabit ethernet application. We are developing higher speed (2.5 gigabits per second) receiver products for the gigabit ethernet market in anticipation of increased data speeds. Fiber optic data communications systems use either fibre channel or gigabit ethernet standards to achieve high-speed data transfer. Gigabit ethernet standards are emerging as the most widely used standard in local area networking situations. It addresses the need for very fast transfers of large volumes of information and is effective in applications where large blocks of data must be transferred within buildings and over short distances. We believe that demand for gigabit ethernet solutions will grow substantially over the next few years. The following table sets forth information regarding our principal products in the fiber optic market:
PRODUCT APPLICATION FIBER PRODUCTS: - Transimpedance amplifiers Used in the transceiver of a fiber optic link to amplify signal received - Metal semiconductor metal Used in the transceiver of a datacom fiber optic link to detect and amplify transimpedance amplifiers shorter wavelength optical signals (MSM-TIA) - Positive intrinsic negative Used in the transceiver of a datacom fiber optic link to detect and amplify transimpedance amplifiers longer wavelength optical signals (PIN-TIA)
Our principal customers in the fiber optic market are Hewlett-Packard, Lucent, Methode and Nortel. SILICON AND SILICON GERMANIUM PRODUCTS We believe there are opportunities to develop integrated circuits in silicon or silicon germanium which would enhance our GaAs integrated circuits in modules. Further, we believe some of these integrated circuits may have significant market potential as stand alone integrated circuits. The recently established RF Standard Products Group at ANADIGICS will be exploring the use of these technologies in the wireless application. We do not intend to manufacture in either of these technologies as we believe there will be adequate foundry capacity available. MARKETING, SALES, DISTRIBUTION AND CUSTOMER SUPPORT We sell our products primarily directly to our customers worldwide. We have developed close working relationships with leading companies in the broadband and wireless communications markets. During 1999, we are undertaking a major initiative to expand our field sales force to provide local support to our customers. We believe this is critical to our objective of expanding our customer base, especially as we expand our product portfolio. We also selectively use independent manufacturers' representatives and distributors to complement our direct sales and customer support efforts. 28 We believe that the technical nature of our products and markets demands an extraordinary commitment to close relationships with our customers. The sales and marketing staff, assisted by the technical staff and senior management, visit prospective and existing customers worldwide on a regular basis, and between visits both field and factory sales personnel communicate regularly with our customers. We believe that these contacts are vital to the development of close long-term working relationships with our customers, and in obtaining regular forecasts, market updates and information regarding technical and market trends. Our design and applications engineering staff is actively involved with customers during all phases of design and production by publishing and providing our customers with engineering data, up-to-date product application notes, communicating with our customers' engineers on a regular basis and assisting in resolving technical problems by working with our customers' engineers both on and off site. In most cases the design and applications engineers obtain prototypes from our customers in order to troubleshoot and identify potential improvements to the design in parallel with our customers' efforts. This strategy helps our customers speed up their design process, achieve cost-effective and manufacturable designs, and ensure a smooth transition into high volume production. Our policy is to provide our customers with applications engineering support at our customers' factories throughout the world, generally within 48 hours of a customer request. Our sales are typically made pursuant to customer purchase orders, and such orders may be canceled by our customers without penalty. MANUFACTURING, ASSEMBLY AND TESTING We have begun to fabricate our integrated circuits in our six-inch diameter GaAs wafer fabrication facility in our new class 100 cleanroom in Warren, New Jersey. Present production capacity is approximately 14,500 six-inch diameter analog GaAs wafers per year. We are in the process of closing our existing four-inch wafer fabrication facility. With additional equipment and staffing, the six-inch fabrication facility could run up to approximately 26,000 six-inch wafers per year. See "Risk Factors--We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes" and "--Delays in completing the transition of production from our four-inch wafer fabrication facility to our six-inch wafer fabrication facility could result in delays in product shipments and a loss of customers as a result of such delays". Our wafer processing technologies have been developed for low cost, high yield, rapid through put and short-cycle time manufacturing. We have developed GaAs MESFET processes that we use to produce most of our products. By using ion implant variations, we can optimize performance and yield, allowing us to produce, for example, high linearity, low-noise, receiver integrated circuits or transmitter integrated circuits with high power and efficiency. We have also developed a GaAs PHEMT manufacturing process, which achieves extremely high electron mobility. Devices manufactured using our PHEMT manufacturing process have better sensitivity and bandwidth than conventional MESFET devices and hence are an enabling technology that serves high bit rate fiber optic systems. We have introduced devices for fiber optic communications applications using our recently developed PHEMT manufacturing process. Fabricated wafers are shipped to contractors in Asia for assembly in integrated circuit packages. Once assembled by the contractor, packaged integrated circuits are shipped back to our Warren, New Jersey facility for final testing. We believe that our flexible automated test systems are important to our ability to manufacture high quality integrated circuits at a low cost. We have devoted substantial capital over the last 18 months to increase our capacity of automated testors, resulting in shortened product cycle times, reduced test-costs and improved test reliability. See "Risk Factors--We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes," "--We may face constraints on our test capacity which could result in 29 manufacturing delays" and "--We depend on foreign semiconductor assembly contractors and a loss of an assembly contractor could result in delays or reductions in product shipment". Our design and manufacturing processes were certified as ISO 9001 compliant in December 1993. Since then, we have maintained compliance with this standard. RAW MATERIALS GaAs wafers, other raw materials, and equipment used in the production of our integrated circuits are available from several suppliers. See "Risk Factors--Sources for certain components, materials and equipment are limited which could result in delays or reductions in product shipments". RESEARCH AND DEVELOPMENT We have made significant investments in our proprietary processes, including product design, wafer fabrication and integrated circuit testing, which we believe gives us a competitive advantage. To date, our research and development efforts have focused on developing low cost, high volume production of GaAs integrated circuit products for the telecommunication and television industries. At July 4, 1999, we had approximately 80 engineers assigned primarily to research and development. We have increased our research and development efforts in our broadband communications applications, such as cable and broadcast and fiber optic, during 1999 and expect our wireless communications research and development efforts to remain consistent with 1998 levels. The ability to simulate and model circuits is a critical technology for analog integrated circuit design, especially at high frequencies. We have developed a set of simulation tools and device models, which are custom-fit to our process. Recognizing the importance of powerful electronic design automation tools, in 1998 we formed a partnership with a leading manufacturer of radio frequency/analog electronic design automation systems to develop and enhance design tools to improve our research and development efficiency. The partnership's primary objectives are to improve package modeling, design tool training and design tool integration. We are also in the process of researching and developing other wafer processing technologies. For our GaAs HBT technology we have formed both foundry and technological partnerships. These agreements generally require us to share our expertise and proprietary technology over a limited time period with our partner in exchange for access to their expertise and proprietary technology. In addition, we have the right to obtain foundry services on favorable terms. In certain cases we may pay licensing fees, reimburse expenses and/or commit to purchase a portion of our wafer needs from the other party. We plan to implement this technology in our manufacturing facility by the first half of 2000. We have recently hired a chief scientist specifically devoted to HBT technology and have started HBT design runs with our foundry partner. We believe these actions will position us to be the first to market with products based on six-inch GaAs HBT technology. COMPETITION Competition in all of the markets for our current products is intense and we compete on the basis of performance, price and delivery. Competitors in the wireless market are suppliers of discrete devices and integrated circuits. Our competitors include Alpha, Conexant Systems, Fujitsu Compound Semiconductor, Hitachi, Infineon Technologies (a subsidiary of Siemens AG), Matsushita Electric Industrial, Motorola, RF Micro Devices, Royal Philips Electronics N.V., and TriQuint Semiconductor. In the cable and broadcast television markets, our integrated circuits compete primarily with manufacturers of discrete components and integrated circuits. Our competitors include Fujitsu 30 Compound Semiconductor, Infineon, Maxim Integrated Products, Mitel Corporation, Mitsubishi Electric Corp., NEC Corp. and Royal Philips Electronics. In the fiber optic market, we compete with other GaAs and silicon integrated circuit manufacturers. Principal competitors in this market are Royal Philips Electronics, TriQuint Semiconductor and Vitesse Semiconductor as well as some of our customers who design and fabricate their own in-house solutions. In particular, we expect to face increased competition in our fiber optic products used in low data rate SONET fiber optic transmissions. See "Risk Factors--We face intense competition which could result in a decrease of our products' prices and sales." Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than us. Increased competition could adversely affect our revenue and profitability by causing us to reduce prices or by reducing demand for our products. CUSTOMERS We receive most of our revenues from a few significant customers. Sales to Ericsson, General Instrument and Qualcomm Personal Electronics accounted for 16%, 16% and 12%, respectively, of 1996 net sales, and 33%, 13% and 16%, respectively, of 1997 net sales. Ericsson and General Instrument accounted for 34% and 17%, respectively, of 1998 net sales, and 40% and 21%, respectively, of net sales during the six month period ended July 4, 1999. No other customer accounted for greater than 10% of net sales during these periods. Substantially all of our sales of wireless applications are to Ericsson. EMPLOYEES At July 4, 1999, we had approximately 488 employees, none of whom was a member of a labor union. We believe our labor relations to be good and have never experienced a work stoppage. PATENTS, LICENSES AND PROPRIETARY RIGHTS It is our practice to seek U.S. and foreign patent and copyright protection on our products and developments where appropriate and to protect our valuable technology under U.S. and foreign laws affording protection for trade secrets and for semiconductor chip designs. We own seventeen U.S. patents and have six pending U.S. patent applications and one pending foreign patent application filed under the Patent Cooperation Treaty. The U.S. patents were issued between 1988 and 1999 and will expire between 2006 and 2016. We rely primarily upon trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities. To protect our trade secrets, technical know-how and other proprietary information, our employees are required to enter into agreements providing for maintenance of confidentiality and the assignment of rights to inventions made by them while in our employ. We also have entered into non-disclosure agreements to protect our confidential information delivered to third parties, in conjunction with possible corporate collaborations and for other purposes. ENVIRONMENTAL MATTERS Our operations are subject to many federal, state and local environmental laws, regulations and ordinances that govern activities or operations that may have adverse effects on human health or the environment. These laws, regulations or ordinances may impose liability for the cost of remediating, and for certain damages resulting from, sites of past releases of hazardous materials. We believe that we currently conduct, and in the past have conducted, our activities and operations in substantial compliance with applicable environmental laws, and that costs arising from existing environmental laws will not have a material adverse effect on our results of operations. We cannot 31 assure you, however, that the environmental laws will not become more stringent in the future or that we will not incur significant costs in the future in order to comply with these laws. LEGAL MATTERS SHAREHOLDER LITIGATION In March and April 1998, seven lawsuits were filed against ANADIGICS and various of our officers and directors in the United States District Court for the District of New Jersey. The lawsuits are: ASSUNCAO v. ANADIGICS, INC., ET AL., OFFICE AND PROFESSIONAL EMPLOYEES INTERNATIONAL UNION LOCAL 153 PENSION FUND v. ANADIGICS, INC., ET AL., KOTLER v. ANADIGICS, INC., ET AL., GRAY v. ANADIGICS, INC., ET AL., MIRPURI v. ANADIGICS, INC., ET AL., GRAYSON v. ROSENZWEIG, ET AL., and MORGANTE v. ANADIGICS, INC., ET AL. Each complaint names as defendants one or more of the following directors and officers of ANADIGICS: Ronald Rosenzweig, George Gilbert, Harry T. Rein, John F. Lyons, Charles Huang, Javed Patel, Sheo Khetan and Robert Bayruns. The complaints allege that ANADIGICS and certain of its officers and directors violated the federal securities laws by making misstatements and/or omissions during the period from August 1, 1997 through January 29, 1998 concerning our performance and financial projections. The complaints also allege common law fraud and/or negligent misrepresentation and seek unspecified damages. The seven lawsuits have been consolidated into one class action action lawsuit captioned IN RE ANADIGICS, INC. SECURITIES LITIGATION. In August 1998, a shareholders derivative lawsuit, captioned DEEGAN v. ROSENZWEIG, ET AL., was filed in the United States District Court for the District of New Jersey against ANADIGICS and the following of our officers and directors: Charles Burton, Paul Bachow, Robert Bayruns, Ronald Rosenzweig, George Gilbert, John Lyons, Harry Rein, Sheo Khetan, Javed Patel, Charles Huang and Phillip Wallace. The complaint alleges claims based upon the above listed lawsuits, and seeks damages, contribution, indemnification and equitable relief. On July 8, 1999, we and attorneys representing the plaintiffs in the lawsuits described above entered into a memorandum of understanding setting forth proposed settlement terms. Accordingly, we expect that all of the lawsuits described above will be settled for a total payment of $11.75 million of which approximately $5.3 million will be reimbursed by our insurance companies. The proposed settlement is subject to various conditions, including the entering into of a definitive settlement agreement and final court approval. PATENT LITIGATION AND CLAIMS In February 1999, The Lemelson Medical, Education and Research Foundation, Limited Partnership filed a lawsuit against ANADIGICS and a number of other companies in the United States District Court for the District of Arizona. The lawsuit alleges that the defendants named have infringed upon patents held by Lemelson. In addition, there is an unresolved notice from Rockwell International Corporation asserting that we are infringing upon a patent on the processing of semiconductor wafers. The patent will expire in March 2000. We intend to vigorously defend against these allegations. OTHER We have provided information to and have cooperated with the SEC in connection with a formal SEC investigation into trading in our stock which occurred in January 1998. 32 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Our directors, executive officers and key employees are as follows:
NAME AGE POSITION - ---------------------------- --- -------------------------------------------------------- Bami Bastani................ 45 President, Chief Executive Officer and Director Ronald Rosenzweig........... 61 Chairman of the Board of Directors and Director Charles Huang............... 52 Executive Vice President and Chief Technical Officer Tom Shields................. 40 Senior Vice President and Chief Financial Officer Bruce Diamond............... 39 Senior Vice President, Operations Paul S. Bachow.............. 47 Director David M. Fellows............ 46 Director Bruns Grayson............... 51 Director Harry T. Rein............... 54 Director Lewis Solomon............... 65 Director
Dr. Bastani joined ANADIGICS effective October 2, 1998 as President and Chief Executive Officer and a director. Prior to joining ANADIGICS, Dr. Bastani served as Executive Vice President, System LSI Group for Fujitsu Microelectronics, Inc., from 1996 to 1998. From 1985 to 1996, Dr. Bastani held various positions at National Semiconductor. Dr. Bastani received a B.S.E.E. from the University of Arkansas and a Ph.D. and M.S. in electrical engineering from Ohio State University. Mr. Rosenzweig, a co-founder of ANADIGICS in 1985, served as a director since our inception and Chairman of the Board of Directors since 1998. Prior to that, Mr. Rosenzweig served as our President and Chief Executive Officer. He serves as a director on the board of General Semiconductor. He was co-founder of Microwave Semiconductor Corporation, or MSC. He served as President and CEO of MSC from 1968 to 1983. Mr. Rosenzweig received his B.Ch.E degree from City College of New York. Dr. Huang, a co-founder of ANADIGICS in 1985, has served as Executive Vice President and a director since our inception. He was director of GaAs research and development and water fabrication services at Avantek, Inc. from 1980 to 1984. Dr. Huang received his Ph.D.E.E. at the University of California, Berkeley. Mr. Shields joined ANADIGICS effective July 30, 1999 as Senior Vice President and Chief Financial Officer. Prior to joining ANADIGICS, Mr. Shields served as Vice President and Controller of Fisher Scientific Company from 1997 to 1999. From 1994 to 1997, Mr. Shields served as Vice President and Controller for Harman Consumer Group. From 1986 to 1994, Mr. Shields served in various positions with Baker & Taylor, Inc. Mr. Shields received his B.S. and M.B.A. degree from Fairleigh Dickinson University in New Jersey. Mr. Diamond joined ANADIGICS in 1997 and currently serves as Senior Vice President, Operations. Prior to joining us, Mr. Diamond served as the Managing Director of National Semiconductor Company's wafer fabrication plant in Scotland from 1994 to 1997. From 1982 to 1994 Mr. Diamond served in various positions with National Semiconductor Company. Mr. Diamond received his B.S.E.G. from the University of Illinois. Mr. Bachow has served as a director of ANADIGICS since January 1993. He has been President of Bachow & Associates, Inc. since its formation in December 1989, and its predecessors, Bachow and Elkin Co., Inc. and Paul S. Bachow Company from December 1985 to December 1989. Mr. Bachow also acts as President of the general partner of each of Paul S. Bachow Co-Investment Fund, L.P., Bachow Investment Partners III, L.P. and Bachtel Cellular Liquidity, L.P. He has a B.A. from American University, a J.D. from Rutgers University and a master's 33 degree in tax law from New York University, and is a C.P.A. Mr. Bachow serves as director of the following publicly traded companies: Crusader Holding Corporation, Deb Shops, Inc. and Digital Microwave Corporation, as well as several private companies. Mr. Fellows has served as a director of ANADIGICS since September 1994. Mr. Fellows has been president of Fellows Associates since 1998. Prior to that he was Chief Technology Officer of MediaOne and Senior Vice President at Continental Cablevision, Inc. (acquired by MediaOne), since 1992. From 1987 until 1992, Mr. Fellows was employed by Scientific Atlanta's Transmission Systems Business Division, where he served as President. Mr. Fellows received his bachelor's degree in engineering and applied physics from Harvard College and a master's degree in electrical engineering from Northeastern University. Mr. Grayson has served as a director of ANADIGICS since 1985. He is Managing General Partner of Calvert Capital Management Co., which manages ABS Ventures. Before joining Calvert Capital Management Co., Mr. Grayson was an associate of Adler & Co. and McKinsey & Co. in New York. He is a director of Cascade Communications Corp. and several private companies. He has a B.A. from Harvard College, an M.A. from Oxford University and a J.D. from the University of Virginia. Mr. Rein has served as a director of ANADIGICS since 1985. He was a principal founder of Canaan Venture Partners in 1987 and has served as Managing General Partner since its inception. From 1979 to 1987, Mr. Rein held various positions at GE, directing several of GE's lighting businesses as general manager before becoming President and CEO of GE Venture Capital Corporation. He is a director of several private companies. Mr. Solomon has served as a director of ANADIGICS since September 1994 and, previously, from 1985 to 1989. Mr. Solomon has been Chairman of G&L Investments since 1990 in addition to serving as a director of Anacomp Inc., Artesyn Technologies, Inc., Terayon Communications, Inc. and several private companies. Prior to joining G&L Investments, Mr. Solomon was an Executive Vice President with Alan Patricof Associates from 1983 to 1986, and a Senior Vice President of General Instrument from 1967 to 1983. Mr. Solomon received a bachelor's degree in physics from St. Joseph's College and a master's degree in industrial engineering from Temple University. ABOUT THIS PROSPECTUS This prospectus is part of a registration statement we filed with the Securities and Exchange Commission ("SEC") to register the shares offered in this offering. It does not repeat important information that you can find in our registration statement or in the reports and other documents that we file with the SEC. For further information about us and our common stock, you should read the registration statement and the exhibits to the registration statement. Statements contained in this prospectus concerning documents we have filed with the SEC as exhibits to the registration statement or otherwise are not necessarily complete and, in each instance, you should refer to the actual filed document. We have not authorized anyone to provide you any information different from that contained in this prospectus. The common stock may be offered for sale only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. 34 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information electronically with the SEC. You may read and copy any document we file at the SEC's public reference rooms at 450 Fifth Street, Mail Stop 1-2, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available from the Nasdaq National Market and at the SEC's website at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with them. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below, and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended: - The description of ANADIGICS' capital stock contained in ANADIGICS' registration statement on Form 8-A filed on March 6, 1995, - Annual Report on Form 10-K for the fiscal year ended December 31, 1998, - Quarterly Report on Form 10-Q for the quarter ended April 4, 1999, - The definitive proxy statement dated April 16, 1999 for the 1999 Annual Meeting of Stockholders, - Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, and - The description of ANADIGICS' preferred share purchase rights contained in ANADIGICS' registration statement on Form 8-A/A filed on September 9, 1999. VALIDITY OF COMMON STOCK The validity of the common stock offered hereby will be passed upon for ANADIGICS by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York, and for the underwriters by Sullivan & Cromwell, New York, New York. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 35 GLOSSARY PHEMT--Pseudomorphic High Electron Mobility Transistor. PHEMT is a type of transistor that can be manufactured in GaAs. PHEMT is a high performance design that uses similar processing to MESFET but a more expensive starting wafer material. PHEMT offers higher performance than silicon. MESFET--Metal Semiconductor Field Effect Transistor. MESFET is a type of transistor that can be manufactured in GaAs. MESFET is a very cost effective design. MESFET offers higher performance than silicon. HBT--Heterojunction Bipolar Transistor. HBT is a type of transistor that can be manufactured in GaAs. HBT uses a more expensive material than MESFET and PHEMT and requires additional processing steps but offers a smaller chip size. HBT offers higher performance than silicon. GAAS--Gallium Arsenide. GaAs is a semiconductor material similar to silicon with certain unique properties, such as high frequency operation for microwave circuits and optical properties for fiber optic applications. CDMA--Code Division Multiple Access. A United States digital wireless standard that increases capacity by coding voice messages and spreading information over many channels. TDMA--Time Division Multiple Access. A United States digital wireless standard that increases capacity by placing three or more calls in the same channel separated by time. GSM--Global System Mobile. The European digital cellular standard that is the most widely deployed digital standard in the world. SDH--Synchronous Digital Hierarchy. The European fiber optic communications standard compiled by the International Telecommunications Union. Defines performance requirements for public switched telephone networks. SONET--Synchronous Optical Network. The United States fiber optic communications standard compiled by Bellcore (now Telcordia). Defines performance requirements for public switched telephone networks. GIGABIT ETHERNET--Gigabit Ethernet is a local area network transmission standard that provides a data rate of 1 billion bits per second (one gigabit), usually on optical fiber. SENSITIVITY--The sensitivity of a device is a measure of its ability to detect a change in the input signal as reflected in a change in the output of the device. RADIO FREQUENCY/MICROWAVE INTEGRATED CIRCUIT--Integrated circuit used in the radio section of a network or device to transmit, receive, or process a radio/microwave frequency communication signal. BANDWIDTH--Bandwidth is a measure of the range of frequencies a communications signal occupies. In digital systems, bandwidth is data speed in bits per second. In analog systems, bandwidth is defined in terms of the difference between the highest-frequency signal component and the lowest-frequency signal component. DWDM--Dense Wavelength Division Multiplexing. A fiber optic communications technology that allows broadband data transmission by simultaneously transmitting multiplex signals, carried in distinct wavelengths of light, over a single optical fiber. 36 ANADIGICS, INC. INDEX TO FINANCIAL STATEMENTS Condensed consolidated balance sheet as of July 4, 1999 (Unaudited)................. F-2 Condensed consolidated statements of operations for the six months ended June 28, 1998 and July 4, 1999 (Unaudited)................................................. F-3 Condensed consolidated statements of comprehensive income (loss) for the six months ended June 28, 1998 and July 4, 1999 (Unaudited).................................. F-4 Condensed consolidated statements of cash flows for the six months ended June 28, 1998 and July 4, 1999 (Unaudited)................................................. F-5 Notes to unaudited condensed consolidated financial statements...................... F-6 Report of Independent Auditors...................................................... F-10 Consolidated balance sheets as of December 31, 1997 and 1998........................ F-11 Consolidated statements of operations for the years ended December 31, 1996, 1997 and 1998.......................................................................... F-12 Consolidated statements of comprehensive income for the years ended December 31, 1996, 1997 and 1998............................................................... F-12 Consolidated statements of stockholders' equity for the years ended December 31, 1996, 1997 and 1998............................................................... F-13 Consolidated statements of cash flows for the years ended December 31, 1996, 1997 and 1998.......................................................................... F-14 Notes to audited consolidated financial statements.................................. F-15
F-1 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ANADIGICS, INC. (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JULY 4, 1999 DECEMBER 31, 1998 ------------ ------------------- (UNAUDITED) (NOTE 1) ASSETS Current assets: Cash and cash equivalents................................ $ 25,343 $ 23,987 Marketable securities.................................. 14,736 16,923 Accounts receivable, net............................... 18,191 11,848 Inventory.............................................. 10,256 8,729 Prepaid expenses and other current assets.............. 2,466 2,531 Insurance settlement receivable........................ 5,325 Deferred taxes......................................... 6,856 4,345 ------------ ---------- Total current assets..................................... 83,173 68,363 Marketable securities.................................. 3,568 1,486 Property and equipment: Equipment and furniture.............................. 80,823 71,625 Leasehold improvements............................... 16,424 15,717 Projects in process.................................. 34,150 34,286 Less accumulated depreciation and amortization......... 56,117 44,199 ------------ ---------- 75,280 77,429 Other assets........................................... 1,279 865 Deferred taxes......................................... 5,955 5,955 ------------ ---------- Total assets............................................. $ 169,255 $ 154,098 ------------ ---------- ------------ ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................... $ 9,043 $ 6,138 Accrued litigation settlement costs.................... 12,050 -- Accrued liabilities.................................... 5,952 2,306 Accrued restructuring costs............................ 1,441 1,567 Current maturities of long-term debt................... 1,000 1,000 Current maturities of capital lease obligations........ 160 229 ------------ ---------- Total current liabilities................................ 29,646 11,240 Capital lease obligations, less current portion........ 117 183 Other long-term liabilities............................ 1,183 868 Long-term debt, less current portion................... 3,500 4,000 ------------ ---------- Total liabilities........................................ 34,446 16,291 Stockholders' equity Common stock, $0.01 par value, 68,000,000 shares authorized, 14,871,937 and 14,738,356 issued and outstanding at July 4, 1999 and December 31, 1998, respectively......................................... 149 147 Additional paid-in capital............................. 161,843 160,215 Accumulated deficit.................................... (27,139) (22,598) Accumulated other comprehensive income (loss).......... (44) 43 ------------ ---------- Total stockholders' equity............................... 134,809 137,807 ------------ ---------- Total liabilities and stockholders' equity............... $ 169,255 $ 154,098 ------------ ---------- ------------ ----------
See notes to condensed consolidated financial statements. F-2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ANADIGICS, INC. (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SIX MONTHS ENDED ---------------------------- JULY 4, 1999 JUNE 28, 1998 ------------ -------------- (UNAUDITED) Net sales..................................................... $ 55,582 $ 41,460 Cost of sales................................................. 36,148 26,633 ------------ -------------- Gross profit.................................................. 19,434 14,827 Research and development expenses............................. 11,968 9,750 Selling and administrative expenses........................... 8,744 6,405 Restructuring charge.......................................... -- 1,100 ------------ -------------- Operating income (loss)....................................... (1,278) (2,428) Interest income, net.......................................... 995 1,225 Provision for litigation settlement, net...................... 6,925 -- ------------ -------------- Income (loss) before income taxes............................. (7,208) (1,203) Provision (benefit) for income taxes.......................... (2,667) (451) ------------ -------------- Net income (loss)............................................. $ (4,541) $ (752) ------------ -------------- ------------ -------------- Basic earnings (loss) per share............................... $ (0.31) $ (0.05) ------------ -------------- ------------ -------------- Weighted average common shares outstanding.................... 14,811,687 14,711,323 ------------ -------------- ------------ -------------- Diluted earnings (loss) per share............................. $ (0.31) $ (0.05) ------------ -------------- ------------ -------------- Weighted average common and dilutive securities outstanding... 14,811,687 14,711,323 ------------ -------------- ------------ --------------
See notes to condensed consolidated financial statements. F-3 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) ANADIGICS, INC. (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED -------------------------------- JULY 4, 1999 JUNE 28, 1998 ------------- ----------------- (UNAUDITED) Net income (loss)............................................. $ (4,541) $ (752) Unrealized gain (loss) on marketable securities............... (87) 20 ------------- ------ Comprehensive income (loss)............................... $ (4,628) $ (732) ------------- ------ ------------- ------
See notes to condensed consolidated financial statements. F-4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ANADIGICS, INC. (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED ---------------------------- JULY 4, 1999 JUNE 28, 1998 ------------ -------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss...................................................... $ (4,541) $ (752) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation.................................................. 11,721 5,342 Amortization.................................................. 197 404 Deferred taxes................................................ (2,511) (451) Provision for litigation settlement, net...................... 6,725 Changes in operating assets and liabilities Accounts receivable......................................... (6,343) 5,673 Inventory................................................... (1,527) (973) Prepaid expenses and other current assets................... 65 (1,183) Other assets................................................ (414) 60 Accounts payable............................................ 2,905 (6,531) Accrued liabilities and other long-term liabilities......... 3,835 (432) Income taxes payable........................................ -- (2,439) ------------ -------------- Net cash provided by (used in) operating activities........... 10,112 (1,282) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment............................... (9,769) (8,818) Purchase of marketable securities............................. (14,094) (14,456) Proceeds from sale of marketable securities................... 14,112 17,912 ------------ -------------- Net cash used in investing activities......................... (9,751) (5,362) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock...................................... 1,630 294 Repayment of long-term debt................................... (500) -- Payment of capital lease obligations.......................... (135) (229) ------------ -------------- Net cash provided by financing activities..................... 995 65 ------------ -------------- Net increase (decrease) in cash and cash equivalents.......... 1,356 (6,579) Cash and cash equivalents at beginning of period.............. 23,987 25,675 ------------ -------------- Cash and cash equivalents at end of period.................... $ 25,343 $ 19,096 ------------ -------------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid................................................. $ 103 $ 36 ------------ -------------- ------------ -------------- Taxes paid.................................................... $ 180 $ 2,774 ------------ -------------- ------------ --------------
See notes to condensed consolidated financial statements. F-5 ANADIGICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 4, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended July 4, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The condensed balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The condensed, consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Broadcast and Wireless Investors, Inc. and ANADIGICS Foreign Sales Corporation. All significant intercompany accounts have been eliminated in consolidation. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following:
JULY 4, DEC. 31, 1999 1998 ----------- ----------- Raw materials.................................... $ 2,323 $ 784 Work in process.................................. 4,900 3,662 Finished goods................................... 3,033 4,283 ----------- ----------- $ 10,256 $ 8,729 ----------- ----------- ----------- -----------
F-6 ANADIGICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 4, 1999 (CONTINUED) 3. EARNINGS PER SHARE The reconciliation of shares used to calculate basic and diluted earnings per share consists of the following:
SIX MONTHS ENDED ------------------------ JULY 4, JUNE 28, 1999 1998 ----------- ----------- Weighted average common shares outstanding used to calculate basic earnings per share.......... 14,811,687 14,711,323 Net effect of diluted stock options based upon the treasury stock method using an average market price................................... --* --* Weighted average common and dilutive securities outstanding used to calculate diluted earnings per share...................................... 14,811,687 14,711,323 ----------- -----------
- ------------------------ * The dilutive stock options are not included as their effect is anti-dilutive. 4. SEGMENT INFORMATION REVENUES BY APPLICATION The Company classifies its revenues based upon the end application of the product in which its integrated circuits are used. Net sales by end application are regularly reviewed by the chief operating decision maker and are as follows:
SIX MONTHS ENDED ------------------------ JULY 4, JUNE 28, 1999 1998 ----------- ----------- Cellular and PCS Applications.................... $ 22,490 $ 16,486 Cable and Broadcast Applications................. 20,506 16,359 Fiber Optic Applications......................... 12,486 8,190 Engineering service sales........................ 100 425 ----------- ----------- Total............................................ $ 55,582 $ 41,460 ----------- ----------- ----------- -----------
F-7 ANADIGICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 4, 1999 (CONTINUED) 4. SEGMENT INFORMATION (CONTINUED) GEOGRAPHIC INFORMATION The Company primarily sells to four geographic regions; Europe, Asia, North America (primarily U.S.A.), and South America. The geographic region is determined by the destination of the shipped product. Net sales to each of the four geographic regions are as follows:
SIX MONTHS ENDED ------------------------ JULY 4, JUNE 28, 1999 1998 ----------- ----------- Europe........................................... $ 13,583 $ 11,762 Asia............................................. 14,810 11,856 North America (primarily U.S.A.)................. 21,482 16,354 South America.................................... 5,707 1,488 ----------- ----------- Total............................................ $ 55,582 $ 41,460 ----------- ----------- ----------- -----------
5. LEGAL PROCEEDINGS In March and April 1998, seven proposed class action lawsuits (collectively the "Class Action Lawsuits") were filed against the Company and certain of its officers and directors in the United States District Court for the District of New Jersey. The Complaints filed in the Class Action Lawsuits claim alleged common law fraud and negligent misrepresentation. The Complaints alleged that, as a result of certain material misstatements and omissions made by the Company in connection with its business, the price of the Company's common stock was artificially inflated during the proposed class periods (July 17, 1997 through January 30, 1998). On December 20, 1998, the United States District Court for the District of New Jersey consolidated the Class Action Lawsuits into one action, captioned In re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class Action Lawsuit"), and appointed Lead Plaintiffs and Lead Plaintiffs' Counsel. On or about August 3, 1998, a shareholder's derivative lawsuit ("Derivative Lawsuit") was filed in the United States District Court for the District of New Jersey against the Company (as nominal defendant) and certain of its officers and directors. The Complaint in the Derivative Lawsuit alleged claims, which are predicated upon the Class Action Lawsuits, seeking damages, contribution, indemnification and equitable relief. On July 8, 1999, the Company and attorneys representing the plaintiffs in the lawsuits described above entered into a memorandum of understanding setting forth proposed settlement terms. Accordingly, we expect that all of the lawsuits described above will be settled for a total payment of $11.75 million of which approximately $5.3 million will be reimbursed by our insurance companies. The proposed settlement is subject to various conditions including the entering into of a definitive settlement agreement and final court approval. F-8 ANADIGICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 4, 1999 (CONTINUED) 6. SUBSEQUENT EVENT On July 22, 1999, the Company approved a public offering (the "Offering") of an additional 3,000,000 shares of common stock (plus an additional 450,000 shares of common stock that may be issued upon exercise of an overallotment option by the underwriters). The Company intends to use the net proceeds from the offering for capital expenditures, working capital, and other general corporate purposes. The Company may use all or a portion of the net proceeds to acquire complementary businesses if the opportunity arises, however it currently has no commitments or agreements with respect to any such transactions. F-9 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders ANADIGICS, Inc. We have audited the accompanying consolidated balance sheets of ANADIGICS, Inc. as of December 31, 1997 and 1998, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ANADIGICS, Inc. as of December 31, 1997 and 1998, and the consolidated results of their operations, comprehensive income and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP MetroPark, New Jersey January 25, 1999 F-10 ANADIGICS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ------------------------ 1997 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................................................. $ 25,675 $ 23,987 Marketable securities................................................................. 15,826 16,923 Accounts receivable, net of allowance for doubtful accounts of $396 and $128 in 1997 and 1998, respectively.............................................................. 17,999 11,848 Inventories........................................................................... 19,678 8,729 Prepaid expenses and other current assets............................................. 1,470 2,531 Deferred taxes........................................................................ 4,461 4,345 ----------- ----------- Total current assets.................................................................... 85,109 68,363 Marketable securities................................................................... 9,801 1,486 Plant and equipment: Equipment and furniture............................................................... 58,916 71,625 Leasehold improvements................................................................ 4,212 15,717 Projects in process................................................................... 39,540 34,286 ----------- ----------- 102,668 121,628 Less accumulated depreciation and amortization........................................ 30,419 44,199 ----------- ----------- 72,249 77,429 Deferred taxes.......................................................................... -- 5,955 Deposits................................................................................ 925 865 ----------- ----------- $ 168,084 $ 154,098 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable...................................................................... $ 11,223 $ 6,138 Accrued liabilities................................................................... 5,961 2,306 Income taxes payable.................................................................. 2,439 -- Current maturities of capital lease obligations....................................... 425 229 Accrued restructuring costs........................................................... -- 1,567 Current maturities of long-term debt.................................................. -- 1,000 ----------- ----------- Total current liabilities............................................................... 20,048 11,240 Deferred taxes.......................................................................... 959 -- Capital lease obligations, less current portion......................................... 389 183 Other long-term liabilities............................................................. 225 868 Long-term debt, less current portion.................................................... -- 4,000 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 5,000,000 shares authorized, none issued or outstanding......................................................................... Common stock, convertible, non-voting, $0.01 par value, 1,000,000 shares authorized, none issued or outstanding.......................................................... Common stock, $0.01 par value, 34,000,000 shares authorized, 14,657,089 and 14,738,356 issued and outstanding at December 31, 1997 and 1998, respectively.................. 147 147 Additional paid-in capital............................................................ 159,319 160,215 Accumulated deficit................................................................... (13,040) (22,598) Accumulated other comprehensive income................................................ 37 43 ----------- ----------- Total stockholders' equity.............................................................. 146,463 137,807 ----------- ----------- $ 168,084 $ 154,098 ----------- ----------- ----------- -----------
See accompanying notes. F-11 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1997 1998 -------------- -------------- -------------- Net sales....................................................... $ 68,864 $ 102,536 $ 86,075 Cost of sales................................................... 38,887 56,093 66,228 -------------- -------------- -------------- Gross profit.................................................... 29,977 46,443 19,847 Research and development expenses............................... 12,036 16,765 18,824 Selling and administrative expenses............................. 8,206 12,139 12,926 Restructuring charges........................................... 7,126 -------------- -------------- -------------- 20,242 28,904 38,876 -------------- -------------- -------------- Operating income (loss)......................................... 9,735 17,539 (19,029) Interest income, net............................................ 1,368 3,229 2,296 -------------- -------------- -------------- Income (loss) before income taxes............................... 11,103 20,768 (16,733) Provision (benefit) for income taxes............................ (888) 5,439 (7,175) -------------- -------------- -------------- Net income (loss)............................................... $ 11,991 $ 15,329 (9,558) -------------- -------------- -------------- -------------- -------------- -------------- Basic earnings (loss) per share................................. $ 0.97 $ 1.07 $ (0.65) -------------- -------------- -------------- -------------- -------------- -------------- Weighted average common shares outstanding...................... 12,355,311 14,279,957 14,723,941 -------------- -------------- -------------- -------------- -------------- -------------- Diluted earnings (loss) per share............................... $ 0.93 $ 1.02 $ (0.65) -------------- -------------- -------------- -------------- -------------- -------------- Weighted average common and dilutive securities outstanding..... 12,907,851 15,063,879 14,723,941 -------------- -------------- -------------- -------------- -------------- --------------
ANADIGICS, INC. STATEMENTS OF COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Net income (loss).............................................................. $ 11,991 $ 15,329 $ (9,558) Unrealized gain (loss) on marketable securities................................ (18) 46 6 --------- --------- --------- Total comprehensive income (loss).............................................. $ 11,973 $ 15,375 $ (9,552) --------- --------- --------- --------- --------- ---------
See accompanying notes. F-12 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON ACCUMULATED STOCK COMMON ADDITIONAL OTHER COMMON CONVERTIBLE STOCK PAID-IN ACCUMULATED COMPREHENSIVE STOCK NON-VOTING SUBSCRIBED CAPITAL DEFICIT INCOME (LOSS) ----------- ------------- ------------- ----------- ------------- ----------------- Balance, December 31, 1995............ $ 116 $ 5 ($ 3) $ 94,056 $ (40,360) $ 9 Exercise of warrants.................. 3 3,607 Conversion of non-voting Common Stock to Common Stock..................... 5 (5) Stock options exercised............... 1 366 Repayment of employee receivables..... 3 Shares issued under employee stock purchase plan....................... 1 780 Unrealized losses on market-able securities, net of tax.............. (18) Net income............................ 11,991 ----- ----- ------ ----------- ------------- ----- Balance, December 31, 1996............ 126 -- -- 98,809 (28,369) (9) Issuance of Common Stock in public offering, net of expenses........... 19 55,373 Stock options exercised............... 2 1,700 Shares issued under employee stock purchase plan....................... 978 Tax effect of stock options exercised........................... 2,505 Unrealized gains on market-able securities.......................... 46 Net income............................ 15,329 ----- ----- ------ ----------- ------------- ----- Balance, December 31, 1997............ 147 -- -- 159,319 (13,040) 37 Stock options exercised............... 402 Shares issued under employee stock purchase plan....................... 425 Tax effect of stock options exercised........................... 69 Unrealized gains on market able securities.......................... 6 Net loss.............................. (9,558) ----- ----- ------ ----------- ------------- ----- Balance, December 31, 1998............ $ 147 -- -- $ 160,215 ($ 22,598) $ 43 ----- ----- ------ ----------- ------------- ----- ----- ----- ------ ----------- ------------- ----- TOTAL STOCKHOLDERS' EQUITY -------------- Balance, December 31, 1995............ $ 53,823 Exercise of warrants.................. 3,610 Conversion of non-voting Common Stock to Common Stock..................... Stock options exercised............... 367 Repayment of employee receivables..... 3 Shares issued under employee stock purchase plan....................... 781 Unrealized losses on market-able securities, net of tax.............. (18) Net income............................ 11,991 -------------- Balance, December 31, 1996............ 70,557 Issuance of Common Stock in public offering, net of expenses........... 55,392 Stock options exercised............... 1,702 Shares issued under employee stock purchase plan....................... 978 Tax effect of stock options exercised........................... 2,505 Unrealized gains on market-able securities.......................... 46 Net income............................ 15,329 -------------- Balance, December 31, 1997............ 146,463 Stock options exercised............... 402 Shares issued under employee stock purchase plan....................... 425 Tax effect of stock options exercised........................... 69 Unrealized gains on market able securities.......................... 6 Net loss.............................. (9,558) -------------- Balance, December 31, 1998............ $ 137,807 -------------- --------------
See accompanying notes. F-13 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)............................................................. $ 11,991 $ 15,329 $ (9,558) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation................................................................ 3,865 7,644 14,409 Amortization................................................................ 2,323 945 707 Impairment of long-lived assets (non-cash).................................. 4,510 Write-down of inventory..................................................... 6,603 Deferred taxes.............................................................. (3,614) 1,328 (6,798) Changes in operating assets and liabilities: Accounts receivable......................................................... (3,317) (7,303) 6,151 Inventory................................................................... (166) (10,777) 4,346 Prepaid expenses and other current assets................................... (240) (249) (1,061) Deposits.................................................................... (215) (430) 60 Accounts payable............................................................ 4,502 4,050 (5,085) Income taxes payable........................................................ 1,584 1,268 (2,439) Accrued liabilities......................................................... (356) 2,515 (1,644) --------- --------- ---------- Net cash provided by operating activities..................................... 16,357 14,320 10,201 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment............................................... (16,444) (52,105) (24,607) Purchase of marketable securities............................................. (15,453) (43,768) (24,145) Proceeds from sales of marketable securities.................................. 29,233 27,149 31,369 --------- --------- ---------- Net cash used in investing activities......................................... (2,664) (68,724) (17,383) CASH FLOWS FROM FINANCING ACTIVITIES Payment of obligations under capital leases................................... (1,718) (1,105) (402) Borrowings of long-term debt.................................................. 5,000 Exercise of warrants.......................................................... 3,610 Issuances of common stock..................................................... 1,130 58,072 896 Proceeds of common stock subscribed........................................... 3 --------- --------- ---------- Net cash provided by financing activities..................................... 3,025 56,967 5,494 --------- --------- ---------- Net increase (decrease) in cash and cash equivalents.......................... 16,718 2,563 (1,688) Cash and cash equivalents at beginning of period.............................. 6,394 23,112 25,675 --------- --------- ---------- Cash and cash equivalents at end of period.................................... $ 23,112 $ 25,675 $ 23,987 --------- --------- ---------- --------- --------- ---------- Interest paid................................................................. $ 343 $ 155 $ 72 --------- --------- ---------- --------- --------- ---------- Taxes paid.................................................................... $ 1,142 $ 2,843 $ 3,132 --------- --------- ---------- --------- --------- ----------
See accompanying notes. F-14 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND BASIS OF PRESENTATION ANADIGICS, Inc. (the "Company") is a leading supplier of radio frequency ("RF") integrated circuit solutions for the communications markets. The Company's products are used to receive and transmit signals in a variety of broadband and wireless communications applications. The Company's efforts in the broadband area are focused applications for cable television systems ("CATV") and fiber optic communications systems. In the wireless area the Company's efforts are directed towards applications in cellular telephone and personal communication systems ("PCS"). The Company designs, develops and manufactures its integrated circuits primarily using gallium arsenide ("GaAs") semiconductor material. GaAs offers certain advantages in RF/microwave applications including the integration of numerous RF/microwave functions which cannot be easily integrated in silicon-based circuits. The Company's high frequency integrated circuits can typically replace 30 to 100 discrete components, permitting manufacturers of end products to reduce the size and weight of their products, increase power efficiency, improve reliability, reduce manufacturing time and cost and enhance system performance. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, ANADIGICS Foreign Sales Corporation. All significant inter-company accounts and transactions have been eliminated in consolidation. CONCENTRATION OF CREDIT RISK The Company grants trade credit to its customers, which are primarily foreign manufacturers of wireless communication devices, cable and broadcast television receivers and fiber optic communication devices. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Accounts receivable from customers are denominated in U.S. dollars. The Company has not experienced significant losses related to receivables from individual customers. Approximately 45% of the Company's net sales in 1996 were to three customers, accounting for 16%, 16%, and 12% of net sales. Approximately 62% of the Company's net sales in 1997 were to three customers, accounting for 33%, 16% and 13% of net sales. Approximately 51% of the Company's net sales in 1998 were to two customers, accounting for 34% and 17% of net sales; accounts receivable from these customers accounted for 64% of total accounts receivable at December 31, 1998. Net sales to individual customers who accounted for 10% or more of the Company's total net sales and corresponding end application information are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 1996 APPLICATION 1997 APPLICATION 1998 APPLICATION --------- ----------- --------- ----------- --------- ----------- Largest customer............................... $ 11,283 CATV $ 33,935 Wireless* $ 29,173 Wireless* Second largest customer........................ 11,127 Wireless* 16,792 Wireless* 14,664 CATV Third largest customer......................... 8,404 Wireless* 12,851 CATV
- ------------------------ * - Wireless includes net sales of integrated circuits for cellular and PCS applications. F-15 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Production revenue is recorded when products are shipped to customers. Revenues under customer-funded research and development contracts, which are recorded relative to the deliverables and other contractual obligations were $3,193 in 1996, $1,566 in 1997, and $715 in 1998, and are included in net sales on the consolidated statements of operations. The costs associated with the customer-funded research and development contracts approximates the revenue recorded and are included in cost of sales on the consolidated statements of operations. WARRANTY COSTS The Company provides, by a current charge to income, an amount it estimates will be needed to cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in Accrued Liabilities in the consolidated balance sheet. COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE All direct internal and external costs incurred in connection with the designing of software configuration and software interface, installing hardware and testing systems are capitalized. All other costs associated with internal use software are expensed when incurred. Amounts capitalized are amortized on a straight-line basis over three years. PLANT AND EQUIPMENT Plant and equipment are stated at cost. Depreciation of plant and equipment has been provided on the straight-line method over 3-5 years. The cost of equipment acquired under capital leases was $13,045 and $11,987 at December 31, 1997 and 1998, respectively, and accumulated amortization was $11,941 and $11,639 at December 31, 1997 and 1998, respectively. Equipment acquired under a capital lease is amortized over the useful life of the leased equipment or the life of the lease, whichever is shorter. INCOME TAXES Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. F-16 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT COSTS The Company charges all research and development costs associated with the development of new products to expense when incurred. Engineering and design costs related to customer-funded research and development contracts are classified as cost of sales. CASH EQUIVALENTS The Company considers as cash equivalents all highly liquid marketable securities with an original maturity of three months or less. MARKETABLE SECURITIES Available for sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income or loss. The cost of securities sold is based upon the specific identification method. The amortized cost of debt securities is adjusted for amortization of premium and accretion of discounts to maturity. Such amortization, realized gains and losses, interest and dividends are included in interest income. STOCK BASED COMPENSATION As permitted by FASB Statement No. 123, "Accounting for Stock-Based Compensation" (FASB 123), the Company has elected to follow Accounting Principal Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock option plans. Under APB 25, no compensation expense is recognized at the time of option grant because the exercise price of the Company's employee stock option equals the fair market value of the underlying common stock on the date of grant. IMPAIRMENT OF LONG-LIVED ASSETS The Company records impairment losses on long-lived assets including capitalized software costs used in operations or expected to be disposed when events and circumstances indicate that the undiscounted cash flows estimated to be generated by these assets are less than the carrying amounts of those assets (See Note 12.-RESTRUCTURING CHARGES) EARNINGS PER SHARE Basic and diluted earnings per share are calculated in accordance with FASB Statement No. 128, "Earnings Per Share". All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the requirements of FASB 128. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive Income ("FASB 130"). FASB 130 establishes new rules for the reporting and display of comprehensive income (or loss) and its components in the financial statements. The adoption of FASB 130 had no effect on the Company's financial position or results of operations. F-17 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Statement 130 requires unrealized gains (losses) on the Company's available-for-sale securities, which previously were reported in stockholders' equity, to be included in other comprehensive income and the disclosure of total comprehensive income. RECLASSIFICATIONS Certain amounts as of December 31, 1997 have been reclassified to conform with the December 31, 1998 presentation. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company expects to adopt the new Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. 2. INVESTMENTS The following is a summary of available-for-sale securities:
AVAILABLE-FOR-SALE SECURITIES --------------------------------------- GROSS ESTIMATED UNREALIZED FAIR COST GAINS VALUE --------- --------------- ----------- U.S Treasury and Agency Securities........................................... $ 2,117 $ 7 $ 2,124 U.S. Corporate Securities.................................................... 16,249 36 16,285 --------- --- ----------- Total at December 31, 1998................................................. $ 18,366 $ 43 $ 18,409 --------- --- ----------- --------- --- ----------- U.S Treasury and Agency Securities........................................... $ 8,058 $ 5 $ 8,063 U.S. Corporate Securities.................................................... 17,532 32 17,564 --------- --- ----------- Total at December 31, 1997................................................. $ 25,590 $ 37 $ 25,627 --------- --- ----------- --------- --- -----------
The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 1998, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
AVAILABLE-FOR-SALE SECURITIES ---------------------- ESTIMATED FAIR COST VALUE --------- ----------- Due in one year or less................................................................... $ 16,900 $ 16,923 Due after one year through three years.................................................... 1,466 1,486 --------- ----------- Total................................................................................... $ 18,366 $ 18,409 --------- ----------- --------- -----------
F-18 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 3. INVENTORIES Inventories are stated at the lower of cost (first in-first out method) or market. Inventories consist of the following:
DECEMBER 31, -------------------- 1997 1998 --------- --------- Raw materials........................................................... $ 1,670 $ 784 Work in process......................................................... 12,054 3,662 Finished goods.......................................................... 5,954 4,283 --------- --------- $ 19,678 $ 8,729 --------- --------- --------- ---------
4. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, -------------------- 1997 1998 --------- --------- Accrued compensation..................................................... $ 4,599 $ 842 Warranty reserve......................................................... 550 304 Other.................................................................... 812 1,160 --------- --------- $ 5,961 $ 2,306 --------- --------- --------- ---------
5. LEASES The Company leases manufacturing, warehousing and office space under noncancelable operating leases that expire through 2016. The Company also leases certain equipment under capital leases that expire through 2000. Rent expense was $1,810, $1,640 and $3,148 in 1996, 1997 and 1998, respectively. The future minimum lease payments under the noncancelable operating leases and the present value of the minimum capital lease payments are as follows:
CAPITAL OPERATING YEAR LEASES LEASES - -------------------------------------------------------------------- ----------- ------------ 1999................................................................ $ 253 $ 2,377 2000................................................................ 190 2,531 2001................................................................ 2,576 2002................................................................ 2,640 2003................................................................ 2,533 Thereafter.......................................................... 25,581 ----- ------------ Total minimum lease payments........................................ 443 $ 38,238 ----- ------------ ----- ------------ Less amount representing interest................................... 31 ----- Present value of net minimum lease payments......................... $ 412 ----- -----
F-19 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 6. EARNINGS PER SHARE The reconciliation of shares used to calculate basic and diluted earnings per share consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------------------- 1996 1997 1998 ------------- ------------- ------------- Weighted average common shares outstanding used to calculate basic earnings per share......... 12,355,311 14,279,957 14,723,941 Net effect of dilutive stock options-- based on treasury stock method using average market price......................................... 552,540 783,922 --* ------------- ------------- ------------- Weighted average common and dilutive securities outstanding used to calculate diluted earnings per share..................................... 12,907,851 15,063,879 14,723,941 ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------ * --The dilutive stock options are not included as their effect is anti-dilutive. 7. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION Effective January 1, 1998, the Company adopted Statement No. 131, Disclosures About Segments of an Enterprise and Related Information ("FASB 131"). FASB 131 establishes standards for reporting information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company believes it operates in one segment. Since all of the Company's integrated circuits are manufactured using the same manufacturing facilities located in the same geographic area, all operating expenses and assets of the Company are combined and reviewed by the chief operating decision maker on an enterprise-wide basis, resulting in no additional discrete financial information or reportable segment information. F-20 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 7. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (CONTINUED) FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENT The Company classifies its revenues based upon the end application of the product in which its integrated circuits are used. Net sales by end application are regularly reviewed by the chief operating decision maker and are as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 --------- ----------- --------- Cellular and PCS Applications................................................ $ 24,501 $ 59,676 $ 33,716 CATV Applications............................................................ 13,822 20,848 28,327 Fiber Optic Applications..................................................... 11,579 11,457 17,582 Direct Broadcast Satellite Applications...................................... 15,769 8,989 5,735 Engineering service sales.................................................... 3,193 1,566 715 --------- ----------- --------- Total........................................................................ $ 68,864 $ 102,536 $ 86,075 --------- ----------- --------- --------- ----------- ---------
GEOGRAPHIC INFORMATION The Company primarily sells to four geographic regions; Europe, Asia, North America (primarily U.S.A.), and South America. The geographic region is determined by the destination of the shipped product. Net sales to each of the four geographic regions are as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 --------- ----------- --------- Europe................................................... $ 24,819 $ 32,097 $ 20,459 Asia..................................................... 19,836 26,142 24,470 North America (primarily U.S.A.)......................... 24,209 44,297 36,416 South America............................................ -- -- 4,730 --------- ----------- --------- $ 68,864 $ 102,536 $ 86,075 --------- ----------- --------- --------- ----------- ---------
8. STOCKHOLDERS' EQUITY The Company has warrants outstanding, which entitle holders to purchase 30,000 shares of common stock at an exercise price of $10.38 per share. The warrants become exercisable one year from the date of grant, or November 17, 1999, and expire on November 17, 2001. None of these warrants were exercisable as of December 31, 1998. The Company has additional warrants outstanding which entitle the holder to purchase 22,500 shares of common stock at exercise prices ranging from $21.50 to $48.25 per share, all of which are exercisable as of December 31, 1998. The warrants expire between September of 2001 and 2003. F-21 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 9. INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Current provision: Federal................................ $ 2,726 $ 3,780 $ (377) State.................................. 331 Deferred provision (benefit): Federal................................ (3,214) 826 (5,316) State.................................. (400) 502 (1,482) --------- --------- --------- Total........................................................................... $ (888) $ 5,439 $ (7,175) --------- --------- --------- --------- --------- ---------
Significant components of the Company's net deferred tax assets and liabilities as of December 31, 1997 and 1998 are as follows:
DECEMBER 31, -------------------- 1997 1998 --------- --------- Current: Accruals/reserves......................................................................... $ 4,193 $ 3,926 Net operating loss carryforwards.......................................................... 419 Research and development credits.......................................................... 268 --------- --------- 4,461 4,345 Long-term: Net operating loss carryforwards.......................................................... 107 4,211 General business and research and development credits..................................... 268 1,350 Deferred rent expense..................................................................... 332 Difference in basis of plant and equipment................................................ (1,334) 62 --------- --------- Net long-term deferred tax assets (liabilities)............................................. (959) 5,955 --------- --------- Net deferred tax assets..................................................................... $ 3,502 $ 10,300 --------- --------- --------- ---------
As of December 31, 1998, the Company has net operating loss carryforwards of approximately $12,000 for both federal and state tax reporting purposes. The federal carryforward will expire in 2018, and the state carryforwards will expire in 2005. F-22 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 9. INCOME TAXES (CONTINUED) The reconciliation of income tax expense computed at the U.S. federal statutory rate to the provision (benefit) for income taxes is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1996 1997 1998 -------------------- -------------------- -------------------- Tax at U.S. statutory rate........................... $ 3,775 34.0% $ 7,268 35.0% $ (5,857) (35.0)% Change in federal valuation allowance................ (4,673) (42.1) (1,913) (9.2) Tax benefit of foreign sales corporation............. (472) (2.3) State tax expense (benefit), net of Federal tax effect................................. 542 2.6 (963) (5.8) Other................................................ 10 0.1 14 0.1 (364) (2.1) --------- --------- --------- --- --------- --------- Provision (benefit) for income taxes................. $ (888) (8.0)% $ 5,439 26.2% $ (7,175) (42.9)% --------- --------- --------- --- --------- --------- --------- --------- --------- --- --------- ---------
10. LONG-TERM DEBT, CREDIT FACILITY AND INTEREST RATE SWAP AGREEMENT The Company has a secured $20,000 term loan facility under which $5,000 was drawn down on December 30, 1998 and was outstanding as of December 31, 1998. The $5,000 consists of a term-loan that requires equal principal repayments of $250 due quarterly through December 31, 2003, plus interest. Interest on the credit facility is calculated at LIBOR plus 1.75%. The LIBOR rate was 5.34% at December 31, 1998. The Company enters into interest rate swap agreements to manage its exposure to interest rate movements by effectively converting its debt from variable to fixed rates. Maturity dates of the interest rate swap agreements will generally match those of the underlying debt or financial arrangements. As of December 31, 1998, the Company has entered into one interest rate swap with a maturity of five years and involved the exchange of variable rate payments for fixed rate payments without the exchange of the underlying principal amounts. In accordance with the terms of the swap agreement, the Company pays 7.09% interest and receives LIBOR plus 1.75% calculated on the notional amount. The notional amount of the interest rate swap was $5,000 at December 31, 1998. The Company concluded that the swap effectively changed the variable interest rate characteristics to a fixed rate for which the present value of the cash flows are approximately the same, and as a result, there is no adjustment to mark the swap to market. Cash flows associated with the financial instrument are classified consistent with the cash flows from the transactions being hedged. The remaining $15,000 under the term loan facility provides for interest at the bank's base rate minus 25 basis points or, at the Company's discretion, other market-based rates. The Company has the option to swap floating rate for fixed rate loans at the time of drawdown. The drawdown period expires on July 1, 1999. Any drawdowns may be paid over a term of up to sixty months. Its availability is subject to a number of financial covenants. Under this facility, the payment of dividends, among other things, requires approval by the bank. Substantially all assets of the Company are pledged as security for the repayment of amounts drawn under this credit facility. On a quarterly basis, the Company pays an annual commitment fee equal to 0.125% of the daily unused line of credit. F-23 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 11. EMPLOYEE BENEFIT PLANS In 1995, the Company adopted an employee stock purchase plan ("ESP Plan")under Section 423 of the Internal Revenue Code. All full-time employees of the Company and part-time employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 562,500 shares of common stock are reserved for offering under the ESP Plan. Offerings are made at the commencement of each calendar year and must be purchased by the end of that calendar year. In 1997, 44,515 shares of common stock were purchased at a price of $21.99 per share, as determined by the ESP Plan, which approximates fair value. During 1998, 43,627 shares of common stock were purchased at a price of $9.75 per share, as determined by the ESP Plan, which approximates fair value. Certain executives and key employees have been granted options to purchase shares of common stock under stock option plans adopted in 1994, 1995 and 1997. An aggregate of 326,087, 2,775,000 and 1,200,000 shares of common stock were reserved for issuance under the 1994 Long-Term Incentive Share and Award Plan, the 1995 Long-Term Incentive Share Award Plan and the 1997 Long-Term Incentive and Share Award Plan for Employees (the "Plans"), respectively. The Plans provide for the granting of stock options, stock appreciation rights, restricted shares, or other share based awards to eligible employees and directors, as defined in the Plans. Options granted under the Plans become exercisable in varying amounts over periods of up to three years. FASB 123 requires pro forma information regarding net income and earnings per share as if the Company has accounted for its employee stock options and warrants granted subsequent to December 31, 1994 and shares of common stock purchased by employees in connection with the ESP Plan ("equity awards") under the fair value method of FASB 123. The fair value of these equity awards was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1996, 1997 and 1998, respectively: risk-free interest rate of 5.17%, 5.90%, and 4.50%; expected volatility of 0.50, 0.50, and 0.60; expected option life of one year from vesting and an expected dividend yield of 0.0%. For purposes of pro forma disclosures, the estimated fair value of the equity awards is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:
1996 1997 1998 --------- --------- ---------- Pro forma net income (loss)................................................... $ 10,555 $ 11,777 $ (13,092) Pro forma basic earnings (loss) per share..................................... $ 0.85 $ 0.82 $ (0.89)
Because FASB 123 is applicable only to equity awards granted subsequent to December 31, 1994, its pro forma effect was not fully reflected until 1997. F-24 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 11. EMPLOYEE BENEFIT PLANS (CONTINUED) A summary of the Company's stock option activity, and related information for the years ended December 31, 1996 and 1997 follows:
1996 1997 1998 ------------------------ ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED COMMON AVERAGE COMMON AVERAGE COMMON AVERAGE STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at beginning of year........ 686,565 $ 6.13 1,088,221 $ 9.77 1,558,075 $ 19.77 Granted................................. 484,575 14.64 710,931 31.54 2,083,256 10.87 Exercised............................... (59,068) 6.14 (219,246) 7.78 (36,724) 9.76 Forfeited............................... (23,851) 13.14 (21,831) 24.74 (142,448) 22.77 ----------- ----------- ----------- Outstanding at end of year.............. 1,088,221 9.77 1,558,075 19.77 3,462,159 14.39 ----------- ----------- ----------- ----------- ----------- ----------- Exercisable at end of year.............. 481,426 6.20 745,963 10.30 1,154,789 16.80 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average fair value of options granted during the year............... $ 5.50 $ 12.15 $ 10.75
Stock options outstanding at December 31, 1998 are summarized as follows:
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE RANGE OF OPTIONS AT REMAINING EXERCISE EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE PRICE - ------------------- --------------------- ---------------------- ---------------------- $ .57 109,639 5.17 $ .57 $ 6.25 to $ 8.00 1,554,044 9.02 $ 7.32 $ 8.44 to $15.93 793,758 8.11 $ 14.59 $16.34 to $29.69 409,552 9.03 $ 18.78 $30.00 to $47.50 595,166 8.06 $ 32.15 ---------- $ .57 to $47.50 3,462,159 8.53 $ 14.39
12. RESTRUCTURING CHARGES The Company recorded restructuring charges totaling $7,126 during 1998. The restructuring charges consisted of writedowns of impaired long-lived assets of $4,510, reductions in work force of $1,616 and wafer fabrication facility shutdown and removal costs of $1,000 which are expected to be completed in 1999. In connection with the impairment evaluation, the Company determined that certain other equipment related to the conversion of the new wafer fabrication facility has shorter depreciable lives. Accordingly, the Company accelerated depreciation on these assets during the year for which the effect on net loss was approximately $(1,517) or $(0.10) per share. These assets, which now have revised estimated useful lives of nine months, had original estimated useful lives of five to twenty years. F-25 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 12. RESTRUCTURING CHARGES (CONTINUED) WRITEDOWNS OF IMPAIRED ASSETS. The Company evaluated the on-going value of certain assets. Based upon this evaluation, the Company plans to dispose of certain assets during the next twelve months with a carrying amount of $4,635 and estimated the sales value, net of related costs to sell, at $125. The estimated sales value was based on quoted market prices or on the best information available in the circumstances. In most instances, there was no market for the impaired asset and therefore the fair value was zero. As a result, the Company recorded an impairment loss of $4,510, which consisted of the following items:
Write-down of assets associated with the conversion of the new wafer fabrication facility from 4-inch to 6-inch wafers.......... $ 2,149 Write-down of assets associated with the closure of the Company's in-house assembly operations..................................... 1,004 Write-off of software, in connection with the Company's on-going information systems improvements................................. 842 Unused production assets previously used in the production of DBS LNB converter integrated circuits................................ $ 515 --------- Total write-down on impairment of long-lived assets................ $ 4,510 --------- ---------
The effect of suspending depreciation on these assets was approximately $220 during 1998. REDUCTIONS IN FORCE. The Company recorded charges of $1,100 during the first quarter of 1998 and $516 during the fourth quarter of 1998 associated with reductions in its workforce. The workforce reduction charges primarily consisted of severance pay, extended medical coverage, and outplacement service costs for approximately 165 employees primarily involved in the Company's production operations. Approximately $1,049 of severance pay, extended medical coverage, and outplacement service costs were paid through December 31, 1998 for the termination of 120 employees. The remaining liability of $567 is expected to be paid during the first half of 1999. FACILITY SHUTDOWN AND REMOVAL COSTS. The Company recorded charges of $1,000 associated with the shutdown and removal of its existing wafer fabrication facility, which is expected to be completed in 1999. F-26 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED ------------------------------------------------------------------------------------------ MARCH 30, JUNE 29, SEPT. 28, DEC. 31, MARCH 29, JUNE 28, SEPT. 27, DEC. 31, 1997 1997 1997 1997 1998 1998 1998 1998 ----------- --------- --------- --------- ----------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales..................... $ 22,860 $ 24,969 $ 26,727 $ 27,980 $ 18,785 $ 22,675 $ 22,041 $ 22,574 Cost of sales................. 12,321 13,159 13,688 16,925 12,068 14,565 21,758 17,838 ----------- --------- --------- --------- ----------- --------- --------- --------- Gross profit.................. 10,539 11,810 13,039 11,055 6,717 8,110 283 4,736 Research and development...... 3,439 4,185 4,375 4,767 4,642 5,108 4,334 4,739 Selling and administrative expense..................... 2,746 3,028 3,226 3,138 3,345 3,060 3,084 3,437 Restructuring charges......... 1,100 1,357 4,669 ----------- --------- --------- --------- ----------- --------- --------- --------- Operating income (loss)....... 4,354 4,597 5,438 3,150 (2,370) (58) (8,492) (8,109) Interest income, net.......... 561 1,003 833 831 656 570 560 511 ----------- --------- --------- --------- ----------- --------- --------- --------- Income (loss) before income taxes....................... 4,915 5,600 6,271 3,981 (1,714) 512 (7,932) (7,598) Provision (benefit) for income taxes (1)................... 1,745 1,988 2,310 (605) (643) 192 (2,975) (3,749) ----------- --------- --------- --------- ----------- --------- --------- --------- Net income (loss)............. $ 3,170 $ 3,612 $ 3,961 $ 4,586 $ (1,071) $ 320 $ (4,957) $ (3,849) ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- Basic earnings (loss) per share....................... $ 0.24 $ 0.25 $ 0.28 $ 0.31 $ (0.07) $ 0.02 $ (0.34) $ (0.26) ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- Diluted earnings (loss) per share....................... $ 0.23 $ 0.24 $ 0.26 $ 0.30 $ (0.07) $ 0.02 $ (0.34) $ (0.26) ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- --------- Market price per share of common stock: High.......................... $ 37.68 $ 35.50 $ 54.25 $ 51.38 $ 33.81 $ 16.81 $ 21.00 $ 14.19 Low........................... $ 24.00 $ 22.50 $ 30.50 $ 21.00 $ 13.19 $ 11.00 $ 7.81 $ 5.13
- ------------------------ (1) The benefit for income taxes for the quarter ended December 31, 1997 resulted from a reduction in the valuation allowance related to deferred tax assets. 14. COMMITMENTS AND CONTINGENCIES In March and April 1998, there were filed against the Company and certain of its officers and directors in the United States District Court for the District of New Jersey seven proposed class action lawsuits (collectively, the "Class Action Lawsuits"), captioned Assuncao v. Anadigics, Inc., et al., No. 98-917; Office and Professional Employees International Union Local 153 Pension Fund v. Anadigics, Inc., et al., No. 98-919; Kotler v. Anadigics, Inc., et al., No. 98-923; Gray v. Anadigics, Inc., et al., No. 98-1337; Mirpuri v. Anadigics, Inc., et al., No. 98-1811; Grayson v. Rosenzweig, et al., No. 98-1688; and Morgante v. Anadigics, Inc., et al., No. 98-2024. The Complaints filed in the Class Action Lawsuits (each of which names a combination of the following directors and officers of F-27 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) the Company: Ronald Rosenzweig, George Gilbert, Harry T. Rein, John F. Lyons, Charles Huang, Javed Patel, Sheo Khetan and Robert Bayruns) seek unspecified damages in connection with claims under Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934 and, as set forth in the Union Local 153, Kotler, Gray and Mirpuri Complaints, claims alleging common law fraud and negligent misrepresentation. The Complaints allege that, as a result of certain material misstatements and omissions made by the Company in connection with its business, the price of the Company's common stock was artificially inflated during the proposed class periods. The longest proposed class period alleged by the plaintiffs in the Class Action Lawsuits is the period from July 17, 1997 through January 30, 1998. On December 20, 1998, the United States District Court for the District of New Jersey entered an Order consolidating the Class Action Lawsuits into one action, captioned In re Anadigics, Inc. Securities Litigation, No. 98-CV-917 (the "Consolidated Class Action Lawsuit"), and appointing Lead Plaintiffs and Lead Plaintiffs' Counsel. The parties to the Consolidated Class Action Lawsuit have jointly requested the Court to extend to April 5, 1999 the deadline by which plaintiffs must file their Amended Consolidated Complaint. The Company is unable at this time to assess the probable outcome of the Consolidated Class Action Lawsuit or the materiality of the risk of loss in connection therewith (given that none of the original Complaints had alleged damages with any particularity and the Amended Consolidated Complaint has not yet been served). On or about August 3, 1998, a shareholders derivative lawsuit, captioned Deegan v. Rosenzweig, et al., No. 98-CV-3640 (the "Derivative Lawsuit"), was filed in the United States District Court for the District of New Jersey against the Company (as nominal defendant) and the following officers and directors thereof: Charles Burton, Paul Bachow, Robert Bayruns, Ronald Rosenzweig, George Gilbert, John Lyons, Harry Rein, Sheo Khetan, Javed Patel, Charles Huang and Phillip Wallace. The Complaint in the Derivative Lawsuit alleges claims, which are predicated upon the Class Action Lawsuits, seeking damages, contribution, indemnification and equitable relief. On October 28, 1998, the United States District Court for the District of New Jersey stayed the Derivative Lawsuit pending the earlier of (1) the disposition of any motion to dismiss the Complaint (or any Consolidated Amended Complaint) in the Class Action Lawsuits or (2) the commencement of discovery in the Class Action Lawsuits. As a result, on October 29, 1998, the Court administratively dismissed the Derivative Lawsuit without prejudice. The Company is unable at this time to assess the probable outcome of the Derivative Lawsuit or the materiality of the risk of loss in connection therewith (given that the original Complaint did not allege damages with any particularity and no operative pleading presently exists). The Company is also involved in other threatened and pending legal proceedings arising in the course of the Company's business. The adverse outcome of any of these other legal proceedings is not expected to have a material adverse effect on the results of operations or financial condition of the Company. At December 31, 1998, the Company had committed to purchase approximately $10,000 of equipment and furniture, and leasehold improvements during 1999. F-28 UNDERWRITING ANADIGICS and the underwriters for the offering named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Prudential Securities Incorporated, CIBC World Markets Corp. and Needham & Company, Inc. are the representatives of the underwriters.
UNDERWRITERS NUMBER OF SHARES - ------------------------------------------------------------------------ ------------------ Goldman, Sachs & Co..................................................... Prudential Securities Incorporated...................................... CIBC World Markets Corp. ............................................... Needham & Company, Inc.................................................. ---------- Total............................................................... 3,000,000 ---------- ----------
------------------------ If the underwriters sell more shares than the total number shown in the table above, the underwriters have an option to buy up to an additional 450,000 shares from ANADIGICS to cover those sales. They may exercise that option for 30 days after the date of this prospectus. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as shown in the table above. The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by ANADIGICS. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares. PAID BY ANADIGICS
NO EXERCISE FULL EXERCISE ------------------- ------------------- Per Share...................................... $ $ Total.......................................... $ $
Shares sold by the underwriters to the public will initially be offered at the initial price to public shown on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial price to public. Any of these securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial price to public. If all the shares are not sold at the initial price to public, the representatives of the underwriters may change the offering price and the other selling terms. ANADIGICS and its directors and executive officers have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. This agreement does not apply to any existing employee benefit plans. In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. U-1 The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives of the underwriters have purchased shares sold by or for the account of the underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. As permitted by Rule 103 under the Exchange Act, certain underwriters and selling group members that are market makers ("passive market makers") in the common stock may make bids for or purchases of the common stock in the Nasdaq National Market until a stabilizing bid has been made. Rule 103 generally provides that - a passive market maker's net daily purchases of the common stock may not exceed 30% of its average daily trading volume in such securities for the two full consecutive calendar months, or any 60 consecutive days ending within the 10 days, immediately preceding the filing date of the registration statement of which this prospectus forms a part, - a passive market maker may not effect transactions or display bids for the common stock at a price that exceeds the highest independent bid for the common stock by persons who are not passive market makers, and - bids made by passive market makers must be identified as such. ANADIGICS estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . ANADIGICS has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The underwriters and their affiliates have in the past provided, and may in the future from time to time provide, investment banking services to ANADIGICS, for which they may receive customary fees. U-2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under the circumstances and in the jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ------------------------ TABLE OF CONTENTS
Page ---- Prospectus Summary........................................................ 1 Risk Factors.............................................................. 4 Forward-Looking Statements................................................ 10 Use of Proceeds........................................................... 11 Dividend Policy........................................................... 11 Price Range of Common Stock............................................... 11 Capitalization............................................................ 12 Selected Financial Data................................................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 14 Business.................................................................. 23 Management................................................................ 33 About This Prospectus..................................................... 34 Where You Can Find More Information....................................... 35 Validity of Common Stock.................................................. 35 Experts................................................................... 35 Glossary.................................................................. 36 Index to Financial Statements............................................. F-1 Underwriting.............................................................. U-1
3,000,000 Shares ANADIGICS, INC. Common Stock ------------------ [LOGO] ------------------ GOLDMAN, SACHS & CO. PRUDENTIAL SECURITIES CIBC WORLD MARKETS NEEDHAM & COMPANY, INC. Representatives of the Underwriters - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except the registration fee, the NASD filing fee and the Nasdaq NMS fee.
AMOUNT TO BE PAID ----------- Registration fee................................................................. $ 28,562 NASD filing fee.................................................................. * Nasdaq NMS fees.................................................................. 7,500 Printing expenses................................................................ 50,000 Legal fees and expenses.......................................................... * Accounting fees and expenses..................................................... * Blue Sky fees and expenses....................................................... * Transfer agent and registrar fees................................................ * Miscellaneous.................................................................... * ----------- Total........................................................................ $ * ----------- -----------
- ------------------------ * To be filed by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933. Article VI of the registrant's restated certificate of incorporation and section 4 of article VII of the registrant's by-laws provide for indemnification of its directors, officers, employees, and other agents to the maximum extent permitted by the Delaware General Corporation Law. Reference is also made to section 8 of the underwriting agreement contained in exhibit 1.1 hereto, which provides for the indemnification of officers, directors, and controlling persons of the registrant against certain liabilities. ITEM 16. EXHIBITS 1.1 Form of underwriting agreement. 4.1 Form of common stock certificate. Filed as an exhibit to ANADIGICS' registration statement (Registration No. 33-89928), and incorporated herein by reference. 4.2 Form of certificate of amendment to amended and restated certificate of incorporation. 4.3 Rights agreement dated as of December 17, 1998 between the registrant and Chase Mellon Shareholder Services L.L.C., as rights agent. Filed as an exhibit to ANADIGICS' current report on form 8-K filed December 17, 1998, and incorporated herein by reference. 5.1 Opinion of Cahill Gordon & Reindel (a partnership including a professional corporation). 10.1 Fourth Amendment to Amended and Restated Agreement dated as of June 30, 1999 between ANADIGICS and First Union National Bank. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
II-1 24.1 Power of attorney.*
- ------------------------ * Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (4) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this amendment no. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Warren, State of New Jersey, on the 9th day of September, 1999. ANADIGICS, INC. BY: /S/ DR. BAMI BASTANI ----------------------------------------- Dr. Bami Bastani CHIEF EXECUTIVE OFFICER AND PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: NAME TITLE DATE - ------------------------------ --------------------------- ------------------- Chief Executive Officer and /s/ DR. BAMI BASTANI President (Chief - ------------------------------ Executive Officer); September 9, 1999 Dr. Bami Bastani Director Senior Vice President and /s/ TOM SHIELDS Chief Financial Officer - ------------------------------ (Chief Financial Officer September 9, 1999 Tom Shields and Principal Accounting Officer) * Chairman of the Board of - ------------------------------ Directors and Director September 9, 1999 Ronald Rosenzweig * Director - ------------------------------ September 9, 1999 Paul S. Bachow Director - ------------------------------ September 9, 1999 David Fellows * Director - ------------------------------ September 9, 1999 Bruns Grayson Director - ------------------------------ September 9, 1999 Harry T. Rein * Director - ------------------------------ September 9, 1999 Lewis Solomon *By: /s/ DR. BAMI BASTANI ------------------------- (AS ATTORNEY-IN-FACT)
II-3 EX-1.1 2 FORM OF UNDERWRITING AGREEMENT Exhibit 1.1 ANADIGICS, INC. COMMON STOCK PAR VALUE $.01 PER SHARE -------------- UNDERWRITING AGREEMENT September __, 1999 Goldman, Sachs & Co., Prudential Securities Incorporated, CIBC World Markets Corp., Needham & Company, Inc., As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004. Ladies and Gentlemen: ANADIGICS, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of shares (the "Firm Shares") and, at the election of the Underwriters, up to additional shares (the "Optional Shares") of Common Stock, par value $.01 per share ("Stock"), of the Company (the Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof being collectively called the "Shares"). 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-3 (File No. 333-83889) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective and (ii) the documents incorporated by reference in the prospectus contained in the Initial Registration Statement at the time such part of the Initial Registration Statement became effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Initial Registration Statement that is incorporated by reference in the Registration Statement); (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (c) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further 2 documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (d) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (e) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock, short-term debt (other than changes not in excess of $500,000 in the aggregate) or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (f) The Company and its subsidiaries have good and marketable title to all personal property owned by them, free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; neither the Company nor any of its subsidiaries owns any real property; 3 (g) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (h) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained in the Prospectus and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (i) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; (j) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except to the extent such conflict, breach, violation or default would not result in a material adverse change in or affecting the general affairs, management, financial position, prospects, stockholders' equity or results of operations of the Company (a "Material Adverse Effect"), nor will such action result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; 4 (k) Neither the Company nor any of its subsidiaries is (A) in violation of its certificate of incorporation or by-laws or (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except in the case of (B) for such defaults as would not, individually or in the aggregate, result in a Material Adverse Effect; (l) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (m) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (n) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (o) Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; and (p) The Company has sufficient title to and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes ("Intellectual Property") necessary for the business of the Company and its subsidiaries as now conducted and as proposed to be conducted without any conflict with or infringement of the rights or claimed rights of others and has taken all steps necessary to secure title and ownership to such Intellectual Property from its contractors; there are no outstanding options, licenses or agreements of any kind relating to the Intellectual Property, and the Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property of any other person or entity; none of the technology employed by the Company or any of its subsidiaries has been obtained or is being used by the Company or any of its subsidiaries in violation of any contractual or fiduciary obligation binding on the Company, any of its subsidiaries or any of their directors, employees or consultants or otherwise in violation of the rights of any person; neither the Company, any of its subsidiaries nor any of their employees has received any communications alleging that the Company or any of its subsidiaries has violated or, by conducting their business as proposed, would violate any of the Intellectual Property of any other person or entity; no 5 employee of the Company or any of its subsidiaries is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with his obligation to use his best efforts to promote the interests of the Company and its subsidiaries or that would conflict with the business of the Company and its subsidiaries as proposed to be conducted; neither the execution nor delivery of this Agreement, nor the operation of the business of the Company and its Subsidiaries by the employees of the Company and its subsidiaries, nor the conduct of the business of the Company and its subsidiaries as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any material contract, covenant or instrument under which any of such employees is now obligated; and the Company has taken and will maintain reasonable measures to prevent the unauthorized dissemination or publication of the confidential information of the Company, its subsidiaries or third parties in the possession of the Company or its subsidiaries. (q) The Company has reviewed its operations and that of its subsidiaries and has communicated with any third parties with which the Company or any of its subsidiaries has a material relationship to evaluate the extent to which the business or operations of the Company or any of its subsidiaries will be affected by the Year 2000 Problem. As a result of such review and such communications, the Company has no reasonable reason to believe, and does not believe, that the Year 2000 Problem will have a Material Adverse Effect or result in any material loss or interference with the Company's or any subsidiary's business or operations. The "Year 2000 Problem" as used herein means any significant risk that computer hardware or software used in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission or other utilization of data or in the operation of mechanical or electrical systems of any kind will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively as in the case of dates or time periods occurring prior to January 1, 2000. 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per share of $____, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to _______ Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of 6 Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company shall be delivered by or on behalf of the Company to Goldman, Sachs & Co. through the facilities of the Depository Trust Company ("DTC"), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same day) funds to the account specified by the Company to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on September __, 1999 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or at such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 2:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Agreement, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of 7 this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you 8 may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option or stock purchase plans existing on, or upon the conversion or exchange of convertible or exchangeable securities or the exercise of warrants outstanding as of, the date of this Agreement), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of three years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use its best efforts to list for quotation the Shares on the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ"); (i) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; and (j) If the Company elects to rely upon Rule 462(b), to file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and at the time of filing either to pay to the Commission the filing fee for the Rule 462(b) Registration 9 Statement or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of such Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Sullivan & Cromwell, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to the incorporation of the Company, the validity of the Shares being delivered at such Time of Delivery, the Registration Statement, the Prospectus, and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; 10 (c) Cahill Gordon & Reindel, counsel for the Company, shall have furnished to you their written opinion (a draft of which is attached as Annex II(a) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being delivered at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform to the description of the Stock contained in the Prospectus; (iii)The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (iv) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (v) This Agreement has been duly authorized, executed and delivered by the Company; (vi) The issue and sale of the Shares being delivered at such Time of Delivery to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument listed in a schedule attached to such opinion, nor will such action result in any violation of the provisions of the certificate of incorporation or the by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and such counsel, after due inquiry, is not aware of any material agreements or instruments of the Company or any of its subsidiaries other than as set forth in the schedule referred to above; 11 (vii) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (viii) Neither the Company nor any of its subsidiaries is (A) in violation of its certificate of incorporation or by-laws or (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument listed in the schedule referred to in clause (vii) above; (ix) The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; and (x) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable and the rules and regulations of the Commission thereunder; and they have no reason to believe that any of such documents, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading. In addition, such counsel shall state that the Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder. In addition, such counsel shall state that such counsel have participated in conferences with officers and other representatives of the Company, representatives of the independent auditors of the Company, and representatives of the Underwriters at which the contents of the Registration Statement and Prospectus were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as otherwise indicated above) on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and representatives of the Company), no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time the Registration Statement or amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein 12 not misleading or that the Prospectus as of its date or any further amendment or supplement thereto as of its date, or the Registration Statement or the Prospectus or any amendment or supplement thereto as of such Time of Delivery, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial data included in the Registration Statement or Prospectus); and they do not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required. (d) [Pennie & Edmonds], special counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that the Company owns, is licensed or otherwise has sufficient rights to use the Intellectual Property currently used by the Company or its subsidiaries; to the best of such counsel's knowledge, except as described in the Registration Statement and the Prospectus, no claims have been asserted against the Company or any its subsidiaries by any person with respect to the use of any such Intellectual Property and no person has challenged or questioned the validity or enforceability of any such Intellectual Property; to the best of such counsel's knowledge, the Company and its subsidiaries have conducted their business without infringement or claim of infringement of any Intellectual Property of others; and, to the best of such counsel's knowledge, the use, in connection with the business and operations of the Company or any of its subsidiaries, of such Intellectual Property does not infringe on the rights of any person. (e) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (f)(i)Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock, short-term debt or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the 13 Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or material limitation in trading in the Company's securities on NASDAQ; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (h) The Shares at such Time of Delivery shall have been duly listed for quotation on NASDAQ; (i) The Company has obtained and delivered to the Underwriters executed copies of an agreement from the stockholders of the Company listed on Schedule II hereto substantially to the effect set forth in Subsection 5(e) hereof in form and substance satisfactory to you; (j) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (k) The Company shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company, satisfactory to you as to the accuracy of the representations and warranties of the Company, herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or 14 supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then 15 each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Shares, or the Company notifies you that it has so arranged for the purchase of such Shares, you or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the 16 Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company shall not then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives. 17 All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration Department; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company, or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 18 If the foregoing is in accordance with your understanding, please sign and return to us seven (7) counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement between each of the Underwriters and the Company. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, ANADIGICS, Inc. By: ------------------------------- Name: Title: Accepted as of the date hereof: Goldman, Sachs & Co. Prudential Securities Incorporated CIBC World Markets Corp. Needham & Company, Inc. By: ------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Underwriters 19 SCHEDULE I
Number of Optional Shares to be Total Number of Purchased if Firm Shares Maximum Option Underwriter to be Purchased Exercised ----------- --------------- --------- Goldman, Sachs & Co..................... Prudential Securities Incorporated CIBC World Markets Corp. Needham & Company, Inc. Total......................
20 SCHEDULE II Certain Stockholders of the Company [to come] 21 ANNEX I (A) [Executed comfort letter of Ernst & Young to be attached] 22 ANNEX I (B) Pursuant to Section 7(e) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and schedule examined by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the representatives of the Underwriters (the "Representatives") and are attached hereto; (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed statements of income, balance sheets and statements of cash flows included in the Prospectus and/or included in the Company's quarterly report on Form 10-Q incorporated by reference into the Prospectus as indicated in their reports thereon copies of which are attached hereto; and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Reports on Form 10-K for such fiscal years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301 and 402, respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company, inspection of the minute books of the Company since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited condensed statements of income, balance sheets and statements of cash flows included in the Prospectus and/or included or incorporated by reference in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act as it applies to Form 10-Q and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed statements of income, balance sheets and statements of cash flows included in the Prospectus or included in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus, for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived the unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (D) any unaudited pro forma condensed financial statements included or incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the long-term debt of the Company, or any decreases in net current assets or stockholders' equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included or incorporated by reference in the Prospectus to the specified date referred to in Clause (E) there were any decreases in net revenues or operating profit or the total or per share amounts of net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by 2 the Representatives, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives which are derived from the general accounting records of the Company, which appear in the Prospectus (excluding documents incorporated by reference) or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and have found them to be in agreement. 3 ANNEX II (A) [Opinion of Cahill Gordon & Reindel to be attached] ANNEX II (B) [Opinion of Pennie & Edmonds LLP to be attached] EX-4.1 3 CERT. OF AMEND. TO AMEND. & RESTATED CERT. OF INC. Exhibit 4.1 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ANADIGICS, INC. * * * * * ANADIGICS, INC. (the "Company"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. That the Board of Directors of the Company by a unanimous written consent dated April 2, 1997 adopted resolutions proposing and declaring advisable the following amendments to the Amended and Restated Certificate of Incorporation of the Company: RESOLVED, that the Board of Directors of the Company hereby proposes and declares it advisable that the first paragraph of Article IV of the Amended and Restated Certificate of Incorporation of Anadigics, Inc. be amended to increase the number of authorized shares of common stock, par value $.01, from 34,000,000 to 68,000,000 shares and that total shares of capital stock of the Company be increased from 40,000,000 to 74,000,000 authorized shares; and be it further RESOLVED, that the Board of Directors of the Company hereby proposes and declares it advisable that the Amended and Restated Certificate of Incorporation of Anadigics, Inc. also be amended to add a new Article VII to the Amended and Restated Certificate of Incorporation which will read as follows: "ARTICLE VII AMENDMENTS OF BY-LAWS In furtherance and not in limitation of the powers conferred by statute, and except as otherwise provided herein or in the By-laws of the Corporation, the Board of Directors is expressly authorized to make, alter or repeal the By-laws of the Corporation"; and be it further -2- RESOLVED, that the Board of Directors hereby directs that each of the amendments to the Amended and Restated Certificate of Incorporation proposed herein shall be presented for approval to the stockholders at the next annual meeting of stockholders; and be it further RESOLVED, that the Board of Directors hereby recommends to the stockholders of the Company that the Amended and Restated Certificate of Incorporation be amended as described in each of the amendments proposed herein; and be it further RESOLVED, that the officers of the Company are hereby authorized and directed to take such action as is necessary or appropriate to implement these resolutions, including the filing of a Certificate of Amendment to the Amended and Restated Certificate of Incorporation with the Secretary of the State of the State of Delaware upon approval by the stockholders. 2. The following amendments to the Restated Certificate of Incorporation of the Company, adopted under the authority of the foregoing resolutions, shall become effective immediately upon the filing of this Certificate of Amendment: (a) The first paragraph of Article IV of the Restated Certificate of Incorporation of the Company is hereby amended to read in its entirety as follows: "The Corporation shall be authorized to issue 74,000,000 shares of all classes of capital stock, consisting of (i) 68,000,000 shares of common stock, par value $.01 per share ("Common Stock"), (ii) 1,000,000 shares of non-voting common stock, par value $.01 per share ("Non-Voting Common Stock"; together with the Common Stock "Common Shares"), and (iii) 5,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock")." (b) A new Article VII is hereby added to the Amended and Restated Certificate of Incorporation after Article VI, Amendments, which reads in its entirety as follows: "ARTICLE VII AMENDMENTS OF BY-LAWS In furtherance and not in limitation of the powers conferred by statute, and except as otherwise provided herein or in the By-laws of the Corporation, the Board of Directors is expressly authorized to make, alter or repeal the By-laws of the Corporation." -3- 3. That at the annual meeting of stockholders of the Company held on May 29, 1997, which meeting was called in accordance with the By-laws of the Company and the relevant provisions of the General Corporation Law of the State of Delaware, the holders of a majority of the Company's outstanding Common Stock voted in favor of each of the aforementioned amendments in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 4. The aforementioned amendments were duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said ANADIGICS, INC. has caused this Certificate of Amendment to be signed by John F. Lyons, its Senior Vice President, and attested by George Gilbert, its Secretary, this 29th day of May, 1997. ANADIGICS, INC. By: /s/ JOHN F. LYONS --------------------------- Name: John F. Lyons Title: Senior Vice President Attest: By: /s/ GEORGE GILBERT ---------------------------- Name: George Gilbert Title: Secretary [Seal] EX-5.1 4 OPINION OF CAHILL GORDON [Cahill Gordon & Reindel letterhead] September 9,1999 Ladies and Gentlemen: We have acted as special counsel to ANADIGICS, Inc., a Delaware corporation (the "Company"), in connection with its Registration Statement on Form S-3 (No. 333-83889), as amended (the "Registration Statement"), relating to the registration pursuant to the Securities Act of 1933, as amended (the "Act"), of 3,450,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"). We advise you that in our opinion the shares of Common Stock to be sold by the Company, when issued in the manner and for the consideration contemplated by the Registration Statement, will be validly issued, fully paid and nonassessable. We hereby consent to the use of our name under the caption "Validity of Common Stock" and to the filing of this option with the Securities and Exchange Commission as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ Cahill Gordon & Reindel ANADIGICS, Inc. 35 Technology Drive Warren, New Jersey 07059 EX-10.1 5 FOURTH AMEND TO AMEND AND RESTATED AGMT Exhibit 10.1 FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT This FOURTH AMENDMENT ("Amendment") dated as of June 30, 1999 by and between FIRST UNION NATIONAL BANK (the "Bank") and ANADIGICS, INC. (the "Borrower") to that certain Amended and Restated Loan Agreement dated as of January 25, 1996 between the Borrower and the Bank, as amended by the First Amendment thereto dated as of December 23, 1996 (the "First Amendment"), the Second Amendment dated as of July, 1997 (the "Second Amendment") and the Third Amendment dated as of December 30, 1998 (the "Third Amendment") (the Amended and Restated Loan Agreement as amended by the First Amendment, the Second Amendment, the Third Amendment and this Amendment is collectively referred to herein as the "Loan Agreement"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the term loan facility maintained pursuant to the Loan Agreement be amended; and WHEREAS, the Bank has agreed to the request of the Borrower on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. DEFINED TERMS, EFFECT OF AMENDMENT. (a) All capitalized terms used herein which are defined in the Loan Agreement and not otherwise defined herein are used herein as defined therein. (b) This Amendment is an amendment to the Loan Agreement. Unless the context of this Amendment otherwise requires, the Loan Agreement and this Amendment shall read together and shall have effect as if the provisions of the Loan Agreement and this Amendment were contained in one agreement. After the effective date of this Amendment, all references in the Loan Agreement to the "Loan Agreement", "this Agreement", "hereto", "hereof", "hereunder" or words of like import referring to the Loan Agreement shall mean the Loan Agreement as amended by this Amendment, and all references in the Notes and the other Loan Documents to the Loan Agreement shall mean the Loan Agreement as amended by this Amendment. -2- 2. AMENDMENTS TO LOAN AGREEMENT. (a) The definition of Term Loan Availability Expiration Date set forth in ARTICLE I of the Loan Agreement is hereby amended to read as follows: "Term Loan Availability Expiration Date shall mean July 1, 2001." (b) Section 2.1(f) of the Loan Agreement is hereby amended in its entirety to read as follows: (f) COMMITMENT FEE. In addition to the interest payable by the Borrower to the Bank in respect of the Term Loans, the Borrower shall pay to the Bank an annual commitment fee in an amount equal to one-quarter of one percent (0.250%) of the daily unused portion of the Term Loan Commitment. Such commitment fee shall be payable by the Borrower to the Bank quarterly in arrears during the period commencing on the Closing Date and ending on the Term Loan Availability Expiration Date." 3. FULL FORCE AND EFFECT. Except as expressly modified by this Amendment, all of the terms and conditions of the Loan Agreement shall continue in full force and effect, and all parties hereto shall be entitled to the benefits thereof. This Amendment is limited as written and shall not be deemed (i) to be an amendment of or consent under or waiver of any other term or condition of the Loan Agreement or (ii) to prejudice any right or rights which the Bank now has or may have in the future or in connection with the Loan Agreement or such other agreements. 4. SECURITY INTERESTS. It is agreed and confirmed that after giving effect to this Amendment, the security interests granted by the Borrower pursuant to the Security Agreement secure, inter alia, the payment of the obligations arising under the Loan Agreement, as amended by this Amendment. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter into this Amendment, the Borrower makes the following representations and warranties to the Bank, which shall survive the execution and delivery hereof: (a) The execution and delivery of this Amendment has been authorized by all necessary corporate action on its part, this Amendment has been duly executed and delivered by it, and this Amendment and the Loan Agreement, as amended hereby, constitutes the legal, valid and binding obligations of it enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization and other laws affecting creditors' rights generally, moratorium laws from time to time in effect and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); -3- (b) No Event of Default has occurred and is continuing under the loan Agreement, and no event has occurred which, with notice, lapse of time or both, would constitute such an Event of Default; and (c) The representations and warranties set forth in the Loan Agreement and the other Loan Documents are true and correct as of the date hereof in all material respects. 6. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all which when taken together shall constitute one and the same agreement. 7. GOVERNING LAW. This Amendment, including the validity thereof and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the laws of the State of New Jersey. 8. CONDITIONS PRECEDENT. This Amendment shall not be effective until (i) the Bank shall received counterparts of this Amendment, duly executed by each of the parties hereto, and (ii) the Borrower shall have paid all reasonable costs and expenses of the Bank, including, without limitation, the reasonable legal fees and expenses incurred by the Bank in connection with the preparation, negotiation, execution and delivery and review of this Amendment. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first above written. ATTEST ANADIGICS, INC. By: /s/ ANN MARIE BOLLIN By: /s/ ANDREW P. SAVADELIS ---------------------------------- ------------------------------- Name: Ann Marie Bollin Name: Andrew P. Savadelis Title: Administrative Assistant Title: Treasurer FIRST UNTIONS NATIONL BANK By: /s/ RICHARD F. NEUMAN ------------------------------ Name: Richard F. Neuman Title: Senior Vice President EX-23.1 6 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-83889) and related Prospectus of ANADIGICS, Inc. for the registration of 3,450,000 shares of its common stock and to the use of our reports dated January 25, 1999, with respect to the financial statements of ANADIGICS, Inc. for the year ended December 31, 1998 included herein. /s/ ERNST & YOUNG LLP --------------------------------------------- Ernst & Young LLP
MetroPark, New Jersey September 8, 1999 -----END PRIVACY-ENHANCED MESSAGE-----