-----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, LuhsMJaZYoaeVcPel6e6MI0qNXDm64g0rAsife1uczPDxOyX6LUI3i39YuD+pesr 8xfNbe+iKs9ZeuJTN3oStQ== 0001125282-02-001030.txt : 20020415 0001125282-02-001030.hdr.sgml : 20020415 ACCESSION NUMBER: 0001125282-02-001030 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-25662 FILM NUMBER: 02592947 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 10-K405 1 b317451_10k405.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-25662 ANADIGICS, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 22-2582106 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 141 Mt. Bethel Road Warren, New Jersey 07059 - ------------------------------------------ ---------------------- (Address of principal executive offices) (Zip Code) (908) 668-5000 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 1, 2002 was approximately $308 million, based upon the closing sales price of the Registrant's common stock as quoted on the NASDAQ National Market on such date. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The number of shares outstanding of the Registrant's common stock as of March 1, 2002 was 30,570,596. Documents incorporated by reference: Definitive proxy statement for the registrant's 2002 annual meeting of shareholders (Part III). PART 1 ITEM 1. BUSINESS. Background and Developments ANADIGICS, Inc. (the "Company") was incorporated in Delaware in 1984. Our corporate headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, our telephone number at that address is 908-668-5000. On April 2, 2001, we acquired all of the capital stock of Telcom Devices Corp. ("Telcom"), a manufacturer of indium phosphide based photodiodes for the telecommunications and data communications markets. We paid $28 million in cash for Telcom. In addition, contingent purchase consideration of up to $17 million may be payable if certain sales and profit targets are reached over the twelve months ending March 31, 2002. See the Notes to the Consolidated Financial Statements. On November 27, 2001, we completed the sale of $100 million aggregate principal amount of 5% convertible senior notes ("Convertible notes") due November 15, 2006. See the Notes to the Consolidated Financial Statements. Our markets weakened substantially during 2001. The downturn in demand reflects high component inventories at most of our customers, including components that we previously supplied, a reduction in capital spending by many of our customers and lower end consumer demand. Consequently, our revenues declined to $84.8 million in 2001 from $172.3 million in 2000, and we reported a net loss of $107.1 million for 2001. As of December 31, 2001, we had an accumulated deficit of $108.2 million. Overview ANADIGICS, Inc. designs and manufactures radio frequency integrated circuit (RFIC) solutions for the wireless and broadband communications markets. Our high frequency RFIC products 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 and solutions for cellular (800 to 900 MHz) and personal communications systems (PCS) (1800 to 1900 MHz). In the broadband markets, our focus is on applications for cable subscriber products, cable infrastructure systems, and fiber optic communications systems. We believe we have a competitive advantage due to our design, development and applications expertise, our superior compound semiconductor technologies, our high-volume, low-cost state-of-the-art manufacturing processes and expertise, and our strong working relationships with leading original equipment manufacturers (OEMs). We design, develop and manufacture RFICs primarily using Gallium Arsenide (GaAs) compound semiconductor substrates with various process technologies: Metal Semiconductor Field Effect Transistors (MESFET), Pseudomorphic High Electron Mobility Transistors (pHEMT), and Heterojunction Bipolar Transistors (HBT). The quality and reliability of our products results from a comprehensive design, characterization, qualification, and robust manufacturing process. In addition to the design team located at our corporate headquarters in Warren, New Jersey, we operate development centers in Richardson, Texas; Newbury Park, California; Camberley Surrey, U.K.; and Rehovot, Israel. Our design and applications engineering staff is strategically active and engaged with customers during all phases of design and production. This strategy helps our customers speed up their design process and time to market, achieve cost-effective and manufacturable designs, and ensure a smooth transition into high-volume production. We have two captive fabrication facilities ("fabs") - a state-of-the-art six-inch diameter analog GaAs fab located at our corporate headquarters in Warren, New Jersey, and a two-inch diameter InP fab located in Camarillo, California. Our six-inch wafer fab allows us to produce, at a small incremental cost, more than twice the RF die per wafer compared with the current industry norm four-inch wafer. We believe our strong manufacturing fabrication capability, combined with extensive management expertise and innovative product designs allows us to quickly develop and manufacture products in line with market and customer requirements. Industry Background 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. 2 Wireless communications are growing rapidly and replacing landline telephone services in mature markets and are being built in lieu of landline services in other emerging markets. Worldwide unit sales by OEMs of cellular/PCS wireless handsets were approximately 380 million in 2001. Broadband markets are also benefiting from technological changes. Cable television systems are moving from one-way analog signal distribution systems to interactive digital systems offering increased and new video content, Internet connection services and telephony. We estimate that approximately 14 million digital cable television (CATV) set-top boxes were produced in 2001. The production of cable modems, which allow high-speed Internet access through the cable network, was approximately 9 million units in 2001. The continued build out of the cable infrastructure network required a production of approximately 3 million line extenders, systems amplifiers and fiber nodes. Activity in broadband fiber optic networks is being driven by demand by Internet and corporate users for high-speed data transfer capability and the resultant demand on Internet, Local Area Networks (LAN), Metropolitan Area Networks (MAN), and Storage Area Networks (SAN). Given these developments, OEMs are facing the following challenges and need the following solutions from their suppliers: o Shorter cycle times. In both the wireless and broadband communications markets, manufacturers must bring new subscriber products to market quickly in order to maintain their market position. The development of multi-chip modules, using advanced packaging techniques, and the development of relationships with providers of RF reference designs is imperative; o Need for low-cost products. Wireless handsets, cable set-top boxes and cable modems are increasingly becoming consumer-driven, commodity products. Component suppliers must be cost effective in order for OEMs to stay competitive; and o 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 Through our research and development efforts, we have developed expertise in producing cost-effective GaAs-based RFICs for high-volume commercial applications. These circuits 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 greater than silicon transistors, and therefore can handle the requirements of radio frequency/microwave applications. GaAs RFICs 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 that facilitates integration of the passive components required in radio frequency/microwave applications. Finally, GaAs RFICs used in transmitter applications are also more power-efficient than silicon-based circuits, allowing for longer battery life or use of smaller batteries. The InGaP Advantage In the industry, there are two predominant commercially-viable types of HBT process technologies. Earlier generations use either beryllium or carbon doping in the base layer and Aluminum Gallium Arsenide (AlGaAs) in the emitter layer. The state-of-the-art for HBT uses carbon doping in the base layer and Indium Gallium Phosphide (InGaP) in the emitter layer. There are several significant advantages to InGaP. One advantage is stability over a range of temperatures. An InGaP HBT device will experience only an approximate 10% drop in gain over a range of 0 to 100 degrees Celsius, while the gain loss in an AlGaAs device approximates 50%. An InGaP device has much higher reliability than AlGaAs, giving the option to run the device at higher temperatures. These advantages lead to smaller chip sizes and thus lower cost. Finally, InGaP allows for more robust manufacturing because the material has the advantage of a selective etch process not possible with AlGaAs. 3 The InGaP advantages of performance, reliability and manufacturability led to our decision to develop the world's first commercially-viable 6-inch InGaP HBT process, which was completed in 2000 and complements our GaAs MESFET technology. ANADIGICS' Strategy Our objective is to be a leading supplier of RFICs 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 that leverage our RFIC design and manufacturing expertise and longstanding relationships with leading OEMs in these markets. The key elements of this strategy include: Be First-to-Market with Proprietary Value-Added Products We intend to continue to design timely, cost-effective RFIC solutions for our target markets. The combination of an experienced engineering staff, a "quick-turn" wafer fabrication facility, the flexibility of using both in-house and contracted product assembly, and a world class product testing process allows prototypes to be developed and ready for customer evaluation in less than one month. This design efficiency contributes to customer satisfaction and allows us to improve product designs rapidly for manufacturing efficiency. Capitalize on World Class Manufacturing Capabilities, While Reducing Costs We will continue to focus on improving manufacturing performance and customer service, while reducing costs. We believe we can effectively control the critical phases of the production process in order to realize high manufacturing yields, product quality and customer satisfaction. Our six-inch wafer fab has provided increased manufacturing capacities and shorter cycle times at a lower incremental cost than four-inch wafer fabs. Forge Strong Customer Relationships We have developed strong working relationships with our customers, many of whom are leading OEMs in their markets. Because the target markets are standards-driven, customer relationships are important. These relationships provide us with product development opportunities and the ability to anticipate future market needs. The rapid feedback received from our customers during the product design phase increases the likelihood that our designs will meet our customers' cost and performance requirements. Pursue Strategic Alliances and Investments We will continue to pursue strategic alliances and investments to expand and improve upon our technologies, industry expertise, products and market share. We expect that these alliances and investments will be complementary to current activities and will enhance our ability to work with leading OEMs to develop next generation solutions. Target Markets and Products Wireless Communications The wireless communications market is a growing, dynamic market as a result of increasing demand for: o Portable voice and data communications; o Smaller, lighter handsets offering increased functionality; o Reliable access and voice quality comparable to land lines; o Longer talk-time and standby time; and o Wireless access to the Internet. Our RFIC products are used in handsets where small size, multi-band operation and low power consumption are key features. Currently in the United States, the two primary digital air interface communications standards are Code Division Multiple Access (CDMA) and Time Division Multiple Access (TDMA). A third standard, Global System for Mobile communication (GSM), is the most widely deployed digital standard in the rest of the world, with a high degree of deployment in Europe and Asia and increasing deployment in North America. We currently offer an array of products for both the handset and infrastructure markets for each of these major air interface standards. We have developed single-band/dual-mode and dual-band/tri-mode InGaP HBT power amplifier (PA) modules for the CDMA and GSM standards. InGaP HBT module technology offers high efficiency, low power consumption and stability over a range of temperatures, as well as a lower total solution cost allowing our customers to build the transmitter section of the wireless handset more easily and quickly by reducing design complexity and component counts. Our principal customers in the wireless market are Telefon AB L.M. Ericsson ("Ericsson"), which accounted for 47%, 44%, and 25% of our total net sales during 1999, 2000, and 2001, respectively, and Kyocera Wireless Corporation, which accounted for 11% of total net sales in 2001. No other customer in this market accounted for more than 10% of net sales in 1999, 2000 or 2001. 4 The following table sets forth information regarding our principal products in the wireless communications market:
Product Application - ------- ------------ Handset Products -- Power Amplifier(PA) Used in RF transmit chain of wireless monolithic microwave integrated handset to amplify signal to base station. circuits (MMICs) Consists essentially of GaAs MESFET PA die in plastic package with metal contacts. Used primarily in TDMA handsets -- Single-band PA module Encapsulates InGaP HBT PA die and certain passive components in multi-layer laminate module. Used primarily in CDMA handsets -- Dual-band PA module Encapsulates two InGaP HBT PA die, CMOS bias control chip, and certain passive components in multi-layer laminate module. Used primarily in GSM handsets -- PowerPlexer(TM) Encapsulates two InGaP HBT PA die, CMOS, bias control chip, antenna switch, coupler, harmonic filter and passives in multi-layer laminate module. Used in GSM handsets -- Switches Used in wireless handsets and other wireless applications to switch between receive and transmit modes and multiple frequency bands Infrastructure Products -- Driver Amplifiers Used in cellular base stations in the transmit chain -- Gain Blocks Used in cellular base stations in the transmit chain
Broadband The trends that currently drive product development in the cable television and cable modem markets are: o Shift to digital cable television with interactive services; o Demand for high speed Internet access; and o Emergence of cable telephony. The convergence of these trends, enabled by digital transmission, creates the need for innovative RFICs for cable television and cable modem applications. Cable television systems, which traditionally delivered one-way analog television programming, limited to a few entertainment 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 both the bandwidth (i.e., capacity) and quality of the infrastructure and terminal equipment. The new equipment must also be able to handle digital as well as analog modulated signals. 5 Our cable products are used in CATV set-top boxes, cable modems, and cable television infrastructure applications. We produce tuner and reverse amplifier RFICs, as well as line amplifiers and systems amplifiers for infrastructure applications. The tuner ICs are used in double conversion tuners to receive analog and digital signals in the 50-860 megahertz frequency band. Reverse amplifiers are used in cable modems and in certain cable set-top boxes that require a reverse path for interactivity. These tuner and reverse amplifier RFICs enable customers to accelerate and simplify their designs, and reduce manufacturing complexity and costs. We offer the PicoTuner(TM), a family of fully integrated, multi-chip, double conversion tuner modules. These modules consist of an integrated upconverter with SAW filter and an integrated downconverter with dual synthesizer. We expect that these tuners will provide OEMs with an ease-of-use solution and improved performance for CATV set-top boxes and other cable applications. We have also developed GaAs RFIC line amplifiers to be used in 50-860 megahertz cable television infrastructure equipment, such as line extenders, distribution amplifiers and system amplifiers. We have recently expanded our product offerings in this area by introducing line amplifier RFICs that operate at 24 volts. The principal customers in the cable and broadcast markets are Motorola, Inc., which represented 21%, 26%, and 32% of total net sales in 1999, 2000, and 2001, respectively, and Scientific-Atlanta, Inc., which represented less than 10% of our total net sales in each of those years. No other customer in this market accounted for more than 10% of net sales in 1999, 2000 or 2001. The following table sets forth information regarding our principal products in the cable television/cable modems market: Product Application - ------- ------------ Subscriber Products: -- Upconverters Used in set-top box double conversion -- Downconverters video tuners and cable modem data tuners -- Reverse amplifiers Used in set-top boxes, cable modems and cable telephony to transmit signals from a set-top box upstream to a cable company headend for interactive applications -- PicoTuner(TM) Fully-integrated multi-chip module, including up and downconverter, SAW filter, and certain passive components. Used in tuners for CATV set-top boxes, cable modems and cable telephony to handle high-speed data, video, and voice signals Infrastructure Products: -- Line amplifiers Used in cable television systems to distribute signals from cable headends to subscribers -- Drop amplifiers Used in cable television systems to amplify signals at individual subscriber homes The fiber optic market is being driven by: o Internet data traffic use; o Implementation of corporate local area networks (LAN) and storage area networks (SAN), which require high speed data transfer capability; o Upgrades of existing telecommunication and data communication systems with fiber optic systems; and o Expected build outs to Metropolitan Area Networks (MAN) 6 Fiber optic communication 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 Synchronous Optical Network (SONET) (United States and Japan) or SDH (Europe) standards, which require high sensitivity, high bandwidth, and wide dynamic range receivers. Fiber optic data communications systems use either Gigabit Ethernet or Fibre Channel standards to achieve high-speed data transfer. The Gigabit Ethernet standard has emerged as the most widely used in LAN environments, as it addresses the need for short distance, high speed transfers of large volumes of information. The Fibre Channel and emerging 2x Fibre Channel standards have emerged as the most widely used in SAN environments. The front end of most fiber optic receivers contains a photodetector and a transimpedance amplifier (TIA), which are used in both fiber optic telecommunications and data communications networks. Our GaAs TIAs for the telecommunications networks are designed to meet the requirements of SONET systems covering data speeds of OC-3 through OC-192 and for use in Dense Wavelength Division Multiplexing (DWDM) systems. For data communications receivers and transceivers, we sell short wavelength (850 nanometer) monolithically-integrated metal-semiconductor-metal photodiode and transimpedance amplifiers (MSM-TIAs) and long wavelength (1300 nanometer) positive-intrinsic-negative photodiodes and transimpedance amplifiers (IN TIAs) for the Gigabit Ethernet and Fibre Channel standards. The continued LAN/SAN growth is placing new demands on MANs to provide expanded cost-effective capacity at 2.5 and 10 gigabits per second to meet the needs of dedicated high-speed Internet users and the requirements for high-speed communication between private LANs and remote storage. We have introduced 10 Gb/s TIAs and limiting amplifiers for Ethernet and SONET applications. The demand for MAN solutions is expected to grow over the next four years. On April 2, 2001, we acquired all of the capital stock of Telecom Devices Corp. ("Telcom"), an optoelectronic semiconductor manufacturer of indium phosphide (InP) based "long wavelength" (1310 and 1550 nanometers) emitter (light-emitting diode, or LED) and detector (photodiode) products for the telecommunications and data communications markets. The Telcom division produces active components used primarily for fiber optic applications in telecommunications systems, data communications networks, CATV broadcast and reception, fiber optic test and measurement equipment, and scientific, custom, and military markets. No single customer in the fiber optic market is responsible for more than 10% of net sales in 1999, 2000, or 2001. The following table sets forth information regarding our principal products in the fiber optic market:
Product Application - -------- ------------- Fiber Optic Products: -- Transimpedance amplifiers Used in the receivers or transceivers of a telecom fiber optic link to amplify the signal received -- Limiting amplifiers Used in the receivers or transceivers of a telecom fiber optic link to provide a voltage limited output -- Metal semiconductor metal Used in the transceiver of a datacom fiber transimpedance amplifiers optic link to detect and amplify short (MSM-TIA) wavelength optical signals -- Integrated Detector Preamp(IDP) Used in the transceiver of a datacom transimpedance amplifiers fiber optic link to detect and amplify (PIN-TIA) long wavelength optical signals -- Photodiodes Long wavelength detectors for SONET/SDH receivers -- Light-Emitting Diodes (LEDs) Long wavelength emitters
Marketing, Sales, Distribution and Customer Support We primarily sell our products directly to our customers worldwide. We have developed close working relationships with leading companies in the broadband and wireless communications markets. Additionally, we selectively use independent manufacturers' representatives and Richardson Electronics, a worldwide distributor, to complement our direct sales and customer support efforts and in 2001 we continued to evaluate, upgrade and expand our sales representative organization. We believe this is critical to our objective of expanding our customer base, especially as we expand our product portfolio. 7 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. Additionally, 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. We provide our customers with engineering data and up-to-date product application notes, and communicate with our customers' engineers on a regular basis to assist in resolving technical problems 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' design locations and factories throughout the world, generally within 48 hours of a customer request. Our sales are typically made pursuant to customer purchase orders. Manufacturing, Assembly and Testing Manufacturing We fabricate all of our integrated circuits in our six-inch diameter GaAs wafer fab in Warren, New Jersey and in our two-inch diameter InP fab in Camarillo, California. During 2001 we substantially completed the expansion of our Warren facility, doubling the footprint to a 19,000 square foot fab, including 10,000 square feet of Class 100 "clean room" space. Based on physical floor space, weekly production capacity in the Warren facility is approximately 1,600 equivalent six-inch MESFET wafers (adjusting for the additional mask layers, or processing steps, inherent in HBT production). Based on equipment currently installed, present weekly capacity is 800 equivalent six-inch MESFET wafers, although this space can be equipped to expand capacity as market conditions require. On the basis of equivalent four-inch MESFET wafers, which is the industry norm, present weekly capacity is 1,800 wafers per week. See "Risk Factors - We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes." The InP fab in Camarillo, acquired as part of the Telcom Devices Corporation transaction in April of 2001, is a 22,000 square foot facility with 4,000 square feet of fab clean room. Production capacity is currently 50 InP wafers per week per shift. Our wafer processing technologies have been developed for low cost, high yield, rapid throughput and short cycle-time manufacturing. Our GaAs MESFET process uses ion implant variations to optimize performance and yield, allowing us to produce high-linearity, low-noise, receiver integrated circuits or transmitter integrated circuits with high power and efficiency. MESFET is the technology platform underlying the majority of our broadband products. Our GaAs pHEMT manufacturing process achieves extremely high electron mobility. Devices manufactured using this process have better sensitivity and bandwidth than conventional MESFET devices, and offer better stability at higher frequencies. The pHEMT process is an enabling technology for our wireless switch products. Our six-inch diameter InGaP HBT process, including a backside VIA hole process, was the first in the industry and is the technology platform for our newer-generation PA module wireless applications and OC-192 fiber Electro Optical Modulator Drivers (EOMD) and TIAs. The advantages of better performance over a range of temperatures and higher reliability lead to smaller chip sizes and thus lower cost. InGaP also allows for more robust manufacturing because the material has the advantage of a selective etch process not possible with AlGaAs. Our Warren manufacturing processes were first certified as ISO 9001 compliant in December 1993. Since then, we have maintained compliance with this standard. The most recent addition to our manufacturing process technology is our two-inch InP process. InP applications for discrete active devices are widespread in communications networking, making it the natural starting place for wholesale integration of passive devices for a complete system on a chip. As a semiconductor material, InP can provide all-in-one integrated functionality that includes light generation, detection, amplification, high-speed modulation and switching, as well as passive splitting, combining and routing. The same material can be used to make high-speed modulators, switches, amplifiers and detectors, or just passive waveguides for interconnecting these diverse devices. 8 Assembly Fabricated GaAs wafers are shipped to contractors in Asia for packaging into monolithic microwave integrated circuits (MMICs) or for assembly into modules. The components within mobile phones have become increasingly integrated, enabling the development of ever smaller, lighter, and more efficient phones. However, integration in the RF subsystem at the IC level is considerably more challenging, given that various components require different manufacturing processes for optimal performance. Typical RF processes include pHEMT, MESFET, HBT, and RF CMOS. The choice of process for various RFICs is typically based on a trade-off between performance (often measured by efficiency and linearity) and cost. In general, the process selection will depend on the relative weight given to performance versus cost. In low-end phones, cost will dominate, and less-efficient and less-costly components will be used. On the other hand, in high-end phones, the weight will shift toward components selected because of better performance. Since the processes cannot be easily or economically integrated onto a single die, multi-chip modules that combine multiple die within a single package have emerged, enabling the selection of the optimal process technology for each IC within the package, while providing enhanced integration at the system level. These solutions generate significant size and weight reductions in handset component circuitry, while simultaneously increasing the reliability of the components. A number of challenges, outlined below, had to be overcome in the move from pure MMIC suppliers to fully integrated module manufacturers: Design complexity: Within a cellphone, the RF section arguably represents the greatest design challenge for engineers. Modules place the burden of designing and optimizing RF front-end subsystems on RFIC manufacturers. The suppliers must now focus on providing the optimal IC process (e.g., InGaP HBT for PAs) and then integrate the technology into a well-designed module that also incorporates additional passive and control circuitry. The quality of the RF module design will ultimately drive the device's performance and manufacturability. Increased cost: Modules are substantially more expensive to produce than individual IC components. Modules require extensive design and engineering expertise, new production processes, and additional assembly costs. Many of the necessary components (e.g., discretes and passives) must be bought from outside vendors. Consequently, the gross margin is generally lower for modules than for discrete RF MMICs. Manufacturing challenges: In addition to the increased costs of designing modules, achieving sufficient yields on new products can be problematic. Since RF modules are a new development in the world of cellphone chips, RFIC companies had little or no experience in manufacturing them. As a result, gross margins were under pressure as we climbed the learning curve. In order to attain high "final test" yields, the challenge was, and continues to be, to achieve high yields in the fab, in assembly, and in test. Second-generation modules, which will include more passive components directly implemented into the MMIC die or packaging substrates, thereby requiring less of the costly surface mounting of external components. Gross margins may improve in next-generation modules as more passive devices will be directly integrated into the MMIC die and packaging substrates, thus requiring less of the costly surface mounting of the external components. Despite the challenges, the shift to modules presents us with the potential for increased sales, based on two factors: Modules increase the overall component content that is sold to handset OEMs. Owning and controlling as much of the content as possible will be a key factor of differentiation among future module participants. The ability to gain market share is the second factor. Not all MMIC-level RFIC suppliers will successfully make the transition to providing modules, causing a consolidation of overall RF suppliers in the industry. We believe ANADIGICS is one of the best-positioned companies to capitalize on the shift toward multi-chip modules because the Company possesses both extensive process breadth (a key advantage, as modules typically incorporate numerous process technologies) and a large portfolio of RF components (e.g., PAs, transceivers, filters, and discretes). 9 Final Test Once assembled by the contractor, packaged integrated circuits are shipped for final testing either back to our Warren facility or to Universal Communications Technology, Inc. (UCOMM) of Taiwan. In early 2002, we announced an agreement with UCOMM for the partial outsourcing of our production RF testing operations. Under the agreement, the production RF testing operation will be transferred closer to our module assembly contractor in Southeast Asia, which will add considerable efficiencies to the device manufacturing process and further reduce product cycle times and manufacturing costs. In line with our procedure of 100% RF testing of all parts before shipping, the majority of production testing will now be undertaken by UCOMM. This agreement supports our initiative to reduce manufacturing costs by lowering test cost per unit. See "Risk Factors - We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes," "The manufacturing of our products could be delayed as a result of the outsourcing of our test operations." and "We depend on foreign semiconductor assembly contractors and a loss of an assembly contractor could result in delays or reductions in product shipment." Raw Materials GaAs wafers, InP wafers, HBT/pHEMT epitaxial wafers, passive components, other raw materials, and equipment used in the production of our integrated circuits are available from a limited number of sources. 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. Research and development expenses were $29.7 million, $39.8 million, and $37.8 million in 1999, 2000, and 2001, respectively. InGaP HBT process and circuit development were completed in 2000, complementing our GaAs MESFET technology base. Our research and development efforts in 2001 have primarily focused on developing high yield, low cost, high volume production of InGaP HBT integrated circuit products for the wireless and broadband communications markets. Our HBT process uses the more advanced technique of InGaP emitter layers, which gives our products enhanced temperature stability and increased reliability. As of December 31, 2001, we had approximately 152 engineers assigned primarily to research and development. Our wireless power amplifier capability has expanded from plastic-packaged GaAs RF integrated circuit products to RF modules incorporating multiple technologies. This capability is critical to encapsulating RF intellectual property and know-how into a module that may be used to shrink the time-to-market for cellular phone manufacturers. Our RF power amplifier modules use a multi-layer laminate substrate to combine our proprietary InGaP HBT power amplifier integrated circuits with custom-designed CMOS controllers and passive components. This same technology platform is also being used in our cable business to combine our GaAs ICs with CMOS and passive components for the PicoTuner(TM). Module integration capability required extending our design tools in several dimensions. Electromagnetic simulation of laminate substrates to design embedded passive components and model parasitic effects were added to our RF design tool set. In addition, the ability to simulate at the module level was greatly enhanced through our partnership with a leading manufacturer of electronic design automation tools. Additionally, several silicon CMOS components were developed to support our module efforts. We currently do not intend to manufacture in-house with this technology as we believe there will be adequate external foundry capacity available. See "Risk Factors - Sources for certain components, materials and equipment are limited which could result in delays or reductions in product shipments." Customers We receive most of our revenues from a few significant customers. See "Risk Factors - We depend on a small number of customers; a loss of or a decrease in purchases and/or change in purchasing pattern by one of these customers would materially and adversely affect our revenues and our ability to forecast revenue." Employees As of December 31, 2001, we had 557 employees, none of whom was a member of a labor union. We believe our labor relations to be good and we have never experienced a work stoppage. Movements during the year from our beginning 578 employees included the addition of 99 Telcom employees and a net reduction of 120 (109 via restructurings) employees. 10 Competition Competition in all of the markets for our current products is intense; competition is on the basis of performance, price and delivery. Competitors in the wireless market are suppliers of both discrete devices and integrated circuits, and include Alpha Industries, Inc., Conexant Systems, Inc., Hitachi, Ltd., RF Micro Devices, Inc., and TriQuint Semiconductor, Inc. In the cable and broadcast markets, our competitors are also primarily manufacturers of both discrete components and integrated circuits, and include Analog Devices, Inc., Conexant Systems, Inc., Maxim Integrated Products, Inc., and Microtune, Inc. In the fiber optic market, principal competitors are Applied Micro Circuits Corp., Conexant Systems, Inc., Phillips Electronics N.V., Maxim Integrated Products, Inc., and Vitesse Semiconductor Corp., as well as certain of our customers who design and fabricate their own in-house solutions. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources. Increased competition could adversely affect our revenue and profitability through price reductions or reduced demand for our products. See "Risk Factors - We face intense competition, which could result in a decrease of our products' prices and sales." 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 21 U.S. patents and have 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 2001 and will expire between 2008 and 2020. 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 have also 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 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 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 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. See "Risk Factors - We are subject to stringent environmental regulation." ******************************************** 11 RISK FACTORS CERTAIN STATEMENTS IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS (AS THAT TERM IS DEFINED IN THE SECURITIES ACT OF 1933, AS AMENDED) THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT WILL INCLUDE WORDS SUCH AS WE "BELIEVE", "ANTICIPATE", "EXPECT" OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE OUR FUTURE PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS PRESENTED HEREIN INCLUDE THE RISK FACTORS DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN ANADIGICS, INC. AND IN ANALYZING OUR FORWARD-LOOKING STATEMENTS. We incurred a significant decline in revenues during 2001 as a result of a significant downturn in demand across each of our product lines, resulting in a net loss for the year ended December 31, 2001. Our markets weakened substantially during 2001. The downturn in demand reflects high component inventories at most of our customers, including components that we previously supplied, a reduction in capital spending by many of our customers and lower end consumer demand. Consequently, our revenues declined to $84.8 million in 2001 from $172.3 million in 2000, and we reported a net loss of $107.1 million (including a deferred tax valuation allowance of $26.8 million and asset impairments, restructuring, purchased in process R&D and other charges of $21.1 million) for 2001. As of December 31, 2001, we had an accumulated deficit of $108.2 million. We cannot accurately predict whether or when demand will strengthen across all product lines or how quickly our customers will consume their inventories of our products. If we are unable to reverse the recent trend of revenue declines and net losses, either because our customers do not deplete their own inventories of communications components, because the economy does not improve or because we under-perform, our ability to compete in a very difficult market may be materially and adversely affected. Our high fixed costs and low production volumes have adversely affected our gross margins and profitability. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are fixed. Accordingly, reduced demand for our products causes our fixed production costs to be allocated across reduced production volumes, which adversely affects our gross margin and profitability. In the future, improved utilization of our manufacturing capacity will primarily depend on growth in demand for our wireless products. Our ability to reduce expenses is further constrained because we must continue to invest in research and development in order to maintain our competitive position. Reduced production volumes contributed to a significant decline in our gross margin during 2001; for the year ended December 31, 2001, our gross margin (loss) was (3.5%) of net sales as compared with 48.1% of net sales for the year ended December 31, 2000. We cannot accurately predict if or when production volumes will increase. We depend on a small number of customers; a loss of or a decrease in purchases and/or change in purchasing patterns by one of these customers would materially and adversely affect our revenues and our ability to forecast revenue. We receive most of our revenues from a few significant customers. Sales to Ericsson and its subcontractors and Motorola accounted for 47% and 21%, respectively, of 1999 net sales. Sales to Ericsson and Motorola accounted for 44% and 26%, respectively, of net sales during 2000. Sales to Motorola, Ericsson and Kyocera accounted for 32%, 25% and 11%, respectively of net sales during 2001. No other customer accounted for greater than 10% of net sales during these periods. 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, Motorola or another major customer, or if sales to Ericsson, Motorola or another major customer were to decrease materially, results of operations would be materially and adversely affected. See "Business - - Target Markets and Products". Several of our customers have reduced the lead times that they give us when they order products from us. While this trend has enabled us to reduce our inventories, it also restricts our ability to forecast future revenues. Our results of operations can vary significantly. The semiconductor industry has been cyclical and seasonal. The industry has experienced significant economic downturns, involving diminished product demand, accelerated erosion of average selling prices and production over-capacity. Our results of operations have been subject to significant quarterly fluctuation and may reflect, in the fourth quarter, a seasonal impact resulting from end-consumer interest in wireless handsets during the holiday season. As a result, we may experience substantial period-to-period fluctuations in future operating results. Investors should not rely on our results of operations for any previous period as an indicator of what results may be for any future period. Our announced restructuring may have insufficiently addressed market conditions. In 2001, we announced a restructuring plan in response to a sharp downturn in our industry. Under our restructuring plan, we have incurred charges relating to a reduction in our workforce and the impairment of certain manufacturing and research fixed assets. From January 1, 2001 to December 31, 2001, our workforce was reduced by over 20%. We may have incorrectly anticipated the extent of the long term market decline for our products and services and we may be forced to restructure further or may incur further operating charges due to poor business conditions. We also anticipate further reductions in our workforce during 2002 related to the restructuring of our fiber optics product line. 12 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 evolving, we believe that our future success 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, or is perceived to be, 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 investors that funds for these investments will be available or that these enhancements and technologies will be successful. 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 and financial condition 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 integrated circuit's design and our experience in manufacturing that type of integrated circuit. We have experienced difficulties in achieving planned yields in the past, particularly in pre-production and upon initial commencement of full production volumes, 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: o defects in masks, which are used to transfer circuit patterns onto our wafers; o impurities in the materials used; o contamination of the manufacturing environment; and o equipment failure. Many of our manufacturing costs are relatively fixed and average selling prices for our products tend to decline over time. Therefore, 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 investors 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 and financial condition could be materially and adversely affected. 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 multi-chip modules. Instead, we provide the integrated circuit die 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, or if means of transportation to our vendors are interrupted, we would experience delays or reductions in product shipment, and/or reduced product yields, that could materially and adversely affect our results of operations and financial condition. 13 The manufacturing of our products could be delayed as a result of the outsourcing of our test operations. Historically, we have tested our products internally. However, we have agreed to outsource the testing of certain of our products to a company located in Southeast Asia. We may initially encounter delays in completing testing while we transition these services, and we may incur substantial charges associated with this transition. In addition, the failure of the vendor we selected or other third parties to maintain our standards of testing or complete the testing of our products in a timely manner, could subject us to manufacturing delays which could have a material adverse effect on our results of operations and financial condition. We also intend to continue to test our products internally. 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. For example, 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 production and inventory levels closely. We cannot assure investors 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 beyond the inventory charges that we took during 2001. 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, packaging or passive components used in the production of our gallium arsenide integrated circuits. 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 and financial condition. 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 investors 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. We depend heavily on key personnel. Our success depends in part on keeping key technical, marketing, sales and management personnel. We must also continue to attract qualified personnel. The competition for qualified personnel is intense, and the number of people with experience, particularly in radio frequency engineering, integrated circuit design, and technical marketing and support, is limited. We cannot be sure that we will be able to attract and retain other skilled personnel in the future. We face intense competition, which could result in a decrease in our products' prices and sales. The semiconductor industry is intensely competitive and is characterized by rapid technological change. We compete primarily with manufacturers of discrete gallium arsenide and silicon semiconductors and with manufacturers of gallium arsenide and silicon integrated circuits. We expect increased competition from: o other gallium arsenide integrated circuit manufacturers who may replace us as a supplier to an original equipment manufacturer or otherwise dilute our sales to an original equipment manufacturer; o silicon analog integrated circuit manufacturers; and o companies which may penetrate the radio frequency/microwave integrated circuit communications market with other breakthrough technologies. Increased competition could result in: o decreased prices of our integrated circuits; o reduced demand for our products; and o a reduction in our ability to recover development-engineering costs. 14 Any of these developments could materially and adversely affect our results of operations and financial condition. Most of our current and potential competitors, including Alpha Industries, Inc., Conexant Systems, Inc., Hitachi Ltd., Maxim Integrated Products, Inc., Motorola, RF Micro Devices, Inc. and Microtune, Inc., have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot assure investors that we will be able to compete successfully with existing or new competitors. We are subject to stringent environmental regulation. We are subject to a variety of federal, state and local requirements governing the protection of the environment. These environmental regulations include those related to the use, storage, handling, discharge and disposal of toxic or otherwise hazardous materials used in or resulting from our manufacturing processes. Failure to comply with environmental laws could subject us to substantial liability or force us to significantly change our manufacturing operations. In addition, under some of these laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated, even if we did not cause the contamination. 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 61%, 60% and 63% of our net sales for the years ended December 31, 1999, 2000 and 2001, respectively. We expect that revenues derived from international sales will continue to represent a significant portion of our 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 gallium arsenide 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. We may pursue selective acquisitions and alliances and the management and integration of additional operations could be expensive and could divert management time and acquisitions may dilute the ownership of our current shareholders. As part of our strategy, we will selectively pursue acquisitions and alliances. Our ability to complete acquisitions or alliances is dependent upon, and may be limited by, the availability of suitable candidates and capital. In addition, acquisitions and alliances involve risks that could materially adversely affect our operating results, including the management time that may be diverted from operations in order to pursue and complete such transactions and difficulties in integrating and managing the additional operations and personnel of acquired companies. We can not assure investors that we will be able to obtain the capital necessary to consummate acquisitions or alliances on satisfactory terms, if at all. Further, any businesses that we acquire will likely have their own capital needs, which may be significant, and which we would be called upon to satisfy independent of the acquisition price. Future acquisitions or alliances could result in additional debt, equity, costs and contingent liabilities, all of which could materially adversely affect our results of operations and financial condition. Any such additional debt could subject us to substantial and burdensome covenants and any such equity could be materially dilutive to existing stockholders. The growth that may result from future acquisitions or alliances may place significant strains on our resources, systems and management. If we are unable to effectively manage such growth by implementing systems, expanding our infrastructure and hiring, training and managing employees, our ability to offer our products could be materially harmed. We may face constraints on our manufacturing capacity which would limit our ability to increase sales volumes. We believe that our expanded six-inch wafer fabrication facility should be able to satisfy our forecasted production needs. 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 our facility. We cannot assure investors that we would be able to implement these changes successfully. A delay for any reason in increasing capacity 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. 15 Our issuance of Convertible notes will have an impact on our interest expense and cashflow and could lead to substantial dilution and other negative consequences in the future. On November 27, 2001, we issued $100 million aggregate principal amount of 5.00% Convertible Senior Notes due November 15, 2006. While these notes are outstanding, we will have debt service obligations on these notes of $5 million per year in interest payments. Additionally, these notes are convertible, at any time prior to maturity or prior redemption, into a total of 4,761,900 shares of our Common Stock, reflecting a conversion price of $21 per share. Our indebtedness could have significant negative consequences, including: o increasing our vulnerability to general adverse economic and industry conditions; o limiting our ability to obtain additional financing; o requiring the dedication of a substantial portion of any cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures; o limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and o placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources. Our stock price has been volatile and our stock price and the price of the Convertible notes may fluctuate in the future. In the past, our common stock price has fluctuated significantly. This could continue as we or our competitors announce new products, our customers' results fluctuate, conditions in the networking or semiconductor industry change or investors change their sentiment toward technology stocks. In addition, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis. The market price of our Convertible notes is subject to factors such as market interest rates and time to maturity, as well as the price of the common stock into which the Convertible notes may be converted. Consequently, fluctuations in our stock price may also impact market prices for the Convertible notes. We have incurred, and may continue to incur, unanticipated expenses resulting from the financial difficulties of the lessor of our principal manufacturing facility. The lessor on the lease for our headquarters building in Warren, New Jersey is currently the debtor in a Chapter 11 bankruptcy proceeding commenced in December 2001. During the fourth quarter of 2001, we recognized special charges relating to this proceeding. No assurance can be given that we will not incur any additional charges associated with this proceeding. We may not be successful in protecting our own intellectual property rights or in avoiding claims that we infringed on the intellectual property rights of others. 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 may be infringing on certain patent and/or other intellectual property rights of others. We are currently reviewing claims from two sources alleging that we are or may be infringing certain patents. We cannot assure investors that we will not be subject to patent litigation to defend our products or processes against claims of patent infringement or other intellectual property claims. Any such litigation could result in substantial costs and diversion of our resources. If we determine that we have infringed on the intellectual property rights of others, we cannot assure investors that we would be able to obtain any required licenses on commercially reasonable terms. 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 investors 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. 16 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 organizational documents 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 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 us; and Shareholder rights agreement - our shareholder rights agreement may make it more difficult and more expensive to acquire us, unless the shareholder rights are first redeemed by the board of directors. 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. ITEM 2. PROPERTIES. Our executive offices are located at 141 Mt. Bethel Road, Warren, New Jersey 07059. We currently occupy space in three buildings in Warren, New Jersey, all of which are located in the same industrial park. Approximately 150,000 square feet of manufacturing and office space is occupied in a building located at 141 Mt. Bethel Road in Warren, New Jersey under a twenty year lease expiring on December 31, 2016. Approximately 92,500 square feet of office and laboratory space is occupied in a building located at 35 Technology Drive under a twelve year lease which expires on May 1, 2005. The lease may be extended for an additional five-year period. Approximately 7,500 square feet of office space is occupied in a building located at 30 Technology Drive under a five-year rental agreement expiring August 2002. Additionally, we lease an approximately 22,000 square foot building in Camarillo, California. The lease expires on July 31, 2003; however the term may be extended up to three times for two year periods each. We also occupy approximately 5,400, 5,800, 5,200 and 6,500 square feet of office space located in Richardson, Texas; Newbury Park, California; Camberley Surrey, U.K.; and Rehovot, Israel, respectively, under lease agreements with remaining terms ranging from seven months to five years that can be extended, at our option. The lessor on the lease for our headquarters building in Warren, New Jersey, is currently the debtor in a Chapter 11 bankruptcy proceeding commenced in December 2001. During the fourth quarter of 2001, we recognized special charges relating to this proceeding. No assurance can be given that we will not incur any additional charges associated with this proceeding. ITEM 3. LEGAL PROCEEDINGS. ANADIGICS is a party to litigation arising out of the operation of our business. We believe that the ultimate resolution of such litigation should not have a material adverse effect on our financial condition, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 2001. 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our Common Stock has been quoted on the NASDAQ National Market under the symbol "ANAD" since the commencement of trading on April 21, 1995 following our initial public offering of our Common Stock. The following table sets forth for the periods indicated the high and low sale prices for our Common Stock. HIGH LOW --------- --------- Calendar 2001 Fourth Quarter.......................... $ 21.05 $ 11.15 Third Quarter........................... 21.90 10.22 Second Quarter.......................... 25.38 10.62 First Quarter........................... 19.69 10.50 Calendar 2000 Fourth Quarter.......................... $ 25.75 $ 13.31 Third Quarter........................... 42.88 19.50 Second Quarter.......................... 80.12 25.12 First Quarter........................... 112.13 27.67 As of December 31, 2001, there were 30,568,761 shares of Common Stock outstanding and 330 holders of record of the Common Stock. We have never paid cash dividends on our capital stock. 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. 18 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data set forth below should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and our financial statements, related notes and other financial information included herein. The selected consolidated financial data set forth below as of December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000, and 1999 have been derived from our audited financial statements included herein. The selected consolidated financial data set forth below as of December 31, 1999, 1998 and 1997 and for the years ended December 31, 1998 and 1997 have been derived from our audited financial statements that are not included herein or incorporated by reference herein. Our historical results are not necessarily indicative of the results that may be expected for any future period.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------- 1997 1998 1999 2000 2001 ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS: Net sales ......................... $ 102,536 $ 86,075 $ 131,159 $ 172,268 $ 84,765 Cost of sales ..................... 56,093 66,228 75,820 89,471 87,697 ------------ ------------ ------------ ------------ ------------ Gross profit (loss) ............... 46,443 19,847 55,339 82,797 (2,932) Research and development expenses . 16,765 18,824 29,658 39,799 37,764 Selling and administrative expenses ........................ 12,139 12,926 19,092 26,202 27,282 Restructuring and other charges ... -- 2,616 (441) -- 3,775 Asset impairment charges .......... -- 4,510 -- -- 10,433 Purchased in-process R&D .......... -- -- -- -- 3,800 ------------ ------------ ------------ ------------ ------------ Operating income (loss) ........... 17,539 (19,029) 7,030 16,796 (85,986) Interest expense .................. 155 79 369 300 627 Interest income ................... 3,384 2,382 3,637 10,821 6,931 Impairment of investments ......... -- -- -- -- 3,061 Other (expense) income ............ -- (7) 25 1,279 (39) Provision for litigation settlement ...................... -- -- 6,925 -- -- ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes . 20,768 (16,733) 3,398 28,596 (82,782) Provision (benefit) for income taxes .................... 5,439 (7,175) 810 9,704 24,338 ------------ ------------ ------------ ------------ ------------ Net income (loss) ................. $ 15,329 $ (9,558) $ 2,588 $ 18,892 $ (107,120) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Basic earnings (loss) per share ... $ 0.72 $ (0.43) $ 0.11 $ 0.64 $ (3.54) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common shares outstanding ..................... 21,419,936 22,085,912 23,602,799 29,712,879 30,248,476 Diluted earnings (loss) per share .......................... $ 0.68 $ (0.43) $ 0.10 $ 0.60 $ (3.54) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common and dilutive securities outstanding ..................... 22,595,819 22,085,912 25,203,882 31,519,889 30,248,476
19
AT DECEMBER 31, --------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital .................... $ 65,061 $ 57,123 $176,322 $179,987 $132,062 Total assets ....................... 168,084 154,098 317,610 352,473 346,914 Capital lease obligations: current maturities ............... 425 229 151 250 94 long-term portion ................ 389 183 32 -- -- Current maturities of long-term debt -- 1,000 1,000 1,000 244 Long-term debt, less current portion -- 4,000 3,000 2,000 100,000 Total stockholders' equity ......... 146,463 137,807 276,649 328,832 226,636
20 We acquired Telcom Devices Corp. on April 2, 2001 and accounted for that transaction as a purchase. Accordingly, their results of operations are included in ANADIGICS' consolidated results of operations from the date of purchase. The balance sheet data reflects our issuance of $100 million aggregate principal amount of senior convertible notes on November 27, 2001. ITEM 7. 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 the cable television market. In late 1994 we entered the wireless communications market with the introduction of cellular telephone integrated circuits. In 2001 we introduced our InGaP HBT power amplifier modules to the wireless communications market. We strive to achieve market advantage through the application of our 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 3-volt InGaP HBT Power Amplifiers, IP Telephony Reverse Path Amplifiers, 24-volt Line Amplifiers, the PicoTuner(TM), and Universal 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. During 1999 we began production in our six-inch analog GaAs wafer fabrication facility, which we believe to have been the first 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. On April 2, 2001 we acquired Telcom Devices Corp. ("Telcom"), a manufacturer of indium phosphide based photodiodes for the telecommunications and data communications markets for cash consideration of approximately $28.0 million. The acquisition was accounted for as a purchase. Accordingly, Telcom's results of operations are included in ANADIGICS' consolidated results of operations from the date of purchase. Our markets weakened substantially during 2001. With the well-publicized deterioration in the telecommunications industry, we experienced a substantial decline in demand for our products. The downturn in demand reflected high component inventories at most of our customers, including components that we previously supplied, a reduction in capital spending by many of our customers and lower end consumer demand. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are fixed. Accordingly, reduced demand for our products causes our fixed production costs to be allocated across reduced production volumes, which adversely affects our gross margin and profitability. Our ability to reduce expenses is further constrained because we must continue to invest in research and development in order to maintain our competitive position. Reduced production volumes contributed to a significant decline in our gross margin and profitability during 2001. The general slowdown in the industry in which we operate as well as the overall slowing of the economy has had, and we believe will continue to have, a negative impact on our net sales, gross margins and other results of operations. We cannot accurately predict whether or when demand will strengthen across all product lines or how quickly our customers will consume their inventories of our products. If we are unable to reverse the recent trend of revenue declines and net losses because our customers do not deplete their own inventories of communications components, because the economy does not improve or because we under perform, our ability to compete in a very difficult market may be materially and adversely affected. CRITICAL ACCOUNTING POLICIES GENERAL We believe the following accounting policies are critical to our business operations, the understanding of our results of operation and may involve a higher degree of judgment and estimates used in the preparation of our consolidated financial statements. REVENUE RECOGNITION Production revenue is recorded when products are shipped to customers pursuant to a purchase order. We charge customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Cancellation revenue is recognized when cash is received. The value of the inventory related to cancellation revenue may, in some instances, have been reserved during prior periods in accordance with our inventory obsolescence policy. 21 WARRANTY COSTS We provide for potential warranty claims by recording a current charge to income. We estimate potential claims by examining historical returns and other information deemed critical and provide for an amount which we believe will 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 sheets. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets include fixed assets, long-term investments (included in Other assets), goodwill and other intangible assets. We regularly review these assets for circumstances of impairment and assess the carrying value of the assets against market values. When an impairment exists, we record an expense to the extent that the carrying value exceeds fair market value. Long-lived assets We record impairment losses on long-lived assets used in operations or expected to be disposed of when events and circumstances indicate that the undiscounted cash flow estimated to be generated by these assets is less than the carrying amounts of those assets. Management considers sensitivities to capacity, utilization and technological developments in making its assumptions. Long-term investments The fair value of long-term investments is dependent on the performance of the companies in which we have invested, as well as volatility inherent in the external markets for these investments. In assessing potential impairment for these investments, management considers these factors as well as forecasted financial performance of the investees. If these forecasts are not met or if market conditions change, we may have to record additional impairment charges not previously recognized. Goodwill and intangibles impairment We have significant intangible assets related to goodwill and other acquired intangibles. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments. In assessing the recoverability of goodwill and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. During the year ended December 31, 2001, we did not record any impairment losses related to goodwill or other intangible assets. Effective January 1, 2002 we will adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". Under the provisions of FAS 142, the cost of certain intangible assets will no longer be subject to amortization but will be reviewed for potential impairment during the first six months of 2002, and then on an annual basis thereafter or upon the occurrence of an impairment indicator. DEFERRED TAXES We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the amount may not be realized. During 2001, we determined that it was no longer more likely than not that we would be able to realize all or part of our net deferred tax asset in the future, and an adjustment to the deferred tax asset was charged to income. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made. INVENTORY Inventories are valued at the lower of cost or market ("LCM"), using the first-in, first-out method. In addition to LCM limitations, we reserve against inventory items for estimated obsolescence or unmarketable inventory. Our reserve for excess and obsolete inventory is primarily based upon forecasted short-term demand for the product and any change to the reserve arising from forecast revisions is reflected in cost of sales in the period the revision is made. 22 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, ------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Net sales.............................................. 100.0% 100.0% 100.0% Cost of sales.......................................... 57.8 51.9 103.5 ----------- ----------- ----------- Gross profit(loss)..................................... 42.2 48.1 (3.5) Research and development expenses...................... 22.6 23.1 44.5 Selling and administrative expenses.................... 14.5 15.2 32.2 Restructuring and other charges........................ (0.3) - 4.4 Asset impairment charges............................... - - 12.3 Purchased in-process R&D............................... - - 4.5 ----------- ----------- ----------- Operating income (loss)................................ 5.4 9.8 (101.4) Interest expense....................................... 0.3 0.2 0.8 Interest income........................................ 2.8 7.0 8.2 Impairment of investments.............................. - - 3.7 Other income (expense) ................................ - - - Provision for litigation settlement.................... 5.3 - - ----------- ----------- ----------- Income (loss) before income taxes...................... 2.6 16.6 (97.7) Provision for income taxes...... ..................... 0.6 5.6 28.7 ----------- ----------- ----------- Net income (loss)...................................... 2.0% 11.0% (126.4%) ----------- ----------- ----------- ----------- ----------- -----------
2001 COMPARED TO 2000 NET SALES. Net sales during 2001 decreased 50.8% to $84.8 million, compared to $172.3 million for 2000. The decline in net sales is due to the significant downturn in demand experienced across each of the Company's product lines. The wireless and broadband markets were soft due to lower end-consumer demand compounded by high component inventories at most of our customers. Specifically, net sales of integrated circuits for cellular and PCS applications decreased 57.9% during 2001 to $32.3 million from $76.5 million in 2000. The decrease was primarily due to decreased demand for our multi-band, multi-mode power amplifier integrated circuits used in wireless telephone handsets. Sales of integrated circuits for cable and broadcast applications decreased 44.2% during 2001 to $41.2 million from $74.0 million in 2000. The decrease was primarily due to decreased demand for our integrated circuit reverse amplifiers and converters used in digital set-top boxes, cable modems, and, to a lesser degree, our integrated circuit line amplifiers used as repeaters in cable television distribution networks. Sales of integrated circuits for fiber optic telecommunications and data communications ("fiber optic") applications decreased 48.2% during 2001 to $11.3 million from $21.8 million in 2000. Net sales for 2001 includes $5.5 million of Telcom's sales since its acquisition on April 2, 2001. The reduction in sales of integrated circuits for fiber optic applications was primarily due to lower capital spending in the fiber optic markets. Generally, selling prices for same product sales were lower during 2001 as compared to 2000. GROSS MARGIN (LOSS). Gross margin (loss) for 2001 decreased to (3.5%) of net sales, compared with 48.1% of net sales in the prior year. The decline in gross margin results primarily from lower net sales, lower production and consequent lower absorption of fixed costs which had an impact of approximately $22 million. Gross margin was also negatively impacted by the start-up and ramp of HBT modules in the approximate amount of $8 million. In addition to lower sales and absorption and module start-up impacts, the decline in gross margin includes an additional $6.9 million of inventory charges in 2001. The decline was partially offset by the inclusion of Telcom in the current year results. The inventory charge primarily related to excess, slow-moving, and obsolete inventories. RESEARCH AND DEVELOPMENT. Company sponsored research and development expense decreased 5.1% during 2001 to $37.8 million from $39.8 million during 2000 primarily due to reduced project materials spending. As a percentage of sales, research and development expense increased to 44.5% in 2001 from 23.1% in 2000. PURCHASED IN-PROCESS R&D. The Company expensed purchased in-process research and development costs of $3.8 million as a result of the Telcom acquisition on April 2, 2001. The charge represents the fair value of certain acquired research and development projects that were determined to have not reached technological feasibility and do not have alternative future uses. 23 SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 4.1% during 2001 to $27.3 million from $26.2 million in 2000. The increase was due to the acquisition of Telcom and its related expenses, including $2.7 million of intangibles amortization and its ongoing cost base ($1.0 million). The increase was offset by a $2.6 million decrease in our historical cost base, notably in consulting services, commissions, recruiting and relocation as well as travel and entertainment. As a percentage of sales, selling and administrative expenses increased to 32.2% in 2001 from 15.2% in 2000. RESTRUCTURING AND OTHER CHARGES. During 2001, the Company recorded restructuring charges of $3.8 million, primarily for severance and related benefits costs of workforce reductions. The workforce reductions eliminated approximately 109 positions throughout the Company and $1.6 million of benefits were paid through December 31, 2001, with the remainder anticipated to be paid out in 2002. ASSET IMPAIRMENT CHARGES. During 2001, the Company recorded asset impairment charges of $10.4 million. The charges reflect an impairment of certain manufacturing and research fixed assets as they are surplus to the Company's foreseeable operating levels and research activities. The anticipated annualized benefit from the asset impairment and restructuring and other charges is expected to approximate $14.8 million. INTEREST INCOME, NET. Net interest income decreased 40.1% to $6.3 million during 2001 from $10.5 million during 2000. The decrease was primarily due to lower balances of cash and marketable securities, generally lower interest rates and, to a lesser extent, interest expense arising on the issuance of our 5% Convertible Senior Notes issued on November 27, 2001. OTHER (EXPENSE) INCOME. During the year ended December 31, 2000 the Company sold equipment resulting in a $1.3 million gain. IMPAIRMENT OF INVESTMENTS. In the year ended December 31, 2001, the Company recorded a $3.1 million charge for impairment of investments for certain private-equity investments following an evaluation of the Company's investments which indicated that the carrying value of such investments exceeded the estimated fair market values. PROVISION FOR INCOME TAXES. During 2001, the Company recorded a valuation allowance of $26.8 million against the carrying value of its deferred tax asset. Since realization of deferred tax assets is dependent upon the timing and magnitude of future taxable income prior to the expiration of the deferred tax attributes, management has recorded a full valuation allowance in 2001. 2000 COMPARED TO 1999 NET SALES. Net sales during 2000 increased 31% to $172.3 million from $131.2 million in 1999. Sales of integrated circuits for cellular and PCS wireless applications increased 26% in 2000 to $76.5 million from $60.8 million in 1999 reflecting then existing strong demand for our dual-band power amplifiers. Sales of integrated circuits for cable and broadcast applications increased 58% in 2000 to $74.0 million from $46.9 million in 1999. Sales in 1999 included $0.7 million in sales of low-noise-block converter integrated circuits (production of which was ceased during the third quarter of 1998). The increase in sales was primarily attributable to increased demand for our integrated circuit chip set, which is used in digital set-top converters and cable modems; and increased demand for our integrated circuit line amplifier, which is used as a repeater in hybrid cable television distribution networks. Sales of integrated circuits for fiber optic telecommunication and data communication applications decreased 6% in 2000 to $21.8 million from $23.3 million in 1999, reflecting decreased demand for our transimpedance amplifiers for SONET applications, while increased demand resulted in higher sales of high speed gigabit ethernet data communications applications. We expect increased competition from internally sourced silicon integrated circuits at certain of our customers for SONET OC-12 and OC-24 fiber optic transimpedance 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 transimpedance amplifiers were approximately $3.7 million during 2000. Generally, selling prices for same product sales were lower during 2000 compared to 1999. GROSS MARGIN. Gross margin during 2000 increased to 48.1% from 42.2% in 1999. Excluding accelerated depreciation expense of $5.3 million, gross margin was 46.2% during 1999. 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. 24 The increase in gross margin during 2000 to 48.1% from 46.2% (excluding the accelerated depreciation of $5.3 million) resulted from leveraging fixed costs over higher sales and production levels during 2000, and greater manufacturing efficiencies through cost structure improvements that were put in place during the year. RESEARCH AND DEVELOPMENT. ANADIGICS-funded research and development expenses increased 34% during 2000 to $39.8 million from $29.7 million in 1999. The increase was primarily attributable to increased headcount to support increased R&D activities; increased research and development of integrated circuits for cellular and PCS, CATV, and fiber optic applications; and increased research and development of new process technologies including HBT. As a percent of sales, ANADIGICS-funded research and development increased to 23.1% during 2000 from 22.6% in 1999. SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 37% during 2000 to $26.2 million from $19.1 million in 1999. The increase was primarily attributable to increases in performance-related compensation costs, recruiting and relocation costs, consulting costs, and marketing costs. As a percentage of sales, selling and administrative expenses increased to 15.2% during 2000 from 14.5% in 1999. INTEREST INCOME, NET. Net interest income increased 218% during 2000 to $10.5 million from $3.3 million in 1999. The increase in net interest income of $7.2 million was primarily due to a higher amount of investments during 2000 as we invested proceeds of $116.1 million (net of related expenses) from a common stock public offering completed on November 1, 1999. PROVISION FOR LITIGATION SETTLEMENT. A provision for litigation settlement of $6.9 million was recorded in the second quarter of 1999. The provision consisted of a settlement payment of $11.8 million (offset by insurance proceeds of $5.3 million) and $0.4 million of additional legal, settlement, notification and court related fees. PROVISION FOR INCOME TAXES. We recorded a provision for income taxes during 2000 of $9.7 million, or 33.9% of income before income taxes. The provision for income taxes primarily consisted of federal and state income taxes of $10.6 million at the respective statutory rates, which were partially offset by $0.9 million of research and experimentation tax credits. LIQUIDITY AND SOURCES OF CAPITAL At December 31, 2001 we had $63.1 million of cash and cash equivalents on hand and $137.0 million in marketable securities. We had $100.2 million of interest-bearing debt outstanding as of December 31, 2001. These figures reflect our private offering of $100 million aggregate principal amount of Convertible notes due 2006, completed during November 2001. Operations required $18.2 million in cash during 2001. Investing activities, consisting primarily of net purchases of marketable securities of $66.7 million and purchases of equipment of $16.8 million, consumed $111.4 million of cash during 2001. Financing activities raised $97.6 million during 2001. Cash provided by financing activities primarily consisted of proceeds received from the issuance of our Convertible notes in November 2001, net of related costs. At December 31, 2001, we had purchase commitments of approximately $1.1 million for equipment, furniture, and leasehold improvements for the first half of 2002. We believe that our existing sources of capital, including internally generated funds, will be adequate to satisfy operational needs and anticipated capital needs for the next twelve months and beyond. Our anticipated capital needs may include acquisitions of complimentary businesses or technologies, or investments in other companies. However, we may elect to finance all or part of our future capital requirements through additional equity or debt financing. There can be no assurance that such additional financing would be available on satisfactory terms. The table below summarizes required cash payments as of December 31, 2001: CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD (in thousands) Total 1 year 1 - 3 4 - 5 After 5 And less years years years Long term debt $100,000 $ -- $ -- $100,000 $ -- Capital lease obligations 94 94 -- -- -- Operating leases 33,978 3,918 7,185 3,580 19,295 Unconditional purchase obligations 1,100 1,100 -- -- -- -------- -------- -------- -------- -------- Total contractual cash obligations $135,172 $ 5,112 $ 7,185 $103,580 $ 19,295 ======== ======== ======== ======== ======== The Company has an obligation to rent additional space at its headquarters, following the construction of the space. The additional space would require an annual base rent of $742 thousand, plus escalators and the term would expire in December 2016. Construction, which is the responsibility of the landlord, a debtor in a Chapter 11 bankruptcy proceeding since December 2001, has not commenced. We cannot estimate when or if it might commence. In addition, contingent purchase consideration of up to $17 million may be payable to the former shareholders of Telcom if certain sales and profit targets are reached over the twelve months ending March 31, 2002. Based upon the operating performance of Telcom through February 23, 2002, the Company does not expect any payouts pursuant to this contingency. 25 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB issued Statement of Financial Accounting Standards ("FAS") No. 141 "Business Combinations" and 142 "Goodwill and Other Intangible Assets". The statements will be effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be subject to amortization but will be reviewed for impairment annually or upon the occurrence of an impairment indicator. Other intangible assets will continue to be amortized over their useful lives. Management anticipates that upon adoption in 2002, the annual amortization of goodwill that would have approximated $2.6 million will no longer be required. The Company has not yet determined the impact, if any, on its earnings or financial position of the required impairment tests of goodwill. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement will be effective for fiscal years beginning after December 15, 2001. This statement establishes a single accounting model, based upon the framework established in FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", for long-lived assets to be disposed of by sale and to address significant implementation issues. The Company does not expect the impact of the adoption of this statement to have a material impact on its financial position, results of operations and cash flows. In July 2001, the Financial Accounting Standards Board issued Statement No. 143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS 143 requires that asset retirement obligations that are identifiable upon acquisition and construction, and during the operating life of a long-lived asset be recorded as a liability using the present value of the estimated cash flows. A corresponding amount would be capitalized as part of the asset's carrying amount and amortized to expense over the asset's useful life. The Company is required to adopt the provisions of FAS 143 effective January 1, 2003. The Company is currently evaluating the impact of adoption of this statement. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to changes in interest rates primarily from our investments in certain available-for-sale securities. Our available-for-sale securities consist primarily of fixed income investments (U.S. Treasury and Agency securities, commercial paper and corporate bonds). We continually monitor our exposure to changes in interest rates and credit ratings of issuers from our available-for-sale securities. Accordingly, we believe that the effects of changes in interest rates and credit ratings of issuers are limited and would not have a material impact on our financial condition or results of operations. However, it is possible that we are at risk if interest rates or credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference between the fixed rate of the financial instrument and the market rate and our financial condition and results of operations could be materially affected. At December 31, 2001, we held marketable securities with an estimated fair value of $136,993. Our primary interest rate exposure results from changes in short-term interest rates. We do not purchase financial instruments for trading or speculative purposes. All of our marketable securities are classified as available-for-sale securities. The following table provides information about our marketable securities at December 31, 2001:
Estimated Principal Amount and Weighted Average Stated Fair Rate by Expected Maturity Value Value - ------------------------------------------------------------------------------------------- (000's) 2002 2003 2004 Total (000's) - ------------------------------------------------------------------------------------------- Principal $ 54,460 $ 60,523 $ 18,371 $ 133,354 $ 136,993 Weighted Average Stated Rates 6.01% 5.87% 6.39% 6.00% -- - -------------------------------------------------------------------------------------------
Our Convertible notes bear a fixed rate of interest of 5%. A change in interest rates on long-term debt is assumed to impact fair value but not earnings or cash flow because the interest rate is fixed. 26 The stated rates of interest expressed in the above table may not approximate the actual yield of the securities which we currently hold since we have purchased some of our marketable securities at other than face value. Additionally, some of the securities represented in the above table may be called or redeemed, at the option of the issuer, prior to their expected due dates. If such early redemptions occur, we may reinvest the proceeds realized on such calls or redemptions in marketable securities with stated rates of interest or yields that are lower than those of current holdings, affecting both future cash interest streams and future earnings. In addition to investments in marketable securities, we place some of our cash in money market funds in order to keep cash available to fund operations and to hold cash pending investments in marketable securities. Fluctuations in short term interest rates will affect the yield on monies invested in such money market funds. Such fluctuations can have an impact on our future cash interest streams and future earnings, but the impact of such fluctuations are not expected to be material. 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 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, 2001 and 2000, 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, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 2001 and 2000, and the consolidated results of their operations, and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP MetroPark, New Jersey January 29, 2002 28 ANADIGICS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ---------------------- 2000 2001 --------- --------- ASSETS Current assets: Cash and cash equivalents .................................................. $ 95,116 $ 63,102 Marketable securities ...................................................... 53,254 55,364 Accounts receivable, net of allowance for doubtful accounts of $275 and $715 in 2000 and 2001, respectively .................................. 21,794 10,200 Inventories ................................................................ 22,969 14,661 Prepaid expenses and other current assets .................................. 3,475 6,635 Deferred taxes ............................................................. 3,035 -- --------- --------- Total current assets ......................................................... 199,643 149,962 Marketable securities ........................................................ 17,791 81,629 Plant and equipment: Equipment and furniture .................................................... 137,819 127,903 Leasehold improvements ..................................................... 32,767 34,207 Projects in process ........................................................ 19,083 17,702 --------- --------- 189,669 179,812 Less accumulated depreciation and amortization ............................. 83,034 89,329 --------- --------- 106,635 90,483 Goodwill and other intangibles, net of accumulated amortization of $2,736 .................................................................. -- 19,443 Deferred taxes ............................................................... 23,102 -- Other assets ................................................................. 5,302 5,397 --------- --------- $ 352,473 $ 346,914 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 10,985 $ 9,115 Accrued liabilities ........................................................ 6,824 6,549 Current maturities of capital lease obligations ............................ 250 94 Accrued restructuring costs ................................................ 597 1,898 Current maturities of long-term debt ....................................... 1,000 244 --------- --------- Total current liabilities .................................................... 19,656 17,900 Long-term debt, less current portion ......................................... 2,000 100,000 Other long-term liabilities .................................................. 1,985 2,378 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, 144,000,000 shares authorized at December 31, 2000 and 2001, and 30,027,760 and 30,568,761 issued and outstanding at December 31, 2000 and 2001, respectively .............. 300 306 Additional paid-in capital ................................................. 329,362 333,860 Accumulated deficit ........................................................ (1,118) (108,238) Accumulated other comprehensive income ..................................... 288 708 --------- --------- Total stockholders' equity ................................................... 328,832 226,636 --------- --------- $ 352,473 $ 346,914 ========= =========
See accompanying notes. 29 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------------------- 1999 2000 2001 ------------ ------------ ------------ Net sales ..................................... $ 131,159 $ 172,268 $ 84,765 Cost of sales ................................. 75,820 89,471 87,697 ------------ ------------ ------------ Gross profit (loss) ........................... 55,339 82,797 (2,932) Research and development expenses ............. 29,658 39,799 37,764 Selling and administrative expenses ........... 19,092 26,202 27,282 Restructuring and other charges ............... (441) -- 3,775 Asset impairment charges ...................... -- -- 10,433 Purchased in-process R&D ...................... -- -- 3,800 ------------ ------------ ------------ 48,309 66,001 83,054 ------------ ------------ ------------ Operating income (loss) ....................... 7,030 16,796 (85,986) Other income (expense) ........................ 25 1,279 (39) Interest income, net .......................... 3,268 10,521 6,304 Impairment of investments ..................... -- -- 3,061 Provision for litigation settlement ........... 6,925 -- -- ------------ ------------ ------------ Income (loss) before income taxes ............. 3,398 28,596 (82,782) Provision for income taxes ................... 810 9,704 24,338 ------------ ------------ ------------ Net income (loss) ............................. $ 2,588 $ 18,892 $ (107,120) ============ ============ ============ Basic earnings (loss) per share ............... $ 0.11 $ 0.64 $ (3.54) ============ ============ ============ Weighted average common shares outstanding .... 23,602,799 29,712,879 30,248,476 ============ ============ ============ Diluted earnings (loss) per share ............. $ 0.10 $ 0.60 $ (3.54) ============ ============ ============ Weighted average common and dilutive securities outstanding ................................. 25,203,882 31,519,889 30,248,476 ============ ============ ============ YEAR ENDED DECEMBER 31, ------------------------------------------- 1999 2000 2001 ------------ ------------ ------------ Net income (loss) ............................. $ 2,588 $ 18,892 $ (107,120) Other comprehensive income (loss): Unrealized (loss) gain on marketable securities .................................. (169) 327 560 Foreign currency translation adjustment ....... -- 87 (110) Reclassification adjustment: Net realized gain previously included in other comprehensive income .................. -- -- (30) ------------ ------------ ------------ Comprehensive income (loss) ................... $ 2,419 $ 19,306 $ (106,700) ============ ============ ============
See accompanying notes. 30 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (SHARES AND DOLLARS IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER TOTAL ------------------ PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) EQUITY --------- ------ --------- ----------- ------------ --------- Balance, December 31, 1998 ... 22,184 $ 222 $ 160,141 $ (22,598) $ 43 $ 137,808 Stock options exercised ..... 1,185 12 12,679 12,691 Shares issued under employee stock purchase plan ..................... 166 2 1,110 1,112 Tax effect of stock options exercised ........ 5,626 5,626 Unrealized losses on market- able securities .......... (169) (169) Issuance of common stock in public offering, net of expenses .............. 5,309 53 116,077 116,130 Stock-based compensation .... 335 335 Warrants for services provided ................. 18 528 528 Net income .................. 2,588 2,588 --------- ----- --------- ----------- --------- --------- Balance, December 31, 1999 ... 28,862 289 296,496 (20,010) (126) 276,649 Stock options exercised ..... 1,046 10 10,545 10,555 Shares issued under employee stock purchase plan ..................... 65 1 893 894 Tax effect of stock options exercised ........ 20,590 20,590 Unrealized gains on market- able securities .......... 327 327 Issuance of common stock in public offering, net of expenses .............. (24) (24) Shares issued for warrants exercised ................ 55 862 862 Foreign currency translation adjustment ............... 87 87 Net income .................. 18,892 18,892 --------- ----- --------- ----------- --------- --------- Balance, December 31, 2000 ... 30,028 300 329,362 (1,118) 288 328,832 Stock options exercised ..... 420 5 3,036 3,041 Shares issued under employee stock purchase plan ..................... 113 1 1,462 1,463 Unrealized gains on market- able securities .......... 560 560 Shares issued for warrants exercised ................ 8 Foreign currency translation adjustment ............... (110) (110) Net realized gain previously included in other comprehensive income ..... (30) (30) Net income .................. (107,120) (107,120) --------- ----- --------- ----------- --------- --------- Balance, December 31, 2001 ... 30,569 $ 306 $ 333,860 $ (108,238) $ 708 $ 226,636 ========= ===== ========= =========== ========= =========
See accompanying notes. 31 ANADIGICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1999 2000 2001 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ............................................ $ 2,588 $ 18,892 $(107,120) Adjustments to reconcile net income (loss)to net cash provided by (used in) operating activities: Depreciation ............................................... 21,895 22,069 24,489 Amortization ............................................... 289 231 3,019 Amortization of premium (discount) on marketable securities (41) (752) 1,287 Impairments of long-lived assets and investments ........... -- -- 14,577 Purchased in-process R&D ................................... -- -- 3,800 Deferred taxes ............................................. 639 6,178 24,306 Tax benefit realized from stock option transactions ........ -- 3,562 -- Stock-based compensation ................................... 335 -- -- Warrants for services provided ............................. 528 -- -- (Gain)loss on sale of equipment ............................ -- (1,279) 39 Provision for litigation settlement ........................ 6,436 (6,436) -- Changes in operating assets and liabilities: Accounts receivable ...................................... (13,303) 3,357 12,847 Inventory ................................................ (1,605) (12,635) 9,601 Prepaid expenses and other assets ........................ (1,476) (3,905) (3,765) Accounts payable ......................................... 9,763 (4,916) (2,256) Accrued and other liabilities ............................ 4,375 377 955 --------- --------- --------- Net cash provided by (used in) operating activities .......... 30,423 24,743 (18,221) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment ............................. (29,645) (43,564) (16,845) Purchases of marketable securities ........................... (26,403) (77,381) (157,691) Proceeds from sales of marketable securities ................. 22,828 29,271 90,985 Purchase of Telcom Devices, net of cash acquired ............ -- -- (27,927) Proceeds from sale of equipment .............................. -- 1,358 45 --------- --------- --------- Net cash used in investing activities ........................ (33,220) (90,316) (111,433) CASH FLOWS FROM FINANCING ACTIVITIES Payments of obligations under capital leases ................. (229) (493) (404) Repayments of long-term debt ................................. (1,000) (1,000) (3,385) Proceeds from issuance of long-term debt net of offering costs -- -- 96,925 Issuances of common stock, net of related expenses ........... 129,934 12,287 4,504 --------- --------- --------- Net cash provided by financing activities .................... 128,705 10,794 97,640 --------- --------- --------- Net increase (decrease) in cash and cash equivalents ......... 125,908 (54,779) (32,014) Cash and cash equivalents at beginning of period ............. 23,987 149,895 95,116 --------- --------- --------- Cash and cash equivalents at end of period ................... $ 149,895 $ 95,116 $ 63,102 ========= ========= ========= Supplemental disclosures of cash flow information: Interest paid ................................................ $ 368 $ 300 $ 131 Taxes paid ................................................... 225 46 45 Tax benefit of stock options exercised ....................... 5,626 20,590 -- Acquisition of equipment under capital lease ................. -- 560 248
See accompanying notes. 32 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")/microwave integrated circuit solutions for the communications industry. The Company's products are used to send and receive signals in a variety of broadband and wireless communications applications. In the broadband markets, the focus is on applications for cable subscriber products, cable infrastructure systems, and fiber optic communications systems. In the wireless market, the Company's efforts are focused on applications for cellular and personal communication systems ("PCS") handsets. The Company designs, develops and manufactures radio frequency integrated circuit solutions primarily using gallium arsenide ("GaAs") semiconductor material with either Metal Semiconductor Field Effect Transistor (MESFET), Pseudomorphic High Electron Mobility Transistor (PHEMT) or Heterojunction Bipolar Transistor (HBT) process technology. The Company manufactures its integrated circuits in its six-inch analog GaAs wafer fabrication facility. 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 enable manufacturers of communications equipment to enhance overall system performance and reduce manufacturing cost and time to market. The consolidated financial statements include the accounts of ANADIGICS, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. CONCENTRATION OF CREDIT RISK The Company grants trade credit to its customers, who 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 68% of the Company's net sales in 1999 were to two customers, Ericsson and Motorola, who individually accounted for 47% and 21%, respectively, of net sales. Approximately 70% of the Company's net sales in 2000 were to two customers, Ericsson and Motorola, who individually accounted for 44% and 26%, respectively, of net sales. Approximately 69% of the Company's net sales in 2001 were to three customers, Motorola, Ericsson and Kyocera, who individually accounted for 32%, 25% and 11%, respectively, of net sales. Accounts receivable from these customers accounted for 53% and 76% of total accounts receivable at December 31, 2000 and 2001, respectively. Sales figures for 1999 reflect changes due to the merger in 2000 between Motorola and General Instrument. 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, ----------------------------------------------------------------- 1999 Application 2000 Application 2001 Application -------- ----------- -------- ----------- -------- ----------- Largest customer......... $ 61,677 Wireless $ 76,193 Wireless $ 27,387 CATV Second largest customer.. 27,147 CATV 44,719 CATV 21,401 Wireless Third largest customer < 10% < 10% 9,620 Wireless
USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Significant estimates that affect the financial statements include, but are not limited to: recoverability of inventories, useful lives and amortization periods and recoverability of long-lived assets. 33 ANADIGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Production revenue is recorded when products are shipped to customers pursuant to a purchase order. The Company charges customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Cancellation revenue is recognized when cash is received. WARRANTY COSTS The Company provides, by a current charge to income, an amount it estimates, by examining historical returns and other information it deems critical, 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 sheets. COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE All direct internal and external costs incurred in connection with the application development stage of software for internal use 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, furniture and equipment has been provided on the straight-line method over 3-5 years. The cost of equipment acquired under capital leases was $11,867 and $11,627 at December 31, 2000 and 2001, respectively, and accumulated amortization was $11,504 and $11,489 at December 31, 2000 and 2001, 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. GOODWILL AND OTHER INTANGIBLES Goodwill, process technology and a covenant-not-to-compete recorded upon acquisitions are amortized using the straight-line method over seven, five and two years, respectively. The carrying amounts are reviewed on a regular basis for any signs of an impairment. The Company determines if the carrying amount is impaired based on anticipated undiscounted cash flows. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows, discounted at a rate commensurate with the associated risk. 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 income tax basis of such assets and liabilities. 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. IN-PROCESS RESEARCH AND DEVELOPMENT In the event of an acquisition, the Company will calculate the fair value of in-process research and development projects, based upon discounted cash flows, estimated by management of future revenues and expected profitability of the related technology. The rate used to discount the projected future cash flows accounts for the time value of money, as well as the risks of realization of the cash flows. Management will record a charge to earnings where projects are determined to have not reached technological feasibility and do not have alternative uses. CASH EQUIVALENTS The Company considers all highly liquid marketable securities with an original maturity of three months or less as cash equivalents. 34 MARKETABLE SECURITIES Available for sale securities are stated at fair value, as determined by quoted market prices, with unrealized gains and losses reported in other accumulated 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. FOREIGN CURRENCY TRANSLATION The financial statements of subsidiaries outside of the United Sates are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included in other accumulated comprehensive income or loss. Income and expense items are translated at the average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in the determination of net income or loss. STOCK BASED COMPENSATION As permitted by FASB Statement No. 123, "Accounting for Stock-Based Compensation" (FASB 123), the Company has elected to follow Accounting Principle 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 when the exercise price of the Company's employee stock options 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 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 is less than the carrying amounts of these assets. EARNINGS PER SHARE Basic and diluted earnings per share are calculated in accordance with FASB Statement No. 128, "Earnings Per Share". Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised resulting in the issuance of common stock of the Company. For all periods presented, share and per share data has been restated to reflect a three-for-two stock split, the shares for which were distributed on February 29, 2000 to holders of record on February 10, 2000. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of each of the following instruments approximates their carrying value because of the short maturity of these instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying values of capital lease obligations and long-term debt approximate fair value since the related interest rates approximate rates currently available to the Company. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB issued Statement of Financial Accounting Standards ("FAS") No. 141 "Business Combinations" and 142 "Goodwill and Other Intangible Assets". The statements will be effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be subject to amortization but will be reviewed for potential impairment annually or upon the occurrence of an impairment indicator. Other intangible assets will continue to be amortized over their useful lives. Management anticipates that upon adoption in 2002, the annual amortization of goodwill that would have approximated $2.6 million will no longer be required. The Company has not yet determined the impact, if any, on its earnings or financial position of the required impairment tests of goodwill. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement will be effective for fiscal years beginning after December 15, 2001. This statement establishes a single accounting model, based upon the framework established in FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", for long-lived assets to be disposed of by sale and to address significant implementation issues. The Company does not expect the impact of the adoption of this statement to have a material impact on its financial position, results of operations and cash flows. 35 In July 2001, the Financial Accounting Standards Board issued Statement No. 143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS 143 requires that asset retirement obligations that are identifiable upon acquisition and construction, and during the operating life of a long-lived asset be recorded as a liability using the present value of the estimated cash flows. A corresponding amount would be capitalized as part of the asset's carrying amount and amortized to expense over the asset's useful life. The Company is required to adopt the provisions of FAS 143 effective January 1, 2003. The Company is currently evaluating the impact of adoption of this statement. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 2. ACQUISITION OF TELCOM DEVICES On April 2, 2001, ANADIGICS, Inc. acquired Telcom Devices Corp. ("Telcom"), a manufacturer of indium phosphide based photodiodes for the telecommunications and data communications markets. The acquisition was accounted for using the purchase method of accounting. The results of operations of Telcom are included in the Company's consolidated results of operations from the date of purchase. There are no significant differences between the accounting policies of ANADIGICS and Telcom. The cash consideration paid on April 2, 2001, for 100% of Telcom's stock was $28,000. In addition, the Company incurred $300 in acquisition-related costs. The total purchase price of $28,300 was allocated to the assets acquired and liabilities assumed, based on their fair values (as determined by an appraisal) as follows: Fair value of tangible assets $ 5,522 Fair value of liabilities assumed (1,369) In-process research and development 3,800 Process technology 3,400 Covenant not to compete 800 Deferred tax liability (1,831) Goodwill 17,978 -------- Total purchase price $ 28,300 In addition, contingent purchase consideration of up to $17,000 may be payable if certain sales and profit targets are reached over the twelve months ending March 31, 2002. Any payments of contingent purchase consideration would increase the goodwill attributed to Telcom. Based upon the operating performance of Telcom through February 23, 2002, the Company does not expect any payouts pursuant to this contingency. The process technology, covenant not-to-compete and goodwill were being amortized using the straight-line method over their respective estimated useful lives, which range from two to seven years. The Company recorded a charge of $3,800 representing the fair value of certain acquired research and development projects relating to 40 GB/s photodiode and autobondable and auto eutectic bonding that were determined to have not reached technological feasibility and do not have alternative future uses. The fair value of such projects was determined based on discounted net cash flows. These cash flows were based on management's estimates of future revenues and expected profitability of each technology. The rate used to discount these projected cash flows accounted for the time value of money, as well as the risks of realization of the cash flows. The following unaudited pro-forma consolidated financial information reflects the results of operations for the twelve months ended December 31, 2001 and 2000, as if the acquisition of Telcom had occurred on December 31, 1999 and after giving effect to purchase accounting adjustments. The charge for purchased in-process R&D is not included in the pro-forma results, because it is non-recurring. YEAR ENDED DECEMBER 31 --------------------------- 2000 2001 ----------- ----------- Pro-forma revenue ............................. $ 181,177 $ 87,245 Pro-forma net (loss) income ................... $ 16,393 $ (106,313) Pro-forma net (loss) income per share Basic ............................... $ 0.55 $ (3.51) Diluted ............................. $ 0.52 $ (3.51) 36 These pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on December 31, 1999. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations 3. SEGMENTS The Company operates in one segment. Its integrated circuits are primarily manufactured using common 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. 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, ------------------------------------ 1999 2000 2001 -------- -------- -------- Cellular and PCS Applications ........ $ 60,843 $ 76,523 $ 32,250 CATV Applications .................... 46,881 73,960 41,238 Fiber Optic Applications ............. 23,290 21,785 11,277 Engineering Service Sales ............ 145 -- -- -------- -------- -------- Total ........................... $131,159 $172,268 $ 84,765 ======== ======== ======== The Company primarily sells to four geographic regions: Europe, Asia, U.S.A. and Canada, and Latin America. The geographic region is determined based on shipping addresses, not on the locations of the ultimate users. Net sales to each of the four geographic regions are as follows: YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 2000 2001 -------- -------- -------- Europe ......................... $ 30,161 $ 32,964 $ 8,976 Asia ........................... 31,681 40,464 27,408 U.S.A and Canada ............... 51,605 69,181 30,955 Latin America .................. 17,712 29,659 17,426 -------- -------- -------- Total .................... $131,159 $172,268 $ 84,765 ======== ======== ======== 4. LONG-TERM DEBT On November 27, 2001, the Company issued $100,000 aggregate principal amount of 5% Convertible Senior Notes ("Convertible notes") due November 15, 2006. The notes are convertible into shares of common stock at any time prior to their maturity or prior redemption by the Company. The notes are convertible into shares of common stock at a rate of 47.619 shares for each $1,000 principal amount (convertible at a price of $21.00 per share), subject to adjustment. Interest is payable semi-annually on May 15 and November 15 of each year. ANADIGICS has the option to redeem all or a portion of the notes at a redemption price of 102% of the principal amount during the period from November 15, 2004 through November 14, 2005 and at a redemption price of 101% of the principal amount during the period from November 15, 2005 to November 14, 2006. In the event of a change in control, as defined, note-holders may require the Company to repurchase the note at 100% of the principal amount. In the event of a change in control, the Company, in certain circumstances, may elect to repay the notes in common stock valued at 95% of the average of the closing prices of the Company's common stock for the five days immediately preceding and including the third trading day prior to the repurchase. At December 31, 2001, the fair value of the notes, estimated based upon dealer quotes, was approximately $96,688. Debt issuance costs of $3,075 consisting principally of underwriters' fees were included in other assets and are being amortized over the life of the convertible notes. During 2001, the Company repaid the $3,000 amount outstanding and cancelled its then existing revolving credit and long-term debt facility. The facility required interest at a rate of LIBOR plus 1.75%. At December 31, 2000, the LIBOR rate was 6.66%. At the same time, the Company liquidated the interest rate swap agreement affiliated with this debt. The facility, which had carried commitment fees and certain restrictive covenants, is now entirely cancelled. 37 5. COMMITMENTS AND CONTINGENCIES The Company leases manufacturing, warehousing and office space and manufacturing equipment under noncancelable operating leases that expire through 2016. The Company also leases certain equipment under capital leases that expire in 2002. Rent expense was $3,441, $3,651 and $3,946 in 1999, 2000 and 2001, 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 - ---- ------ ------ 2002 ................................................. $ 94 $ 3,918 2003 ................................................. 3,739 2004 ................................................. 3,446 2005 ................................................. 2,095 2006 ................................................. 1,485 Thereafter ........................................... 19,295 ------- ------- Total minimum lease payments ......................... 94 $33,978 ======= ======= Less amount representing interest .................... -- ------- Present value of net minimum lease payments .......... $ 94 =======
The lessor on the lease for the Company's headquarters building in Warren, New Jersey, is currently the debtor in a Chapter 11 bankruptcy proceeding commenced in December 2001. During the fourth quarter of 2001, the Company recognized a non-recurring charge relating to this proceeding. The Company has an obligation to rent additional space at its headquarters, following the construction of the space. The additional space would require an annual base rent of $742, plus escalators and the term would expire in December 2016. Construction, which is the responsibility of the landlord which is currently the debtor in a Chapter 11 bankruptcy proceeding commenced in December, 2001, has not commenced and we cannot estimate when or if it might commence. In addition to the above, at December 31, 2001, the Company had purchase commitments of approximately $1,100 for equipment, furniture, and leasehold improvements. ANADIGICS is a party to litigation arising out of the operation of our business. We believe that the ultimate resolution of such litigation should not have a material adverse effect on our financial condition, results of operations or liquidity. 6. INVENTORIES Inventories are stated at the lower of cost (first in-first out method) or market. Inventories consist of the following: DECEMBER 31, ---------------------------- 2000 2001 -------- -------- Raw materials .......................... $ 5,526 $ 6,095 Work in process ........................ 14,329 8,963 Finished goods ......................... 8,942 8,105 -------- -------- 28,797 23,163 Reserves ............................... (5,828) (8,502) -------- -------- TOTAL ......................... $ 22,969 $ 14,661 ======== ======== 38 7. MARKETABLE SECURITIES 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 .................. $ 8,382 $ 64 $ 8,446 U.S. Corporate Securities ............ 62,462 137 62,599 -------- -------- -------- Total at December 31, 2000 .......... $ 70,844 $ 201 $ 71,045 ======== ======== ======== U.S Treasury and Agency Securities .................. $ 16,843 $ 83 $ 16,926 U.S. Corporate Securities ............ 119,419 648 120,067 -------- -------- -------- Total at December 31, 2001 .......... $136,262 $ 731 $136,993 ======== ======== ======== The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 2001, 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 .......................... $ 54,873 $ 55,364 Due after one year through three years ........... 81,389 81,629 -------- -------- Total ............................................ $136,262 $136,993 ======== ======== 8. ACCRUED LIABILITIES Accrued liabilities consist of the following: DECEMBER 31, ------------------------ 2000 2001 ------ ------ Accrued compensation ....................... $4,670 $3,996 Warranty reserve ........................... 403 960 Other ...................................... 1,751 1,593 ------ ------ TOTAL ........................... $6,824 $6,549 ====== ====== 9. INCOME TAXES The components of the provision (benefit) for income taxes are as follows: YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ------- ------- ------- Current provision : Federal ................ $ 171 $ 3,223 $ -- State and foreign ...... -- 303 -- Deferred provision: Federal ................ 468 5,263 22,924 State .................. 171 915 1,414 ------- ------- ------- Total ...................................... $ 810 $ 9,704 $24,338 ======= ======= ======= During 2001, the Company recorded a valuation allowance of $26,814 against the carrying value of its deferred tax asset. Deferred tax assets require a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets may not be realized. Whereas realization of the deferred tax assets is dependent upon the timing and magnitude of future taxable income prior to the expiration of the deferred tax attributes, management has recorded a full valuation allowance. The amount of the deferred tax assets considered realizable, however, could change if estimates of future taxable income during the carry-forward period are changed. 39 Significant components of the Company's net deferred taxes as of December 31, 2000 and 2001 are as follows: DECEMBER 31, -------------------- 2000 2001 -------- -------- Deferred tax balances Accruals/reserves .................................... $ 3,035 $ 6,713 Net operating loss carryforwards ..................... 22,605 47,408 General business and research and development credits 2,928 3,594 Deferred rent expense ................................ 759 910 Difference in basis of plant and equipment ........... (3,190) (978) Other ................................................ -- 22 Valuation reserve .................................... -- (57,669) -------- -------- Net deferred tax assets ................................ 26,137 -- -------- -------- Current ................................................ $ 3,035 $ -- Long-term .............................................. $ 23,102 $ -- ======== ======== As of December 31, 2001, the Company had net operating loss carryforwards of approximately $140,000 for both federal and state tax reporting purposes. The federal carryforward will begin to expire in 2018, and the state carryforwards will begin to expire in 2005. 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, ------------------------------------------------------------------------ 1999 2000 2001 ------------------------------------------------------------------------ Tax at U.S. statutory rate ............... $ 1,189 35.0% $ 10,009 35.0% $(28,956) (35.0)% State and foreign tax expense (benefit), net of federal tax effect ............... 111 3.3 801 2.8 (2,640) (3.2) Research and experimentation tax credits . (500) (14.7) (892) (3.1) (666) (0.8) Change in valuation allowance ............ -- -- -- -- 56,223 67.9 Other .................................... 10 0.2 (214) (0.8) 377 0.5 -------- -------- -------- -------- -------- -------- Provision (benefit) for income taxes ..... $ 810 23.8% $ 9,704 33.9% $ 24,338 29.4% ======== ======== ======== ======== ======== ========
10. STOCKHOLDERS' EQUITY The Company had warrants outstanding, which entitled the holder to purchase 22,500 shares of common stock at an exercise price of $6.92 per share. During 1999, a charge of $528 relating to these warrants, which were issued to a third party in connection with services provided, was recorded and included in selling and administrative expenses in the consolidated statement of operations. Warrants to purchase 10,000 shares were exercised in 2000. During 2001, the remaining warrants were exercised via a cashless exercise which resulted in the issuance of 7,592 shares of common stock and the surrender of the remaining warrants. The Company had additional warrants outstanding which entitled the holder to purchase 45,000 shares of common stock at exercise prices ranging from $9.00 to $32.17 per share. During 2000, warrants to purchase all 45,000 shares were exercised at an average exercise price of $17.65. On December 17, 1998, the Company adopted a Shareholders' Rights Agreement (the "Agreement"). Pursuant to the Agreement, as amended on November 30 2000, rights were distributed as a dividend at the rate of one right for each share of ANADIGICS, Inc. common stock, par value $0.01 per share, held by stockholders of record as of the close of business on December 31, 1998. The rights will expire on December 17, 2008, unless earlier redeemed or exchanged. Under the Agreement, each right will entitle the registered holder to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock at a price of $75.00 per one one-thousandth of a share, subject to adjustment in accordance with the Agreement. The rights will become exercisable only if a person or group of affiliated or associated persons acquires, or obtains the right to acquire, beneficial ownership of ANADIGICS, Inc. common stock or other voting securities that have 18% or more of the voting power of the outstanding shares of voting stock, or upon the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in such person or group acquiring, or obtaining the right to acquire, beneficial ownership of 18% or more of the voting power of ANADIGICS, Inc. common stock or other voting securities. 40 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 ANADIGICS, Inc. and part-time employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 843,750 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 1999, 165,920 shares of common stock were purchased at a price of $6.69 per share, pursuant to the terms of the ESP Plan. In 2000, 64,573 shares of common stock were purchased at a price of $13.84 per share, pursuant to the terms of the ESP Plan. During 2001, 113,157 shares of common stock were purchased at a price of $12.93 per share, pursuant to the terms of the ESP Plan. 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 489,130, 4,912,500 and 5,100,000 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. To date, no stock appreciation rights or restricted shares have been granted under the Plans. A summary of the Company's stock option activity, and related information for the years ended December 31, 1999, 2000 and 2001 are as follows:
1999 2000 2001 ----------------------- ----------------------- ----------------------- 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 5,193,199 $ 9.59 5,657,619 $ 15.96 5,841,531 $ 18.27 Granted ....................... 1,847,667 29.84 1,612,525 22.66 1,645,608 14.64 Exercised ..................... (1,185,308) 10.57 (1,046,053) 10.14 (420,252) 7.23 Forfeited ..................... (197,939) 10.89 (382,560) 24.81 (783,255) 22.84 --------- ---------- --------- ---------- --------- ---------- Outstanding at end of year ...... 5,657,619 15.96 5,841,531 18.27 6,283,632 17.52 ========= ========== ========= ========== ========= ========== Exercisable at end of year ...... 2,112,843 10.78 2,817,185 14.57 3,553,713 16.65 ========= ========== ========= ========== ========= ==========
Stock options outstanding at December 31, 2001 are summarized as follows:
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE RANGE OF OPTIONS AT REMAINING EXERCISE AT EXERCISE EXERCISE PRICES DEC.31, 2001 CONTRACTUAL LIFE PRICE DEC.31, 2001 PRICE - --------------- ------------ ---------------- ----- ------------ ----- $ 0.38 to $ 0.38 35,344 2.17 $ 0.38 35,344 $ 0.38 $ 4.17 to $ 5.63 1,203,098 6.31 $ 4.71 1,203,098 $ 4.71 $ 9.44 to $13.59 1,736,708 8.47 $12.28 598,193 $ 9.83 $13.94 to $23.25 1,976,918 8.35 $17.27 804,175 $18.35 $25.04 to $35.81 1,166,718 7.96 $33.45 825,641 $33.39 $40.87 to $58.06 146,708 8.17 $56.09 76,148 $56.14 $76.25 to $95.00 18,138 8.20 $91.49 11,114 $92.05
Stock-based compensation expense of $335 was recorded and included in selling and administrative expenses in the consolidated statement of operations for the year ended December 31, 1999. No such expenses were incurred during 2000 or 2001. FASB 123 requires pro forma information regarding net income and earnings per share as if the Company has accounted for its employee stock options, warrants and shares of common stock purchased by employees in connection with the ESP Plan ("equity awards") under the fair value method prescribed by 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 1999, 2000 and 2001, respectively: risk-free interest rate of 5.84%, 5.60%, and 3.62%; expected volatility of 0.60, 1.00, and 1.10; expected option life of one year from vesting and an expected dividend yield of 0.0%. The weighted average fair value of options granted during 1999, 2000, and 2001 was $13.20, $13.99, and $9.64, respectively. 41 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:
1999 2000 2001 --------- --------- --------- Pro forma net (loss) income.................. $ (2,072) $ 7,017 $(124,204) Pro forma basic (loss) earnings per share.... $ (0.09) $ 0.24 $ (4.11) Pro forma diluted (loss) earnings per share.. $ (0.09) $ 0.22 $ (4.11)
ANADIGICS, Inc. also sponsors an Employee Savings and Protection Plan under Section 401(k) of the Internal Revenue Code which is available to all full-time employees. Employees can make voluntary contributions up to limitations prescribed by the Internal Revenue Code. The Plan was amended in 2001 and the Company now matches 50% of employee contributions up to 6% of their gross pay. The Company recorded expense of $741 for the year ended December 31, 2001 relating to plan contributions. Company contributions in 1999 and 2000 were determined on an annual basis at the discretion of the Board of Directors. For the years ended December 31, 1999 and 2000, the Company recorded expense of $500 and $550, respectively, relating to plan contributions. 12. OTHER ACCUMULATED COMPREHENSIVE INCOME The components of other accumulated comprehensive income are as follows:
UNREALIZED FOREIGN GAIN (LOSS) CURRENCY ON AVAILABLE- TRANSLATION FOR-SALE ADJUSTMENTS SECURITIES TOTAL ----------- ---------- ----- Balance at December 31, 1999 ............ -- $(126) $(126) Unrealized gain on available- for-sale securities .................. -- 327 327 Foreign currency translation adjustment ........................... 87 -- 87 ----- ----- ----- Balance at December 31, 2000 ............ 87 201 288 Unrealized gain on available- for-sale securities .................. -- 560 560 Foreign currency translation adjustment ........................... (110) -- (110) Net gain recognized in other comprehensive income ................. (30) (30) ----- ----- ----- Balance at December 31, 2001 ............ $ (23) $ 731 $ 708 ===== ===== =====
The earnings associated with the Company's investment in its foreign subsidiaries is considered to be permanently invested and no provision for U.S. federal and state income taxes on those earnings or translation adjustments have been provided. 42 13. EARNINGS PER SHARE The reconciliation of shares used to calculate basic and diluted earnings per share consists of the following: Year ended December 31, ------------------------------------ 1999 2000 2001 ---------- ---------- ---------- Weighted average common shares outstanding used to calculate basic earnings per share .............. 23,602,799 29,712,879 30,248,476 Net effect of dilutive securities - based on treasury stock method using average market price ............ 1,601,083 1,807,010 --* ---------- ---------- ---------- Weighted average common and dilutive securities outstanding used to calculate diluted earnings per share ............................. 25,203,882 31,519,889 30,248,476 ========== ========== ========== * Any dilution arising from the Company's outstanding stock options or shares potentially issuable upon conversion of the Convertible notes are not included as their effect is anti-dilutive. 14. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES During 2001, the Company recorded charges for asset impairment, impairment of investments and for restructuring and other charges amounting to $10,433, $3,061 and $3,775, respectively. The asset impairment charge of $10,433 related to the writedown to fair market value of certain manufacturing and research fixed assets, as they are surplus to the Company's foreseeable operating levels and research activities. Certain of these assets which are no longer in use are held-for-sale and an estimated recoverable value of $1,000 has been included in other current assets. The charge for impairment of investments was recorded for certain private-equity investments following an evaluation of the Company's investments which indicated that the carrying value of such investments exceeded the estimated fair market value. The restructuring and other charge was for severance and related benefit costs of workforce reductions as well as certain lease related undertakings. The workforce reductions eliminated 109 positions throughout the Company and $1,635 of benefits were paid through December 31, 2001, with the remainder anticipated to be paid out in 2002. During 1999, the Company reversed $441 of a manufacturing restructuring charge recorded during 1998. 15. LEGAL PROCEEDINGS The consolidated securities class action, captioned In re ANADIGICS, Inc. Securities Litigation, No. 98-CV-917 (MLC) (D.N.J.), and shareholder's derivative lawsuit, captioned Deegan v. Rosenzweig, No. 98-CV-3640 (MLC) (D.N.J.), became final and was funded in mid-January 2000 pursuant to a final Order of the United States District Court for the District of New Jersey dated December 7, 1999. The total settlement payment (including the legal fees and other costs of administering the settlement) was $11,875, of which approximately $5,325 was paid on behalf of ANADIGICS, Inc. by the Company's insurers. 16. SUBSEQUENT EVENTS (UNAUDITED) During the first quarter of 2002, management has taken certain actions and the Company will record a restructuring charge of approximately $8 million as a result of such actions. The charge relates primarily to obligations associated with a facility which was subleased during the first quarter and costs incurred during the first quarter to exit certain fiber research activities. 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED ----------------------------------------------------------------------------------------- APRIL 2, JULY 2, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT.29, DEC.31, 2000 2000 2000 2000 2001 2001 2001 2001 -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales ............................. $ 43,005 $ 47,517 $ 51,075 $ 30,671 $ 28,520 $ 18,897 $ 16,340 $ 21,008 Cost of sales ......................... 21,833 23,135 24,810 19,693 21,205 26,235 18,197 22,060 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit (loss) ................... 21,172 24,382 26,265 10,978 7,315 (7,338) (1,857) (1,052) Research and development .............. 9,789 10,181 10,852 8,977 10,051 9,972 9,478 8,263 Selling and administrative expense ............................ 6,137 6,627 7,121 6,317 6,640 7,369 6,872 6,401 Restructuring and other charges ............................ -- -- -- -- -- 900 1,195 1,680 Asset impairment charges .............. -- -- -- -- -- 800 4,506 5,127 Purchased in-process R&D .............. -- -- -- -- -- 3,800 -- -- -------- -------- -------- -------- -------- -------- -------- -------- Operating (loss) income ............... 5,246 7,574 8,292 (4,316) (9,376) (30,179) (23,908) (22,523) Interest income, net .................. 2,499 2,621 2,756 2,645 2,362 1,594 1,506 843 Impairment on investments ............. -- -- -- -- -- -- -- (3,061) Other income (loss) ................... 1,049 290 15 (75) (60) 11 3 7 -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes .............................. 8,794 10,485 11,063 (1,746) (7,074) (28,574) (22,399) (24,734) Provision (benefit) for income taxes .............................. 3,254 3,879 3,986 (1,415) (2,476) 26,814 -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) ..................... $ 5,540 $ 6,606 $ 7,077 $ (331) (4,598) (55,388) (22,399) (24,734) -------- -------- -------- -------- -------- -------- -------- -------- Basic earnings (loss) per share .............................. $ 0.19 $ 0.22 $ 0.24 $ (0.01) $ (0.15) $ (1.84) $ (0.74) $ (0.81) -------- -------- -------- -------- -------- -------- -------- -------- Diluted earnings (loss) per share .......................... $ 0.18 $ 0.21 $ 0.23 $ (0.01) $ (0.15) $ (1.84) $ (0.74) $ (0.81) ======== ======== ======== ======== ======== ======== ======== ========
43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2002 annual meeting of shareholders that is responsive to the information required with respect to this item. ITEM 11. EXECUTIVE COMPENSATION. The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2002 annual meeting of shareholders that is responsive to the information required with respect to this Item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2002 annual meeting of shareholders that is responsive to the information required with respect to this Item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant incorporates by reference herein information to be set forth in its definitive proxy statement for its 2002 annual meeting of shareholders that is responsive to the information required with respect to this Item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. Financial Statements Financial Statements are included in Item 8, "Financial Statements and Supplementary Data" as follows: - Report of Independent Auditors - Consolidated Balance Sheets - December 31, 2000 and 2001 - Consolidated Statements of Operations - Years ended December 31, 1999, 2000, and 2001 - Consolidated Statements of Comprehensive Income - Years ended December 31, 1999 2000, and 2001 - Consolidated Statements of Shareholders' Equity - Years ended December 31, 1999, 2000, and 2001 - Consolidated Statements of Cash Flows - Years ended December 31, 1999, 2000, and 2001 - Notes to Consolidated Financial Statements (a)2. Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 44 (b) Reports on Form 8-K filed during the quarter ended December 31, 2001. Current Report on Form 8-K dated November 20, 2001 (disclosing, under Item 5, the dissemination on November 16, 2001 of a press release announcing the Company's proposed offering of convertible senior notes). Current Report on Form 8-K dated November 21, 2001 (disclosing, under Item 5, the dissemination on November 21, 2001 of a press release announcing the Company's agreement to sell convertible senior notes). (c) Exhibit List 2.1 Stock Purchase Agreement dated April 2, 2001, among the Company, Telcom Devices Corp. and the sellers named therein. Filed as an exhibit to the Company's Current Report on Form 8-K dated April 6, 2001, and incorporated herein by reference. 3.1 Amended and Restated Certificate of Incorporation of the Company, together with all amendments thereto. Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 333-75040), and incorporated herein by reference. 3.2 Amended and Restated By-laws of the Company. Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 333-75040), and incorporated herein by reference. 4.1 Form of Common Stock Certificate. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-89928), and incorporated herein by reference. 4.2 Indenture, dated as of November 27, 2001, between the Company, as Issuer, and State Street Bank & Trust Company, N.A., as Trustee for the 5% Convertible Senior Notes due November 15, 2006. Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 333-75040), and incorporated herein by reference. 4.3 Form of Registration Rights Agreement. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-89928), and incorporated herein by reference. 4.4 Schedule to Form of Registration Rights Agreement. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-20783), and incorporated herein by reference. 4.5 Rights Agreement dated as of December 17, 1998 between the Company and Chase Mellon Shareholder Services L.L.C., as Rights Agent. Filed as an Exhibit to the Company's current report on Form 8-K filed on December 17, 1998, and incorporated herein by reference. 4.6 Amendment No. 1 as of November 20, 2000 to the Rights Agreement dated as of December 17, 1998 between the Company and Chase Mellon Shareholder Services L.L.C., as Rights Agent. Filed as an exhibit to the Company's Current report on Form 8-K filed on December 4, 2000. 4.7 Registration Rights Agreement, dated November 27, 2001, between the Company, as Issuer, and the Purchasers of the 5% Convertible Senior Notes due November 15, 2006. Filed as an Exhibit to the Company's Registration Statement on Form S-3 (Registration No. 333-75040), and incorporated herein by reference. 4.8 Form of 5% Convertible Senior Note due November 15, 2006 (included in Exhibit 4.2). 10.1 1994 Long-Term Incentive and Share Award Plan. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-89928), and incorporated herein by reference. 10.2 1995 Long-Term Incentive and Share Award Plan, as amended May 29, 1997 and May 24, 2000. Filed as an exhibit to the Company's current report on Form S-8 (Registration No. 333-49632), and incorporated herein by reference. 10.3 Employee Savings and Protection Plan. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33- 89928), and incorporated herein by reference. 10.4 Form of Employee Stock Purchase Plan. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33- 89928), and incorporated herein by reference. 45 10.5 Lease Agreement between Mt. Bethel Corporate Center and the Company dated May 1, 1993. Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-89928), and incorporated herein by reference. 10.6 Lease Agreement between United States Land Resources, L.P. and the Company dated as of April 26, 1996. Filed as an exhibit to the Company's Registration Statement on Form S-1(Registration No. 333-20783), and incorporated herein by reference. *10.7 First Amendment, dated as of November 20, 1996, to the Lease agreement between United States Land Resources, L.P. and the Company dated as of April 26, 1996. *10.8 Second Amendment, dated as of September 8, 1997, to the Lease agreement between Warren Hi-Tech Center, L.P. (successor in interest to United States Land Resources, L.P.) and the Company dated as of April 26, 1996. *10.9 Third Amendment, dated as of December 20, 2000, to the Lease agreement between Warren Hi-Tech Center, L.P. (successor in interest to United States Land Resources, L.P.) and the Company dated as of April 26, 1996. 10.10 Employment Agreement between the Company and Dr. Bamdad Bastani, dated September 17, 1998. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, and incorporated herein by reference. 10.11 Employment Agreement between the Company and Ronald Rosenzweig, dated June 1, 1999. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 4, 1999, and incorporated herein by reference. *10.12 Amendment No. 1 as of March 15, 2002, to the Employment Agreement dated June 1, 1999, between the Company and Ronald Rosenzweig. *10.13 Employment Agreement between the Company and Thomas Shields, dated July 25, 2000. *10.14 Employment Agreement between the Company and Charles Huang, dated July 25, 2000. *21 Subsidiary Listing *23.1 Consent of Ernst and Young LLP. 24.1 Power of Attorney (included on the signature page of this Annual report on Form 10-K). *Filed herewith. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of March, 2002. ANADIGICS, INC. BY: /s/ Bami Bastani ----------------------------------------- Dr. Bami Bastani CHIEF EXECUTIVE OFFICER AND PRESIDENT KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bami Bastani and Thomas Shields as his/her attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her and in his/her name, place, and stead, in any and all capacities, to sign and file any and all amendments to this Annual Report on Form 10-K, with all exhibits thereto and hereto, and other documents with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE - --------------------------- ----------------------------------------------- -------------- /s/ Bami Bastani President, Chief Executive Officer and March 27, 2002 - --------------------------- Director (Principal Executive Officer) Dr. Bami Bastani /s/ Thomas C. Shields Senior Vice President and Chief Financial March 27, 2002 - --------------------------- Officer (Principal Financial Accounting Officer) Thomas C. Shields /s/ Ronald Rosenzweig Chairman of the Board of Directors March 27, 2002 - --------------------------- Ronald Rosenzweig /s/ Paul S. Bachow Director March 27, 2002 - --------------------------- Paul S. Bachow /s/ David Fellows Director March 27, 2002 - --------------------------- David Fellows /s/ Harry T. Rein Director March 27, 2002 - --------------------------- Harry T. Rein /s/ Lewis Solomon Director March 27, 2002 - --------------------------- Lewis Solomon /s/ Dennis F. Strigl Director March 27, 2002 - --------------------------- Dennis F. Strigl
47 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - --------------------------------------------- --------- ---------- ---------- --------- (DOLLARS IN THOUSANDS) Year ended December 31, 2001: Deducted from asset account: Allowance for doubtful accounts ........... $ 275 $ 442 $ (2)(1) $ 715 Sales return allowance .................... 537 -- (537)(2) -- Reserve for excess and obsolete inventory . 5,828 12,905 (10,231)(3) 8,502 Reserve for warranty claims ................. 403 869 (312)(4) 960 Year ended December 31, 2000: Deducted from asset account: Allowance for doubtful accounts ........... $ 185 $ 173 $ (83)(1) $ 275 Sales return allowance .................... 300 840 (603)(2) 537 Reserve for excess and obsolete inventory . 3,136 5,975 (3,283)(3) 5,828 Reserve for warranty claims ................. 490 456 (543)(4) 403 Year ended December 31, 1999: Deducted from asset account: Allowance for doubtful accounts ........... $ 128 $ 97 $ (40)(1) $ 185 Sales return allowance .................... -- 400 (100)(2) 300 Reserve for excess and obsolete inventory . 8,030 489 (5,383)(3) 3,136 Reserve for warranty claims ................. 304 186 -- 490
- ------------------------- (1) Uncollectible accounts written-off to the allowance account. (2) Sales returns to the allowance account. (3) Inventory write-offs to the reserve account. (4) Warranty expenses incurred to the reserve for warranty claims. 48 EX-10.7 3 b317451_ex10-7.txt FIRST AMENDMENT TO LEASE FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (hereinafter referred to as "this Amendment") is made on this 20 day of November, 1996, by and between: UNITED STATES LAND RESOURCES, L.P., a New Jersey limited partnership, having an address in care of Berger & Bornstein, P.A., P.O. Box 2049, 237 South Street, Morristown, New Jersey, 07962-2049 (hereinafter referred to as the "Landlord'). and ANADIGICS, INC., a Delaware corporation, having an address at 35 Technology Drive, Warren, New Jersey 07059 (hereinafter referred to as the "Tenant"). WHEREAS, Landlord and Tenant are parties to a certain Lease dated as of April 26, 1996 (hereinafter referred to as the "Lease"), under which Tenant leases from Landlord certain premises ("Demised Premises") located at 141 Mt. Bethel Road, Warren, New Jersey; and WHEREAS, the Lease provided that the Landlord was to commence and/or complete certain work or satisfy certain conditions by prescribed dates; and WHEREAS, Landlord has completed certain work and fulfilled certain of the conditions to the satisfaction of the Tenant; and WHEREAS, the parties have agreed to change certain dates contained in the Lease with respect to certain work or conditions which have not as yet been completed or satisfied; and WHEREAS, the Parties wish to memorialize in an amendment to the Lease that certain of the work and conditions have been completed or fulfilled to the satisfaction of Tenant and that the parties have agreed to change certain dates for the completion or satisfaction by Landlord of certain other work and conditions, NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows: 1. Tenant agrees that the condition in Paragraph 2b of the Lease requiring Landlord to receive an affirmative vote of the planning board with respect to the site plan shall be deemed satisfied in full, irrespective of the August 1, 1996 requirement contained therein, and, therefore, Tenant shall no longer have any right to terminate the Lease or other remedy with respect to said condition. 2. The dates of December 31, 1996 and January 10, 1997 set forth in paragraph 2b with respect to the right of Tenant to terminate the Lease if the Commencement Date does not occur by a specified date, are changed to March 31, 1997 and April 10, 1997, respectively. 3. The first sentence of paragraph 2c of the Lease is deleted and the following inserted in its place: In the event the Landlord has not completed any paving work which Landlord is obligated to do pursuant to the terms of the Lease (except for the "top coat" which Landlord shall not be obligated to complete until June 1, 1997) by March 31, 1997, Tenant may by written notice to Landlord, notify Landlord that Tenant intends to complete said work. 4. The December 31, 1996 date referred to in paragraph 2d of the Lease with respect to completion of site work other than the aforesaid landscaping and top coat paving, is changed to March 31, 1997. 5. Tenant agrees that the condition contained in paragraph 2e of the Lease with respect to roof work which Landlord was obligated to perform shall be deemed satisfied in full, irrespective of the July 1, 1996 or the August 1, 1996 requirements contained therein, and, therefore, Tenant shall no longer have any self help or other remedies under the Lease with respect to this condition. 6. The December 31, 1996 date referred to in paragraph 2f of the Lease with respect to the substantial completion of the work on the "skin" of the building, is changed to February 28, 1997. The parties acknowledge that included in the installation of the "skin" is any finish work integrating the "skin" and the roof so as to form a water tight connection. 7. Tenant agrees that the condition contained in paragraph 2g of the Lease with respect to substantial completion of demolition of certain interior items by Landlord shall be deemed satisfied in full, irrespective of the August 1, 1996 requirements contained therein, and, therefore, Tenant shall no longer have any self help or other remedies under the Lease with respect to this condition. 8. The December 31, 1996 date contained in paragraph 16a of the Lease with respect to the remediation of certain chemicals in the area shown on Exhibit F by Landlord, is changed to February 28, 1997. 9. Tenant agrees that the requirements contained in paragraph 16a of the Lease with respect to the remediation of asbestos and "lead dust" by Landlord, shall be deemed satisfied in full, irrespective of the June 1, 1996 requirements contained therein, and, therefore, Tenant shall no longer have any self help or other remedies under the Lease with respect to these conditions. 10. Tenant acknowledges that it knows of no default on the part of either Landlord or itself under the Lease, nor does it know of any matter or fact, which upon the giving of notice or the passage of time, or both, would constitute a default under the Lease by either Landlord or itself. 11. Except as modified by this Amendment, the Lease shall remain unmodified and Tenant acknowledges that it has no existing offsets or defenses with respect to the Lease, as amended by this Amendment or to Tenant's obligations thereunder. 12. The Lease, as amended by this Amendment, is and shall remain in full force and effect and shall constitute the full and complete expression of the lease agreement between the parties with respect to the Demised Premises. 13. This Amendment will bind and inure to the benefit of the Landlord and Tenant and their respective legal representatives, successors and permitted assigns. The parties have executed this Amendment to the Lease on the day and year first above written. LANDLORD: UNITED STATES LAND RESOURCES, L.P. By: United States Reality Resources, Inc. General Partner By:_______________________________ Lawrence S. Berger, President TENANT: ANADIGICS, INC. By: _________________________________ EX-10.8 4 b317451_ex10-8.txt SECOND AMENDMENT TO LEASE SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE is made as of the 8th day of September, 1997, by and between: WARREN III-TECH CENTER, L.P. having an address c/o Berger and Bornstein 237 South Street Morristown, New Jersey 07962, (hereinafter referred to as "Landlord") and ANADIGICS, INC. a corporation of the State of Delaware having an address at 35 Technology Drive Warren, New Jersey 07059 (hereinafter referred to as "Tenant") W I T N E S S E T H: -------------------- WHEREAS, Landlord's predecessor in interest and Tenant entered into a Lease dated as of the 26th day of April, 1996, as amended on November 20, 1996 (hereinafter collectively referred to as "Lease"); and WHEREAS, Landlord and Tenant have agreed that the terms of the aforementioned Lease should be applied to the entire Building (as hereafter defined) and to certain other modifications to the aforesaid Lease. NOW, THEREFORE, Landlord and Tenant agree as follows: 1. Demised Premises. The term "Demised Premises" shall be expanded to include the entire building known as 141 Mt. Bethel Road, Township of Warren, Somerset County, New Jersey. Said building, together with the land on which it is situated, is hereinafter referred to as the "Building" or "Property". The Demised Premises, including the Additional Premises, contains approximately 167,113 square feet of space. The "Additional Premises" shall mean the premises not presently leased under the Lease. The "Original Premises" shall mean the premises presently leased under the Lease. The Additional Premises shall be divided into two parts as shown on Exhibit A Annexed hereto and shall be referred to as Part A Premises and Part B Premises. 2. Commencement Date. a. The "Commencement Date" for the Part A Premises ("Part A Commencement Date") shall be the later of January 1, 1998 or the date upon which Landlord shall substantially complete the improvements for the Part A Premises set forth on Exhibit B annexed hereto (hereinafter "Landlord's Part A Work"). The termination date shall be December 31, 2016, plus all renewal option periods under the original lease. Landlord's Part A Work shall be deemed substantially complete upon the date that Landlord's Part A Work is complete to the extent that any incomplete Landlord's Part A Work does not interfere with Tenant's ability to obtain a Certificate of Occupancy for the Part A Premises nor unreasonably interfere with Tenant's reasonable use of the Part A Premises. It is agreed that not completing the parking areas obtained by Landlord as part of the "Land Swap," hereinafter defined, or the top coating of any parking areas and landscaping work shall not unreasonably interfere with Tenant's reasonable use of the premises and such work can be postponed to September 1, 1998. Any remaining work shall be deemed "punch list" items. Tenant shall provide Landlord with a list of such items no later than thirty (30) days from the Part A Commencement Date (except for items not required to be completed by said Commencement Date, in which event Tenant shall have thirty (30) days from the date of completion of said items) and Landlord shall complete any such work which shall be Landlord's Part A Work within thirty (30) days of the receipt of said list, weather permitting. At the request of either Landlord or Tenant, the parties shall enter into a Part A Commencement Date Agreement setting forth the Part A Commencement Date. Notwithstanding that the Part A Commencement Date shall not have occurred, Tenant shall have the right from and after the date of this Agreement to access the Part A Premises to do any work that Tenant shall wish to do, so long as Tenant does not unreasonably interfere with Landlord's Part A Work and so long as Tenant's Work does not cause any labor disputes. In the event the Part A Commencement Date shall not occur by January 1, 1998, Tenant may terminate this Lease as to the Part A Premises on written notice to Landlord (hereinafter "Notice to Terminate"). The Notice to Terminate shall be delivered to Landlord on or before January 10, 1998, time being of the essence. Tenant's failure to deliver the Notice to Terminate on or before said date shall be deemed a waiver by Tenant of its right to elect to terminate this Lease as to the Part A Premises pursuant to this subparagraph. 2 b. The Commencement Date for the Part B Premises shall be the later of January 1, 1998 or the date upon which Landlord shall substantially complete the improvements for the Part B Premises set forth on Exhibit C annexed hereto, (hereinafter "Landlord's Part B Work"). The termination date shall be December 31, 2016, plus all renewal periods under the original lease. Landlord's Part B Work shall be deemed substantially complete upon the date that Landlord's Part B Work is complete to the extent that any incomplete Landlord's Part B Work does not interfere with Tenant's ability to obtain a Certificate of Occupancy for the Part B Premises nor unreasonably interfere with Tenant's reasonable use of the Part B premises. It is agreed that not completing the parking areas obtained by Landlord as part of the "Land Swap" hereinafter defined or the top coating of any parking areas and landscaping work shall not unreasonably interfere with Tenant's reasonable use of the premises and such work can be postponed to September 1, 1998. Any remaining work shall be deemed "punch list" items. Tenant shall provide Landlord with a list of such items no later than thirty (30) days from the Part B Commencement Date (except for items not required to be completed by said Commencement Date, in which event Tenant shall have thirty (30) days from the date of completion of said items). Landlord shall complete any such work which shall be Landlord' Part B Work within thirty (30) days of the receipt of said list weather permitting. At the request of either Landlord or Tenant, the parties shall enter into a Part B Commencement Date Agreement setting forth the Part B Commencement Date. Notwithstanding that the Part B Commencement Date shall not have occurred, Tenant shall have the right, from and after the date of this Agreement, to access the Part B Premises to do any work that Tenant shall wish to do, so long as Tenant does not unreasonably interfere with Landlord's Part B Work and so long as Tenant's Work does not cause any labor disputes. In the event the Part B Commencement Date shall not occur by June 30, 1998, Tenant may terminate this Lease as to the Part B Premises on written notice to Landlord (hereinafter "Notice to Terminate"). The Notice to Terminate shall be delivered to Landlord on or before July 10, 1998, time being of the Essence. Tenant's failure to deliver the Notice to Terminate on or before said date shall be deemed a waiver by Tenant of its right to elect to terminate this Lease as to the Part B Premises pursuant to this subparagraph. In the event that Tenant does not terminate as is provided for above and in the event that the Part B Commencement Date shall not have occurred, Tenant may elect no sooner than July 11, 1998, and no later than July 21, 1998, time being of the essence, to notify Landlord in writing of any work required to be performed by Landlord which is not completed. Landlord shall have twenty (20) business days to complete said work. If Landlord shall not complete said work within such time, Tenant shall have the right, by written notice to Landlord given within five (5) business days of the expiration of said twenty (20) business day period, time being of the essence, to instruct Landlord not to do such work and upon the timely receipt of such notice, Landlord shall no longer be obligated to do such work, and Tenant shall thereafter be obligated to do such work. Tenant's failure to so timely notify Landlord shall be deemed a waiver of Tenant's right to so elect. Tenant shall be entitled to deduct the reasonable cost of doing such work from the next rent due Landlord. 3 3. Rent and Option. a. Tenant's obligation to pay fixed annual rent for the Part A Premises shall commence on the "Part A Commencement Date". Tenant's obligation to pay fixed annual rent for the Part B Premises shall commence on the "Part B Commencement Date." In no event shall the rent for any portion of the Additional Premises commence prior to January 1, 1998. In consideration of the leasing of the Demised Premises including the Part A Premises and/or the Part B Premises, Tenant hereby covenants and agrees to pay Landlord during the Initial Term of this Lease a fixed annual rental pursuant to the following schedule: Including Part A Premises Fixed Monthly Lease Year Annual Rental Installment ---------- ------------- ----------- Commencement Date through December 31, 1997 $ 600,000.00 $ 50,000.00 January 1, 1998 through August 31, 1998 967,291.50 80,607.63 September 1, 1998 through June 30, 1999 984,841.50 82,034.58 Fixed Monthly Lease Year Annual Rental Installment ---------- ------------- ----------- July 1, 1999 through September 30, 1999 1,115,841.50 92,986.79 October 1, 1999 through December 31, 2001 1,124,616.50 93,718.04 January 1, 2002 through March 31, 2002 1,255,616.50 104,634.70 April 1, 2002 through June 30, 2004 1,273,166.50 106,097.20 July 1, 2004 through September 30, 2004 1,404,166.50 117,013.87 4 April 1, 2002 through June 30, 2004 1,493,779.70 124,481.64 July 1, 2004 through September 30, 2004 1,642,329.70 136,860.80 October 1, 2004 through December 31, 2006 1,678,442.70 139,870.22 January 1, 2007 through March 31, 2007 1,940,442.70 161,703.55 April 1, 2007 through June 30, 2009 1,982,695.00 165,224.58 July 1, 2009 through September 30, 2009 2,113,695.00 176,141.25 October 1, 2009 through December 31, 2011 2,161,724.80 180,143.73 January 1, 2012 through March 31, 2012 2,292,725.25 191,060.47 Fixed Monthly Lease Year Annual Rental Installment ---------- ------------- ----------- April 1, 2012 through June 30, 2014 2,328,838.20 194,069.85 July 1, 2014 through September 30, 2014 2,459,838.20 204,986.51 October 1, 2014 through December 31, 2016 2,495,951.20 207,995.93 4. Proportionate Share. Paragraph 4 of the Lease will be amended to provide that the number "173,000 will be changed to 167,113. The number "57.80%" will be changed to 59.83%, and the number "76%" will be changed to 78.39%. For the period from the Part A Commencement Date to the Part B Commencement Date, the Tenant's Proportionate Share shall be 88.8% percent and for the period from the Part B Commencement Date the Tenant's Proportionate Share shall be 100%. 5 5. Estimated Costs. a. At such time as the Part A Premises shall be included in the Demised Premises, the initial monthly additional rent charges for Tenant's Proportionate Share of Real Estate Taxes, water and sewer charges, Common Area Charges and insurance costs (hereinafter together referred to as Operating Costs) shall be initially estimated at the sum of Fifteen Thousand Five Hundred and 00/100 ($15,500.00) DOLLARS, which sum, commencing as of the Part A Commencement Date, shall be paid monthly, on the first day of each month. b. At such time as the Part A Premises and Part B Premises shall be included in the Demised Premises, the initial monthly additional rent charges for Tenant's Proportionate Share of Real Estate Taxes, water and sewer charges, Common Area Charges and insurance costs (hereinafter together referred to as operating Costs) shall be initially estimated at the sum of Seventeen Thousand Five Hundred and 00/100 ($17,500.00) DOLLARS, which sum, commencing as of the Part B Commencement Date, shall be paid monthly, on the first day of each month. 6. Repair and maintenance Paragraph 11 of the Lease shall be amended so that responsibility for the roof of the Additional Premises shall belong to Tenant, unless Tenant shall employ Avon Maintenance to install a new roof on the Additional Premises of like kind and quality as Landlord installed on the original Premises and unless a roof guarantee is obtained by Tenant on substantially the same terms and conditions as the existing roof guarantee for the Original Premises in which case Landlord should be responsible in accordance with the terms of paragraph 11 of the Lease. 7. Landlord's Right to Make Improvements. Paragraph 20 of the Lease is hereby deleted. 8. Security. Tenant shall, upon execution of this Second Amendment to Lease, pay to Landlord as security for the full and faithful performance of the obligations of Tenant to be performed by Tenant pursuant to this Lease additionally, the sum of TWO HUNDRED FIFTY THOUSAND ($250,000.00) DOLLARS ("Security"). Said sum shall be returned without interest to the Tenant, at the rate of FIFTY THOUSAND ($50,000.00) DOLLARS per year and credited against rent for the months of January 1999, January 2000, January 2001, January 2002 and January 2003, provided that the Tenant shall not then be in default of the terms, covenants and conditions an its part to be performed. The return of the additional Security Deposit shall be personally guaranteed by Lawrence S. Berger. 6 9. Brokers a. Tenant and Landlord represent and warrant that neither they nor any of their employees or agents have acted so as to entitle any brokers to a commission in connection with this Second Amendment to Lease except Weichert Commercial Realtors. Landlord shall pay Weichert Commercial Realtors in accordance with a separate commission agreement. b. In the event Tenant or Landlord shall have breached their representations and warranties set forth in paragraph 9a above, the breaching party covenants and agrees to indemnify and hold the other harmless against any claim asserted by any broker, or by anyone else with whom they dealt, for any compensation in bringing about this transaction and to reimburse the non-breaching party for any costs or expenses including, without limitation, reasonable attorneys' fees and disbursements, incurred by the non-breaching party in defending against claims made against non-breaching party for any such compensation. 10. Tax Liens. Paragraph 31 shall be deleted. 11. Additional Payment by Tenant. Tenant shall pay Landlord the sum of THREE HUNDRED FIFTY THOUSAND ($350,000.00) in the manner hereinafter set forth which shall be Tenant's net contribution for the items set forth on Exhibit D hereof, after deducting Landlord's contribution for items set forth on Exhibit D. 7 The manner of payment shall be as follows: Previously paid $ 50,000.00 On completion of footings For Second Lobby $100,000.00 On completion of steel For Second Lobby $ 50,000.00 On Completion of roof For Second Lobby $ 50,000.00 On Tenant's occupying any portion of Phase E as shown on plan attached as Exhibit E S100,Q00,00 ----------- TOTAL $350,000.00 12. Tenant's Additional Remedies for Failure of Landlord to Complete Work Required for a Certificate of Occupancy for Phases B, C and D. Tenant is concerned that Landlord's failure to complete work that Landlord is required to perform for the Additional Premises will interfere with Tenant's ability to obtain a Certificate of Occupancy for Phases B, C and D of the Original Premises as shown on Exhibit E attached hereto. Landlord agrees that in the event that such a situation arises, Tenant shall notify Landlord of which such work is not completed, and Landlord shall have twenty (20) business days to complete said work. If Landlord shall not complete said work within such time, Tenant shall have the right, by written notice to Landlord given within five (5) business days of the expiration of said twenty (20) business day period, time being of the essence, to instruct Landlord not to do such work and upon the timely receipt of such notice, Landlord shall no longer be obligated to do such work and Tenant shall thereafter be obligated to do such work. Tenant's failure to so timely notify Landlord shall be deemed a waiver of Tenant's right to so elect. Tenant shall be entitled to deduct the reasonable cost of doing such work from the next rent due Landlord. In any such event, Tenant's fixed rent for any portion of the space in Phases B, C and D which Tenant cannot occupy because of Landlord's failure to complete Landlord's work shall abate from the date Tenant is unable to obtain such Certificate of Occupancy until such time as Tenant shall be able to occupy such space. In the event Tenant elects to do such work, Tenant agrees to immediately commence and diligently pursue the completion of such work. 8 13. Land Swap. Landlord has, with Tenant's agreement, arranged with Atlantic Development and its affiliated entities (hereafter "Atlantic") to exchange a portion of the land which is part of the Property for a parcel of land owned by Atlantic. At such time as the land swap is completed, the Property shall no longer include the parcel of land to be conveyed by Landlord and shall include the parcel of land to be conveyed to Landlord by Atlantic. 14. Rent Commencement. The Rent Commencement Date for the Original Premises shall be agreed to be November 22, 1997. 15. Paragraph 7 of the Lease shall be amended to provide that Tenant shall be responsible for all snow removal for the Demises Premises, including any sanding and/or salting. 16. Paragraph 29a. of the Lease is deleted. 17. The number twenty five thousand (25,000) square feet in Subparagraph 18c(l) shall be increased to thirty thousand (30,000) square feet; the number fifty thousand (50,000) square feet in subparagraph 18c(2) shall be increased to sixty thousand (60,000) square feet; and the number one hundred thousand (100,000) square feet in subparagraph 18c(3) and (4) shall be increased to one hundred twenty five thousand (125,000) square feet. 18. This Amendment is only intended to modify and amend those provisions of the Lease as specified in this Amendment, and, except as specified herein, all of the terms and conditions of the Lease, as previously amended, shall remain in full force and effect. 9 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. LANDLORD: WARREN HI-TECH CENTER, L.P. BY UNITED STATES LAND RESOURCES, L.P., General Partner BY UNITED STATES REALTY RESOURCES, INC., General Partner By:_____________________________ LAWRENCE S. BERGER, President TENANT: ANADIGICS, INC. BY:____________________________________ AS TO PARAGRAPH 8 HEREOF -------------------------------------- LAWRENCE S. BERGER 10 [FLOOR PLAN] EXHIBIT A 11 EXHIBIT B LANDLORD'S PART A WORK Tenant accepts Part A of the Additional Premises in an "as-is" condition except that Landlord shall do the following work: 1. Remove existing roof and deck materials which Tenant acknowledges as completed. 2. Install new roof J-Joists as shown on plans S-6 and S-8 attached hereto as Exhibit E, which Tenant acknowledges as completed. 3. Remove curb on floor and patch concrete, which Tenant acknowledges as completed. 4. Fill in basement areas which Tenant acknowledge as completed. 5. Remove all piping and equipment which Tenant acknowledges is complete except for pipes not level to floor. 6. Remove tile and fixtures and pipe in bathroom which Tenant acknowledges is completed. 7. Remove outside block wall and replace block columns with steel columns, which Tenant acknowledges as completed. 8. Re-skin exterior of Building as shown on plans A-12 and A-13 dated 4/15/97, as revised 4/22/97, attached hereto as Exhibit F. Tenant shall be responsible for all roof drains to and including the point of tie into Landlord's existing sleeves and any other roof drains which Tenant wishes to install. Landlord shall be responsible for all roof drainage once it leaves the Building. 12 EXHIBIT C LANDLORD'S PART B WORK 1. Construct new Building as is shown on plan A-16 dated 5/21/97, as revised 8/2/97, attached hereto as Exhibit G. 2. Remove roof and deck on portion of Building shown on plan A-16 dated 5/21/97, as revised 8/2/97, attached hereto as Exhibit G. 3. Fill in all basement areas. 4. Remove chimney which Tenant acknowledges is complete. 5. Re-skin Building as shown on plan A-17 dated 4/23/97, revised 8/2/97, attached hereto as exhibit II. Tenant shall be responsible for all roof drains to and including the point of tie into Landlord's existing sleeves and any other roof drains which Tenant wishes to install. Landlord shall be responsible for all roof drainage once it leaves the Building. 13 EXHIBIT D WORK FOR WHICH TENANT MADE CONTRIBUTION 1. Survey 2. Ramp 3. P.I.V. 4. Gate valves 5. Remobilization 6. Dirt moving 7. New Drainage Pond* a. Footings and fire wall 9. Second Lobby (as described on Exhibit I attached hereto) 10. Fire hydrant 11. Additional contribution required for Technology Drive. 12. Additional engineering for Technology Drive 13. Additional landscaping for Technology Drive *To the extent that Atlantic Development or any of its affiliated entities makes a contribution for the Drainage Pond in lieu of taking the 6.8 CFS of flow previously agreed to, Landlord and Tenant shall divide any such sum 50/50. WORK FOR WHICH LANDLORD MADE CONTRIBUTION 1. Additional insulation 2. Electric salvage 3. Repair required after roof drain installation 14 EXHIBIT I Landlord shall complete the following work on the Second Lobby at Landlord's cost and expense in accordance with plans of Vatche Simonian, Inc. dated July 3, 1997: 1. Construct footings necessary to hold steel for Second Lobby. 2. Pour slab and finish interior and exterior lobby walks with 4"x8"x2" brick pavers. 3. Provide and erect steel to hold lobby roof. 4. Provide and install lobby roof. 5. Finish west wall of lobby with spandrel glass panels to match existing exterior spandrel panels. 6. Construct east wall of lobby with cement blocks, wall finished by Tenant. 7. Provide and install glass end walls of lobby and exterior doors to lobby on north and south elevations. 15 EX-10.9 5 b317451_ex10-9.txt THIRD AMENDMENT TO LEASE THIRD AMENDMENT TO LEASE THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made as of the 20th day of December, 2000, by and between: WARREN HI-TECH CENTER, L.P. having an address c/o Berger and Bornstein 237 South Street Morristown, New Jersey 07962, (hereinafter referred to as "Landlord") and ANAD1GICS, INC. a corporation of the State of Delaware having an address at 35 Technology Drive Warren, New Jersey 07059 (hereinafter referred to as "Tenant") WITNESSETH: WHEREAS, Landlord's predecessor in interest and Tenant entered into a Lease dated as of the 26th day of April, 1996 (the "Original Lease"), which original Lease was amended by a First Amendment to Lease dated November 20, 1996 (the "First Amendment") and by a Second Amendment to Lease dated September 8, 1997 (the "Second Amendment"); and WHEREAS, the Original Lease, as amended by the First Amendment and the Second Amendment, is hereinafter referred to as the "Lease" (all capitalized terms used herein, unless otherwise provided herein, shall have the respective meanings ascribed to said terms in the Lease); and WHEREAS, Landlord and Tenant have agreed to modify the Lease in accordance with the terms of this Third Amendment to Lease. NOW, THEREFORE, Landlord and Tenant agree as follows: 1. Demised Premises. Landlord intends to construct an approximately 60,000 square foot building on the Property as shown on Exhibit A hereto (the "New Building"). The New Building is hereby designated an the "Part B Premises" in the Lease and the former "Part B Premises" shown on Exhibit A to the Second Amendment is eliminated and replaced with the Exhibit A attached to this Amendment. 2. Part B Premises: (a) Paragraph 2(b) of the Second Amendment is hereby deleted in its entirety. (b) As of the date (the "Phase I Part B Commencement Date") Tenant receives written notice from Landlord that Landlord has substantially completed the improvements to the Part B Premises as set forth as items 1 through 5 on Exhibit B hereto ("Landlord's Part B Work"): (i) the term Demised Premises under the Lease shall be deemed to include the first floor of the Part B Premises containing approximately 36,000 square feet of space (the "Phase I Part B Premises"); and (ii) fixed annual rental for the Demised Premises shall be paid in accordance with Paragraph 3(b) of this Amendment. Landlord's Part B Work shall be deemed substantially complete upon the date that Landlord's Part B Work has been performed to the extent that any incomplete Landlord's Part B Work does not interfere with Tenant's ability to obtain a Certificate of Occupancy for the Part B Premises, as it is Tenant's responsibility to obtain the Certificate of Occupancy for the Part B Premises. Landlord shall target December 31, 2001, as the date Landlord's Work is to be substantially completed. Any remaining work of Landlord shall be deemed "punch list" items. Tenant shall provide Landlord with a list of such items no later than thirty (30) days from the Part B Commencement Date. Landlord shall complete any such work which shall be Landlord's Part B Work within thirty (30) days of the receipt of said list, weather permitting. Notwithstanding the foregoing, in the event that Tenant cannot obtain a Certificate of Occupancy for the Phase I Part B Premises solely as a result of Landlord's (1) failure to perform Landlord's Work in accordance with the terms of this Amendment or (2) failure to comply with governmental requirements which are the responsibility of Landlord, then Tenant's obligation to pay fixed annual rent for the Phase I Part B Premises shall be stayed from the date of Landlord's receipt from Tenant of written notice setting forth Landlord's failure to perform Landlord's work or Landlord's failure to comply with such governmental requirements, as applicable, through the date Landlord performs such unperformed Landlord's Work or the date Landlord complies with such governmental requirements, as applicable. (c) As of the date (the "Phase 11 Part B Commencement Date") that is the earlier to occur of (i) one and one-half (l 1/2) years after the Phase I Part B Commencement Date or (ii) the date Landlord receives written notice from Tenant that Tenant intends to occupy all or a portion of the approximately 10,000 square foot portion of the second floor of the Part B Premises shown on Exhibit A as the "Phase 11 Part B Premises". (i) The term Demised Premises under the Lease shall be deemed to include the Phase 11 Part B Premises; and (ii) Fixed annual rental for the Demised Premises shall be paid in accordance with paragraph 3 (c) of this Amendment. Notwithstanding the foregoing, in the event that Tenant cannot obtain a Certificate of Occupancy for the Phase 11 Part B Premises solely as a result of Landlord's (1) failure to perform Landlord's Work in accordance with the terms of this Amendment or (2) failure to comply with governmental requirements which are the responsibility of Landlord, then Tenant's obligation to pay fixed annual rent for the Phase 11 Part B Premises shall be stayed from the date of Landlord's receipt from Tenant of written notice setting forth Landlord's failure to perform Landlord's work or Landlord's failure to comply with such governmental requirements, as applicable, through the date Landlord performs such unperformed Landlord's Work or the date Landlord complies with such governmental requirements, as applicable. (d) As of the date (the "Phase III Part B Commencement Date") that is the earlier to occur of (i) one (1) year after the Phase 11 Part B Commencement Date or (ii) the date Landlord receives written notice from Tenant that Tenant intends to occupy all or a portion of the approximately 14,000 square foot portion of the second floor of the Part B Premises shown on Exhibit A as the "Phase III Part B Premises"; (i) The term Demised Premises under the Lease shall be deemed to include the Phase III Part B Premises; and (ii) Fixed annual rental for the Demised Premises shall be paid in accordance with paragraph 3(d) of this Amendment. Notwithstanding the foregoing, in the event that Tenant cannot obtain a Certificate of Occupancy for the Phase III Part B Premises solely as a result of Landlord's (1) failure to perform Landlord's Work in accordance with the terms of this Amendment or (2) failure to comply with governmental requirements which are the responsibility or Landlord, then Tenant's obligation to pay fixed annual rent for the Phase III Part B Premises shall be stayed from the date of Landlord's receipt from Tenant of written notice setting forth Landlord's failure to perform Landlord's work or Landlord's failure to comply with such governmental requirements, as applicable, through the date Landlord performs such unperformed Landlord's Work on the date Landlord complies with such governmental requirements, as applicable. (e) In the event Tenant shall occupy the Phase II Part B Premises or the Phase III Part B Premises prior to the Phase 11 Part B Commencement Date or the Phase III Part B Commencement Date, as applicable, without first giving Landlord written notice pursuant to paragraph 2(c) or 2(d) above, as applicable, Tenant shall be liable for double the fixed annual rental plus Operating Costs provided for in paragraph 3 (d) of this Amendment attributable to the Phase 11 Part B Premises, or the Phase III Part B premises, as applicable, from the first day of such occupation through the date that Tenant would have otherwise been obligated to pay fixed annual rental for the Phase 11 Part B Premises or the Phase III Part B Premises, as applicable. Notwithstanding the foregoing, Tenant shall not be obligated to pay double rent as provided in the immediately preceding sentence in the event Tenant completely vacates the applicable premises within thirty (30) days after Tenant's receipt of written notice from Landlord demanding that Tenant vacate such premises. Under no circumstances, however, shall Tenant be entitled to more than one (1) such notice throughout the term of the Lease and after one (1) notice is given, subsequent violations shall result in the double rent provision being automatically imposed upon Tenant. 3. Rent. (a) Prior to the Phase I Part B Commencement Date, Tenant shall continue to pay fixed annual rental during the Initial Term as follows: Fixed Monthly Lease Year Annual Rental Installment Through December 31, 2001 $1,124,616.50 $ 93,718.04 January 1, 2002 through March 31, 2002 $1,255,616.50 $104,634.70 April 1, 2002 through June 30, 2004 $1,273,166.50 $106,097.20 July 1, 2004 through September 30, 2004 $1,404,166.50 $117,013.87 October 1, 2004 through December 31, 2006 $1,421,716.50 $118,476.37 January 1, 2007 through March 31, 2007 $1,683,716.50 $140,309.70 April 1, 2007 through June 30, 2009 $1,704,250.00 $142,020.83 July 1, 2009 through September 30, 2009 $1,835,250.00 $152,937.50 October 1, 2009 through December 31, 2011 $1,858,591.15 $154,882.62 January 1, 2012 through March 31, 2012 $1,989,591.50 $165,799.29 April 1, 2012 through June 30, 2014 $2,007,141.50 $167,261.79 July 1, 2014 through September 30, 2014 $2,138,141.50 $178,178.45 October 1, 2014 through December 31, 2016 $2,155,691.50 $179,640.96 (b) From and after the Phase I Part B Commencement Date, Tenant shall pay to Landlord during the Initial Term of the Lease a fixed annual rental pursuant to the following schedule: Fixed Monthly Lease year Annual Rental Installment From Phase I Part B Commencement Date through 1,541,721.41 128,476.78 December 31, 2001 January 1, 2002 through 1,681,496.41 140,124.70 March 31, 2002 April 1, 2002 through 1,717,501.41 143,124.70 June 30, 2004 July 1, 2004 through 1,866,046.41 155,503.87 September 20, 2004 October 1, 2004 through 1,919,596.41 159,966.37 December 31, 2006 January 1, 2007 through 2,181,596.41 181,799.70 March 31, 2007 April 1, 2007 through 2,244,250.00 187,020.83 June 30, 2009 July 1, 2009 through 2,375,250.00 197,937.50 September 30, 2009 October 1, 2009 through 2,446,471.01 203,872.58 December 31, 2011 January 1, 2012 through 2,577,471.46 214,789.29 March 31, 2012 April 1, 2012 through 2,631,021.41 219,251.78 June 30, 2014 July 1, 2014 through 2,762,021.41 230,168.45 September 30, 2014 October 1, 2014 through 2,815,571.41 234,630.95 December 31, 2016 (c) From and after the Phase 11 Part B Commencement Date, Tenant shall pay to Landlord during the Initial Term of the Lease a fixed annual rental pursuant to the following schedule: Fixed Monthly Lease Year Annual Rental Installment From Phase II Part B Commencement Date through 1,660,021.41 138,335.12 December 31, 2001 January 1, 2002 through 1,799,796.41 149,983.03 March 31, 2002 April 1, 2002 through 1,845,801.41 153,816.37 June 30, 2004 July 1, 2004 through 1,994,346.41 166,195.53 September 30, 2004 October 1, 2004 through 2,057,896.41 171,491.37 December 31, 2006 January 1, 2007 through 2,319,896.41 193,324.70 March 31, 2007 April 1, 2007 through 2,394,250.00 199,520.83 June 30, 2009 July 1, 2009 through 2,525,250.00 210,437.50 September 30, 2009 October 1, 2009 through 2,609,771.01 217,480.96 December 31, 2011 January 1, 2012 through 2,740,771.46 228,397.62 March 31, 2012 April 1, 2012 through 2,804,321.41 233,693.45 June 30, 2014 July 1, 2014 through 2,935,321.41 244,610.12 September 30, 2014 October 1, 2014 through 2,998,871.41 249,905.95 December 31, 2016 (d) From and after the Phase III Part B Commencement Date, Tenant shall pay to Landlord during the Initial Term of the Lease a fixed annual rental pursuant to the following schedule: Fixed Monthly Lease Year Annual Rental Installment From Phase III Part B Commencement Data through 1,825,641.41 152,136.78 December 31, 2001 January 1, 2002 through 1,965,416.41 163,784.70 March 31, 2002 April 1, 2002 through 2,025,421.41 168,784.70 June 30, 2004 July 1, 2004 through 2,173,966.41 181,163.87 September 30, 2004 October 1, 2004 through 2,251,516.41 187,126.37 December 31, 2006 January 1, 2007 through 2,513,516.41 209,459.71 March 31, 2007 April 1, 2007 through 2,604,250.00 217,020.83 June 30, 2009 July 1, 2009 through 2,735,250.00 227,937.50 September 30, 2009 October 1, 2009 through 2,838,391.01 236,532.62 December 31, 2011 January 1, 2012 through 2,969,391.46 247,449.29 March 31, 2012 April 1, 2012 through 3,046,941.41 253,911.78 June 30, 2014 July 1, 2014 through 3,177,941.41 264,828.45 September 30, 2014 October 1, 2014 through 3,255,491.41 271,290.95 December 31, 2016 4. Proportionate Share Landlord and Tenant agree and confirm that, as of January 1, 2001, Tenant shall pay 100% of Operating Costs. 5. Roof Work. (a) Tenant desires to install, at Tenant's cost and expense, on the roof of the Building certain equipment(the "Roof Equipment") more particularly shown on the drawings referred to on Exhibit C (the "Engineering Plans") and located as shown on the Architectural Plans (as hereinafter defined). Landlord hereby approves Tenant's installation of the Roof Equipment subject to Tenant obtaining all applicable governmental approvals and permits in connection with said installation and further subject to Tenant's compliance with the provisions of this paragraph. In consideration of Landlord's consent to the installation of the Roof Equipment, Tenant has agreed to modify the Building (the "Improvements") in accordance with the architectural plans attached hereto as Exhibit D or any modification agreed to by Landlord's architect (the "Architectural Plans"). Tenant's right to install the Roof Equipment is expressly subject to Tenant's completion of the Improvements, at Tenant's cost and expense. It shall be Tenant's responsibility to obtain all applicable governmental approvals of the Architectural Plans. Landlord will not unreasonably withhold its consent to any modifications to the Architectural Plans if said modifications are required by any governmental authority and provided that said modifications are approved by Landlord's architect which approval shall not be unreasonably withheld, conditioned or delayed. Tenant's installa- tion of the Roof Equipment and construction of the Improvements (collectively, the "Roof Work") shall be completed in full satisfaction of the conditions set forth in paragraph 11 (c) of the Lease. Landlord shall arrange for Landlord's architect to attend municipal approval meetings and prepare reasonably required presentation materials, at no cost to Tenant, related to the Architectural Plans. (b) In the event that Tenant is unable to obtain required governmental approvals for the performance of the Roof Work solely as a result of Landlord's failure to comply with the requirements under Landlord's site plan approvals, Tenant shall, within ten (10) days of becoming aware of such unsatisfied or open requirement, notify Landlord in writing ("Tenant's Condition Notice") specifying the unsatisfied or open requirements and shall provide Landlord with copies of all correspondence or other materials received by Tenant in connection with said unsatisfied or open requirements. Landlord shall within seven (7) business days of receipt of Tenant's Condition Notice notify to Tenant in writing ("Landlord's Notice")as to whether it shall satisfy the conditions or contest the validity or imposition of the Conditions. If Landlord does not send Landlord's Notice Landlord shall be deemed to be contesting the validity of the condition. If Landlord notifies Tenant that Landlord intends to satisfy the requirements, Landlord shall so satisfy the open requirement within thirty (30) days after Landlord's receipt of Tenant's Condition Notice, as weather permits. In the event Landlord does not satisfy the requirement within (30) days of receipt of Tenant's condition Notice, then in such event, Tenant shall have the right to complete the work required to satisfy the open conditions. If Tenant elects to so complete the work, Tenant must send written notice (the "Work Election Notice") to Landlord of its election to complete the work on or before the date which is forty-five (45) days after Landlord's receipt of Tenant's Condition Notice, time being of the essence, otherwise Tenant waive its right to perform the work. Upon delivery of the Work Election Notice, the work shall no longer be deemed Landlord's responsibility. In the event Landlord elected in Landlord's Notice to perform the work to satisfy the conditions and failed to so satisfy the conditions within thirty (30) days after its receipt of Tenant's Condition Notice and Tenant then completes the work to satisfy the condition, then Landlord shall reimburse Tenant for the reasonable cost of the work performed within thirty (30) days of Landlord's receipt of a notice from Tenant which details the work performed, the cost of the work paid for by Tenant (together with the receipts and invoices) and proof that the open condition(s) to which the work related have been satisfied ("Tenant's Work and Cost Notice"). In the event Landlord shall fail to reimburse Tenant within said thirty (30) day period Tenant may obtain reimbursement of said reasonable costs by deducting said sum from the fixed rent next becoming due under the Lease. In the event Landlord elected in Landlord's Notice to contest the applicability or validity of the condition and Landlord does not clearly establish that the requirements were otherwise satisfied or waived within thirty (30) days of Landlord's receipt of Tenant's Condition Notice, then, in such event, Tenant shall have the right to complete the work allegedly required to satisfy the open condition. If Tenant elects to so complete the work, Tenant must send to Landlord a Work Election Notice on or before the date which is forty-five (45) days after Landlord's receipt of Tenant's Condition Notice, time being of the essence, otherwise Tenant waives its right to perform the work. Upon delivery of the Work Election Notice, the work shall no longer be deemed Landlord's responsibility. If Landlord elects to contest in Landlord's Notice, Landlord shall promptly bring a lawsuit and shall diligently and with continuity prosecute the lawsuit in order to contest the applicability or validity of the condition. In the event a court of competent jurisdiction rules, that the alleged condition was valid and applicable, Landlord shall within thirty (30) days after such determination, reimburse Tenant for the reasonable cost of the work performed by Tenant to satisfy the condition. In the event Landlord shall fail to reimburse Tenant within said thirty (30) day period, Tenant may obtain reimbursement of said reasonable costs by deducting said sum from fixed rent next becoming due under the Lease. If Landlord contests the reasonableness of the amounts paid by Tenant, in any of the above cases, Landlord shall be obligated to reimburse Tenant (as provided above) only for the uncontested amount. The balance shall be reimbursed by Landlord to Tenant only upon the order of a Court of competent jurisdiction. Landlord agrees that site plan conditions which have been previously bonded by Landlord (provided said bonds have not been released) are conditions for which Landlord acknowledges responsibility. This paragraph 5(b) shall be of no force or effect upon Tenant's receipt of a building permit for the Roof Work. Tenant will diligently pursue planning board approval and building permit issuance for the Roof Work. 6. Third-Amendment Payment. No later than December 21, 2000, Tenant shall pay to Landlord, by federal funds wire transfer, the sum of $1,000,000.00 which sum shall be applied as follows: (i) $250,000.00 (the "Part B Security") shall be paid to Landlord as additional security deposit for Tenant's obligations under the Lease, which Part B Security shall be returned to Tenant, without interest, after the expiration of the term of the Lease provided Tenant shall have complied with all of its obligations under the Lease; (ii) $250,000.00 (the "Phase I Rent") shall be applied to fixed annual rent (coming due after the Phase I Part B Commencement Date) as follows; $36,000.00 shall be deducted from the first six monthly fixed rental payments following the Phase I Part B Commencement Date and $34,000.00 shall be deducted from the seventh monthly fixed rental payment following the Phase I Part B Commencement Date; (iii) $500,000-00 (the "Roof Security") shall be paid to Landlord as additional security deposit for Tenant's obligations under the Lease (which $500,000.00 shall be in addition to the Part B Security and any other security paid to Landlord under the Lease). Provided Tenant fully and timely complies with all of its obligations under the Lease, (a) $250,000.00 of the Roof Security shall he returned to Tenant, without interest, (1) upon Landlord's receipt of written approval from Landlord's architect that the Improvements have been completed in accordance with the Architectural Plans, which approval shall not be unreasonably withheld, delayed or conditioned and upon Landlord's receipt of written approval from Tenant's engineer that the Roof Equipment has been installed in conformance with the Engineering Plans and the Architectural Plans and (2) upon completion of the Roof Work in accordance with applicable site plan approvals (without bonding) and (b) the $250,000.00 balance of the Roof security shall be returned to Tenant, without interest, upon Tenant's removal of all Roof Equipment and Tenant's restoration of the roof of the Building to the condition it was in prior to the commencement of the Roof Work. 7. Miscellaneous. (a) All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the respective meanings ascribed to said terms in the Lease. (b) Paragraphs 29(a) and 31 of the Original Lease, are hereby omitted and are of no further force or effect. (c) Tenant agrees to paint the back of the Building to its original color on or before June 30, 2001. (d) Tenant agrees to relocate door "3B" as designated on the Architectural Plans to the side of the Building nearest said door's present location on or before December 31, 2001. Tenant also agrees to restore door "3A" as designated on the Architectural Plans to grade level unless said restoration to grade constitutes a violation of the applicable code. Notwithstanding the foregoing, Tenant may modify the location or grading of door "3A" and "3B" in another manner if approved in advanced and in writing by Landlord a Architect. (e) From and after the date hereof, Landlord shall have responsibility for the roof of the Building and Tenant shall be responsible for repair and maintenance of the roof. (f) Prom and after the date hereof, Landlord shall have no responsibility for landscaping or snow removal for the Demised Premises and Tenant shall be responsible for all landscaping and snow removal and said items shall no longer constitute Operating Costs. All landscaping and snow removal shall be performed by Tenant in a first-class manner commensurate with similar first-class office projects in Northern New Jersey. In the event that Landlord's lender or the municipality shall complain as to the quality of the Landscaping or snow removal, Landlord shall have the right, but not the obligation, to take back the landscaping and/or snow removal duties upon thirty (30) days written notice to Tenant (unless Tenant cures the problem to the satisfaction of the complaining party within said 30 day period.), in which event the landscaping and/or snow removal costs shall again, be charged to Tenant as Operating Costs. (g) Landlord shall indemnify and hold Tenant harmless from and against and claim asserted by a broker for a commission for bringing about this Amendment. (h) Lawrence S. Berger agrees to personally guaranty the return of the Part B Security and the Roof Security in accordance with the terms of paragraph 6 of this Amendment. 8. Termination Right. In the event that Landlord shall not have substantially completed Landlord's Work on or before June 30, 2003, Tenant shall have the right to terminate Tenant's obligation to lease the Part B Premises by sending a written termination notice to Landlord no later than July 15, 2003, time being of the essence. In the event Tenant fails to deliver said written notice to Landlord on or before July 15, 2003, Tenant shall be deemed to have waived this termination right. In the event Tenant timely terminates its obligation to lease the Part B Premises, Landlord shall, within, thirty (30) days of its receipt of Tenant's termination notice return to Tenant the Part B Security and the Phase I Rent. 9. Subletting of Part B Premises. Notwithstanding the provisions of paragraph 18(c) of the Lease, so long as Tenant is not in default under the Lease beyond any cure or grace period provided for in the Lease, Tenant shall have the right to sublet all or a portion of the Part B Premises without the consent of Landlord and without Landlord having a recapture right. Any such sublet shall be subject to the conditions set forth in paragraph 18(b) of the Lease. 10. No Other Modification. This Amendment is intended to modify and amend only those provisions of the Lease as specified in this Amendment, and, except as specified herein, all of the terms and conditions of the Lease, as previously amended, shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. LANDLORD: WARREN HI-TECH CENTER, L.P. BY: UNITED STATES LAND RESOURCES, L.P., General Partner BY: UNITED STATES REALTY RESOURCES, INC., General Partner By: ------------------------------- LAWRENCE S. BERGER, President TENANT: ANADIGICS, INC. By: ---------------------------------- Name: BAMI BASTANI Title: President As to the litigation to return the Part B Security and Roof Security as set forth in paragraph 7(h) above - -------------------------- LAWRENCE S. BERGER EXHIBITS Exhibit A. Plans dated April 23, 1999 prepared by Vatche Simonian Designs, Inc, entitled Proposed Building for Warrenville Hi-Tech Center, sheets A-1 through A-6 Exhibit B: Landlord Work (see attached) Exhibit C: Engineering Plans prepared by Integrated Pro Project Services signed and sealed on November 27, 2000 (w legend revision dates of June 14, 2000, June 23, 2000 and July 7, 2000) under file #0046.01 and containing 72 sheets. Exhibit D: Architectural Plan dated December 18, 2000 prepared by Vatche Simonian Design, Inc. and entitled Proposed Building Renovation for Anadigics, containing one sheet designated as SK-1. Exhibit E: Amended Preliminary / Final Major Site Plan, dated November 2, 1998 and last revised January 6, 2000, prepared by Kinzler & Ritter / Land Planning, containing 12 sheets. EXHIBIT B LANDLORD'S PART B WORK 1. Erect steel for two story approximately 6o,ooo square foot building. 2. Skin new building in material as shown on Exhibit A. 3. Pour floor slabs. 4. Stub single water line, gas and electric inside building wall for standard office space. 5. Construct roof equivalent to existing building. Landlord shall perform the work set forth in items 1 through 5 above in compliance with all governmental requirements and by utilizing construction materials of equal or better quality than those used for the construction of the existing Building. 6. Complete site work as shown on site plan attached hereto as Exhibit E, as weather permits. In the event that Landlord has failed to substantially complete said site work by December 31, 2001, (except for top coarse paving, irrigation and landscaping which is to be substantially completed by Landlord by June 30, 2002), Tenant may by written notice to Landlord, notify Landlord that Tenant intends to complete such work. If Landlord shall fail to complete said work within thirty (30) days of the receipt of said notice, weather permitting, Tenant shall have the right to complete said work and Landlord shall no longer be obligated to complete said work, and said work shall no longer be deemed to be Landlord's responsibility, Landlord shall upon receipt of reasonable evidence of the cost of said work, reimburse Tenant for the reasonable cost of such work. In the event that Landlord shall fail to reimburse Tenant reasonable cost of such work within thirty (30) days of the date of receipt of said notice and evidence of Tenant's reasonable costs, Tenant may obtain reimbursement of said costs by deducting said sum from the fixed rent next becoming due under the Lease. EXHIBIT A (NEW BUILDING PLAN) EXHIBIT B LANDLORD'S PART B WORK 1. Erect steel for two story approximately 60,000 square foot building. 2. Skin new building in material as shown on Exhibit A. 3. Pour floor slabs. 4. Stub single water line, gas and electric inside building wall for standard office space. 5. Construct roof equivalent to existing building. Landlord shall perform the work set forth in items 1 through 5 above in compliance with all governmental requirements and by utilizing construction materials of equal or better quality than those used for the construction of the existing Building. 6. Complete site work as shown on site plan attached hereto as Exhibit E, as weather permits. In the event that Landlord has failed to substantially complete said site work by December 31, 2001, (except for top coarse paving, irrigation and landscaping which is to be substantially completed by Landlord by June 30, 2002), Tenant may by written notice to Landlord, notify Landlord that Tenant intends to complete such work. If Landlord shall fail to complete said work within thirty (30) days of the receipt of said notice, weather permitting, Tenant shall have the right to complete said work and Landlord shall no longer be obligated to complete said work, and said work shall no longer be deemed to be Landlord's responsibility. Landlord shall upon receipt of reasonable evidence of the cost of said work, reimburse Tenant for the reasonable cost of such work. in the event that Landlord shall fail to reimburse Tenant reasonable cost of such work within thirty (30) days of the date of receipt of said notice and evidence of Tenant's reasonable costs, Tenant may obtain reimbursement of said costs by deducting said sum from the fixed rent next becoming due under the Lease. EXHIBITS Exhibit A: Plans dated April 23, 1999 prepared by Vatche Simonian Designs, Inc. entitle Proposed Building for Warrenville Hi-Tech Center, sheets A-i through A-6 Exhibit B: Landlord Work (see attached) Exhibit C: Engineering Plans Prepared by Integrated Pro Project Services signed and sealed on November 27, 2000 (w legend revision dates of June 14, 2000, June 23, 2000 and July 7, 2000) under file #0046.01 and containing 72 sheets. Exhibit D: Architectural Plan dated December 18, 2000 prepared by Vatche Simonian Design, Inc. and entitle Proposed Building Renovation for Anadigics, containing one sheet designated as SK-1. Exhibit E: Amended Preliminary I Final Major Site Plan, dated November 2, 1998 and last revised January 6, 2000, prepared by Kinzler & Ritter / Land Planning, containing 12 sheets. EX-10.12 6 b317451_ex10-12.txt AMENDMENT - AGREEMENT JUNE 1, 1999 Ronald Rosenzweig 15 March 2002 19509 Planters Point Drive Boca Raton, FL 33434 Subject: Amendment - Agreement June 1, 1999 Dear Ron, This is to confirm the extension of the Agreement dated June 1, 1999 between you and ANADIGICS, Inc. regarding your employment by the Company as detailed below. 1. Your employment is extended for the period from July 2, 2002 through July 2, 2003 at 25% time as ANADIGICS employee. 2. Your total cash compensation shall be at the annual rate of $75,000 paid biweekly. 3. All terms of your agreement dated June 1, 1999 remain intact as part of this extension. If you are in agreement with the foregoing, please sign and return to us a copy of this letter. Very truly yours, Bami Bastani President & Chief Executive Officer ANADIGICS, Inc. Accepted and agreed to stated. - ------------------------------- Ronald Rosenzweig ANADIGICS, Inc. / 35 Technology Drive / Warren, New Jersey 07059 / 908-668-5000 / Fax: 908-668-5068 EX-10.13 7 b317451_ex10-13.txt EMPLOYMENT AGREEMENT Mr. Thomas Shields 25 July 2000 Sr. VP & Chief Financial Officer Subject: Employment Agreement Dear Tom; The Board of Directors discussed in February and approved on 24 May 2000 entering into employment agreements with the executives of the Company. This agreement is made and entered into effect as of the 25th day of July 2000, by and between ANADIGICS, Inc. a Delaware corporation (the "Corporation"), and Thomas Shields, an executive employee of the Corporation. In order for the Corporation to attract and retain as executives and officers the most capable persons available, the Corporation and executive employee do hereby agree as follows: 1. Employment with the Corporation is at-will and may be terminated at any time with or without cause or notice by the executive employee or the Corporation. No person is authorized to provide any employee with an employment contract or special arrangement concerning terms or conditions of employment unless the contract or arrangement is in writing and signed by the Chief Executive Officer of the Corporation. 2. In addition to the provisions set forth in this document, the executive employee's employment will be governed by the policies and procedures outlined in the Employee Handbook, as amended from time to time. 3. In consideration of past and continuing service to the Corporation in the event of a "change-of-control" (as defined in Annex A hereto) which results in either the involuntary termination of your employment with the Corporation or voluntary resignation from the Corporation due to a reduction in responsibilities and duties associated with your position, or reduction in compensation (base salary plus bonus) without the prior express written consent of the executive. In either case within one year following such "change-of-control" the executive shall receive (a) up to 12 months of base salary and bonus (at 100% of target) from the Corporation, the first six months payable in equal biweekly installments (bonus paid at regular scheduled intervals), plus up to an additional six months of base salary (paid bi-weekly) and bonus (paid at regular scheduled intervals) if unemployed; (b) payment of the annual bonus (at 100% of target prorated for the number of complete months worked in the year), (c) continuation for one year from date of termination of all current medical, and dental insurance benefits or until coverage by a new employer, whichever occurs first, (d) executive outplacement services for up to six months, and (e) immediate vesting of all stock options previously or hereafter issued under the Corporation's 1997 Long Term Incentive and Share Award Plan for Employees and the 1995 Long Term Incentive and Share Award Plan for Officers, as the same may be amended from time to time, to the extent such stock options have not vested as of such date, which options shall continue to be exercisable, with respect to options granted prior to October 31, 1998 for 90 days, and for options granted subsequent to October 31, 1998, for twelve (12) months following the date of involuntary or voluntary termination as described above, but not beyond the original term of the option. 4. (a) During your employment with the Corporation, you may not perform any work for any company that competes with us in the manufacture and sales of RF integrated circuits in the wireless, cable and broadband, or fiber optics markets, whether directly or indirectly. This includes any business set up on your own or by you with others. You must disclose any intention to engage in any form of business activity outside your activities with the Corporation to the Chief Executive Officer, which must be approved in writing prior to commencement of those activities. (b) For a period of twelve (12) months after termination of your employment with the Corporation, either by the Corporation or by your resignation, you agree not to hire, solicit to hire, or be involved in the solicitation of any employees of the Corporation or any of its subsidiaries. (c) During and after your employment with the Corporation you are required to protect the confidentiality of information you use or become party to. You may not disclose confidential information to any unauthorized third party. This includes but is not limited to information related to technology, intellectual property, strategic business plans, transformation initiatives, suppliers, and clients. Your dealings with suppliers and clients must always be managed in the best interest of the Corporation. Any confidential information you are a party to may only be used in the interest of the Corporation in the context of the Corporation's legitimate relationships with suppliers, clients and any authorized third party. Such information must not be used for any other purpose, including personal gain. In addition, you are reminded of the restrictions and conditions of employment described in the Proprietary Information Agreement signed by you and on file in the Human Resources Department. Any breach of confidentiality will subject you to immediate termination. (d) Failure to comply with the provisions of this Section 4 shall subject you to the immediate termination of any of your unexercised stock options. 5. The following additional benefits are provided to the executive employee as part of this agreement: o A confidential annual physical exam through the Corporation's contracted vendor, Executive Health Group. The physical exams are scheduled during the executive's month of birth each year at no cost to the executive. o In order to provide for financial peace of mind, an allowance of up to $5,000 per year for financial planning. o A monthly health club allowance of up to $200 per month o Indemnification protection for any lawsuit brought against the Company as detailed in Article VII, Section 4 of the Company bylaws. 6. Confidentiality: The terms and conditions of this Agreement are to be private and confidential, and you agree not to disclose any of these terms and conditions to any person except your spouse, your attorney or your tax advisor, unless disclosure is necessary to carry out the terms of this Agreement, or to supply information to any taxing authority, or is otherwise required by law. 7. Disputes: You agree that any dispute or claim with respect to any provision of this agreement or your employment must be presented to the Chief Executive Officer within three (3) months of the occurrence. To be covered by the contents of this agreement, please sign this agreement and return the original document to John Warren, no later than Friday, 4 August 2000. If you should have any questions, please contact either John or I. Signatures: - ------------------------------- --------------------------------- Bami Bastani Mr. Thomas Shields President and CEO Vice President, Corporate Officer - --------------- ------------- Date Date ANNEX A Change In Control Change in Control. A Change in Control of the Company shall be deemed to have occurred if (i) any "Person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities, (ii) during any 12-month period (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constituted the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in subclauses (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least 66 2/3% of the members of the Board then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof (iii) the Company's stockholders approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as defined above) acquires more than 50% of the combined voting power of the Company's then outstanding securities, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. EX-10.14 8 b317451_ex10-14.txt EMPLOYMENT AGREEMENT Mr. Charles Huang, Ph.D. 25 July 2000 Executive VP & Chief Technical Officer Subject: Employment Agreement Dear Charlie: The Board of Directors discussed in February and approved on 24 May 2000 entering into employment agreements with the executives of the Company. This agreement is made and entered into effect as of the 25th day of July 2000, by and between ANADIGICS, Inc. a Delaware corporation (the "Corporation"), and Charles Huang, an executive employee of the Corporation. In order for the Corporation to attract and retain as executives and officers the most capable persons available, the Corporation and executive employee do hereby agree as follows: 1. Employment with the Corporation is at-will and may be terminated at any time with or without cause or notice by the executive employee or the Corporation. No person is authorized to provide any employee with an employment contract or special arrangement concerning terms or conditions of employment unless the contract or arrangement is in writing and signed by the Chief Executive Officer of the Corporation. 2. In addition to the provisions set forth in this document, the executive employee's employment will be governed by the policies and procedures outlined in the Employee Handbook, as amended from time to time. 3. In consideration of past and continuing service to the Corporation in the event of a "change-of-control" (as defined in Annex A hereto) which results in either the involuntary termination of your employment with the Corporation or voluntary resignation from the Corporation due to a reduction in responsibilities and duties associated with your position, or reduction in compensation (base salary plus bonus) without the prior express written consent of the executive. In either case within one year following such "change-of-control" the executive shall receive (a) up to 12 months of base salary and bonus (at 100% of target) from the Corporation, the first six months payable in equal biweekly installments (bonus paid at regular scheduled intervals), plus up to an additional six months of base salary (paid bi-weekly) and bonus (paid at regular scheduled intervals) if unemployed; (b) payment of the annual bonus (at 100% of target prorated for the number of complete months worked in the year), (c) continuation for one year from date of termination of all current medical, and dental insurance benefits or until coverage by a new employer, whichever occurs first, (d) executive outplacement services for up to six months, and (e) immediate vesting of all stock options previously or hereafter issued under the Corporation's 1997 Long Term Incentive and Share Award Plan for Employees and the 1995 Long Term Incentive and Share Award Plan for Officers, as the same may be amended from time to time, to the extent such stock options have not vested as of such date, which options shall continue to be exercisable, with respect to options granted prior to October 31, 1998 for 90 days, and for options granted subsequent to October 31, 1998, for twelve (12) months following the date of involuntary or voluntary termination as described above, but not beyond the original term of the option. 4. (a) During your employment with the Corporation, you may not perform any work for any company that competes with us in the manufacture and sales of RF integrated circuits in the wireless, cable and broadband, or fiber optics markets, whether directly or indirectly. This includes any business set up on your own or by you with others. You must disclose any intention to engage in any form of business activity outside your activities with the Corporation to the Chief Executive Officer, which must be approved in writing prior to commencement of those activities. (b) For a period of twelve (12) months after termination of your employment with the Corporation, either by the Corporation or by your resignation, you agree not to hire, solicit to hire, or be involved in the solicitation of any employees of the Corporation or any of its subsidiaries. (c) During and after your employment with the Corporation you are required to protect the confidentiality of information you use or become party to. You may not disclose confidential information to any unauthorized third party. This includes but is not limited to information related to technology, intellectual property, strategic business plans, transformation initiatives, suppliers, and clients. Your dealings with suppliers and clients must always be managed in the best interest of the Corporation. Any confidential information you are a party to may only be used in the interest of the Corporation in the context of the Corporation's legitimate relationships with suppliers, clients and any authorized third party. Such information must not be used for any other purpose, including personal gain. In addition, you are reminded of the restrictions and conditions of employment described in the Proprietary Information Agreement signed by you and on file in the Human Resources Department. Any breach of confidentiality will subject you to immediate termination. (d) Failure to comply with the provisions of this Section 4 shall subject you to the immediate termination of any of your unexercised stock options. 5. The following additional benefits are provided to the executive employee as part of this agreement: o A confidential annual physical exam through the Corporation's contracted vendor, Executive Health Group. The physical exams are scheduled during the executive's month of birth each year at no cost to the executive. o In order to provide for financial peace of mind, an allowance of up to $5,000 per year for financial planning. o A monthly health club allowance of up to $200 per month o Indemnification protection for any lawsuit brought against the Company as detailed in Article VII, Section 4 of the Company bylaws. 6. Confidentiality: The terms and conditions of this Agreement are to be private and confidential, and you agree not to disclose any of these terms and conditions to any person except your spouse, your attorney or your tax advisor, unless disclosure is necessary to carry out the terms of this Agreement, or to supply information to any taxing authority, or is otherwise required by law. 7. Disputes: You agree that any dispute or claim with respect to any provision of this agreement or your employment must be presented to the Chief Executive Officer within three (3) months of the occurrence. To be covered by the contents of this agreement, please sign this agreement and return the original document to John Warren, no later than Friday, 4 August 2000. If you should have any questions, please contact either John or I. Signatures: - ------------------------------- --------------------------------- Bami Bastani Charlie Huang President and CEO Executive VP & Chief Technical Office - --------------- ------------- Date Date ANNEX A Change In Control Change in Control. A Change in Control of the Company shall be deemed to have occurred if (i) any "Person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities, (ii) during any 12-month period (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constituted the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in subclauses (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least 66 2/3% of the members of the Board then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof (iii) the Company's stockholders approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as defined above) acquires more than 50% of the combined voting power of the Company's then outstanding securities, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. EX-21 9 b317451_ex21.txt SUBSIDIARIES EXHIBIT 21 Subsidiaries of ANADIGICS, Inc. State of Jurisdiction Name of Subsidiary of Incorporation and % Owned ANADIGICS (U.K.) Limited United Kingdom 100% ANADIGICS, Limited Israel 100% Broadband & Wireless Investors, Incorporated Delaware 100% ANADIGICS Acquisition Corp. Delaware 100% ANADIGICS Holding Corp. Delaware 100% Telcom Devices Corp. California 100% EX-23.1 10 b317451_ex23-1.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-89928) pertaining to the ANADIGICS, Inc. Stock Option Plan, 1994 Long-Term Incentive and Share Award Plan, 1995 Long-Term Incentive Share Award Plan and Employee Stock Purchase Plan, and the Registration Statements (Form S-8 No. 33-32533 and Form S-8 No. 333-63836) pertaining to the ANADIGICS, Inc. 1997 Long-Term Incentive and Share Award Plan for Employees, of our report dated January 29, 2002, with respect to the consolidated financial statements and schedule of ANADIGICS, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. /s/ ERNST & YOUNG LLP MetroPark, New Jersey March 27, 2002 49 -----END PRIVACY-ENHANCED MESSAGE-----