HITTITE MICROWAVE CORP
FORM
10-Q
(Quarterly Report)
Filed 05/06/14 for the Period Ending 03/31/14
Address
Telephone
CIK
SIC Code
Industry
Sector
Fiscal Year
2 ELIZABETH DRIVE
CHELMSFORD, MA 01824
9782503343
0001130866
3674 - Semiconductors and Related Devices
Semiconductors
Technology
12/31
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-51448
Hittite Microwave Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
04-2854672
(I.R.S. Employer
Identification Number)
2 Elizabeth Drive
Chelmsford, Massachusetts 01824
(Address of Principal Executive Offices and Zip Code)
(978) 250-3343
( Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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  No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes 
No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a “smaller reporting
company” (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer 
Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
As of April 24, 2014, Hittite Microwave Corporation had 31,371,964 shares of common stock, par value $0.01 per share, outstanding.
Table of Contents
HITTITE MICROWAVE CORPORATION
FORM 10-Q
March 31, 2014
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and March 31, 201 3
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and March 31,
2013
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and March 31, 2013
Notes to Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1 A . Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
2
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PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
HITTITE MICROWAVE CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data)
March 31, 2014
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowance for doubtful accounts of $334
Inventories
Income taxes receivable
Deferred taxes
Prepaid expenses and other current assets
$
Total current assets
Property and equipment, net
Deferred taxes
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued commissions
Accrued payroll and benefits
Accrued other expenses
Income taxes payable
Customer advances
Deferred revenue
December 31, 2013
172,385
319,971
39,141
77,034
174
10,152
3,251
$
118,600
353,947
36,186
76,020
5,991
13,399
2,997
622,108
607,140
38,186
2,006
10,577
39,433
1,725
8,190
$
672,877
$
656,488
$
5,326
1,194
4,926
4,691
1,314
4,012
2,278
$
4,971
1,567
4,059
4,760
193
3,919
2,816
Total current liabilities
Long-term income taxes payable
Deferred taxes
Other liabilities
Total liabilities
23,741
22,285
6,709
33
95
5,839
232
103
30,578
28,459
—
—
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $.01 par value: 5,000 shares authorized; no shares issued or outstanding at
March 31, 2014 and December 31, 2013
Common stock, $.01 par value: 200,000 shares authorized; 31,376 and 31,390 shares issued
and outstanding at March 31, 2014 and December 31, 2013, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
314
208,221
(853)
434,617
314
204,803
(823)
423,735
642,299
628,029
672,877
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
656,488
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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
2014
2013
(in thousands, except per share data)
Revenue
Cost of revenue
$
70,608
23,014
$
67,696
17,797
Gross profit
47,594
49,899
Operating expenses:
Research and development
Sales and marketing
General and administrative
11,895
6,944
3,732
13,218
5,790
3,771
Total operating expenses
22,571
22,779
Income from operations
Interest income
Other (expense) income, net
25,023
81
(33)
27,120
66
30
Income before income taxes
Provision for income taxes
25,071
8,625
27,216
9,618
Net income
$
16,446
$
17,598
Earnings per share:
Basic
Diluted
$
$
0.52
0.52
$
$
0.58
0.57
$
31,363
31,394
0.15
Weighted average shares outstanding:
Basic
Diluted
Dividends paid per share
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
30,540
31,049
—
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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31,
2014
2013
(in thousands)
Net income
Foreign currency translation adjustments
Unrealized gain on marketable securities, net of tax
Comprehensive income
$
$
16,446 $
(32)
2
16,416 $
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
17,598
(556)
2
17,044
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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2014
2013
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization
Deferred taxes
Provision for excess and obsolete inventory
Stock-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Deferred revenue and customer advances
Accounts payable
Accrued expenses
Income taxes receivable and payable
$
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of marketable securities
Proceeds from sales and maturities of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Payment of withholding taxes in connection with vesting of restricted stock
Excess income tax benefit related to stock-based compensation plans
Payment of dividends
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
16,446
$
2,988
470
2,776
1,068
3,479
2,044
680
31
524
3,474
(2,940)
(2,080)
(3,129)
(445)
357
422
7,802
(4,455)
(6,575)
(632)
(558)
684
4,204
6,332
27,214
23,351
(1,797)
(146,951)
180,980
(1,834)
(109,961)
60,000
32,232
(51,795)
—
(857)
(60)
(4,707)
234
(2,444)
1,078
—
(5,624)
(1,132)
(37)
(256)
(29,832)
269,157
53,785
118,600
Cash and cash equivalents, end of period
$
172,385
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
17,598
$
239,325
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HITTITE MICROWAVE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
The interim condensed consolidated financial statements presented herein have been prepared by Hittite Microwave Corporation (the Company),
are unaudited and, in the opinion of management, include all adjustments, consisting only of normal, recurring adjustments and accruals,
necessary for a fair presentation of the Company’s financial position at March 31, 2014, results of operations for the three-month periods ended
March 31, 2014 and 2013, comprehensive income for the three-month periods ended March 31, 2014 and 2013, and cash flows for the threemonth periods ended March 31, 2014 and 2013, in accordance with accounting principles generally accepted in the United States (GAAP).
Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet presented as of December 31,
2013 has been derived from the audited consolidated financial statements as of that date but does not include all disclosures required by GAAP.
The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all of the information
that is included in the annual financial statements and notes of the Company. The condensed consolidated financial statements and notes
presented herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2013.
The Company operates in one reportable segment: the design, development and production of integrated circuits, modules, subsystems and
instrumentation.
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2.
Fair Value of Financial Instruments
The Company measures at fair value certain financial assets and financial liabilities. Fair value is the price that would be received for an asset, or
the exit price that would be paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market
participants on the measurement date. There are three levels of inputs used to measure fair value, arranged in a hierarchy that maximizes the use
of observable inputs:
Level 1:
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that
are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the related assets or liabilities.
Level 3:
Unobservable inputs that are supported by little or no market activity.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and considers
factors specific to the asset or liability. The following table sets forth the Company’s financial assets that were measured at fair value within the
fair value hierarchy:
Level 1
Cash equivalents
Marketable securities
Total
$
$
121,740 $
319,971
441,711 $
March 31, 2014
Level 2
Level 3
— $
—
— $
Total
Level 1
(in thousands)
— $
—
— $
121,740 $
319,971
441,711 $
87,694 $
350,952
438,646 $
December 31, 2013
Level 2
Level 3
— $
2,995
2,995 $
Total
— $
—
— $
87,694
353,947
441,641
Cash equivalents include money market funds as well as highly rated government securities with maturities of three months or less at the time of
acquisition. The Company’s portfolio of marketable securities consists of treasury bills, treasury notes and certificates of deposit, which are
classified as available-for-sale. Treasury bills and treasury notes consist of debt securities issued by the U.S. Government. Gross unrealized gains
and losses are immaterial for the periods presented. The effective maturity dates of these investments are less than one year.
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3. Inventories
Net inventories consist of the following:
(in thousands)
March 31, 2014
Raw materials
Work in process
Finished goods
December 31, 2013
$
49,126
14,516
13,392
$
50,593
12,139
13,288
$
77,034
$
76,020
The Company is transitioning away from one of its foundries from which it sources a substantial portion of its GaAs wafers. The Company is
working with the foundry to manage this transition with the goal of maintaining adequate supplies of the affected products over their natural life
cycles, which are typically five to ten years. The Company has continued to make purchases of raw materials inventory from this foundry in
order to support the products which have the longest life cycles. At March 31, 2014 and December 31, 2013, raw material inventory includes
approximately $35,200,000 and $38,000,000, respectively, of advance purchases of wafers from this foundry.
4. Commitments and Contingencies
Indemnification
In connection with the sale of products in the ordinary course of business, the Company often makes representations affirming, among other
things, that its products do not infringe on the intellectual property rights of others, and agrees to indemnify customers against third-party claims
for such infringement. Further, the Company’s by-laws require it to indemnify its officers and directors against any action that may arise out of
their services in that capacity, and the Company has also entered into indemnification agreements with respect to all of its directors. The
Company has not been subject to any material liabilities under such provisions and therefore believes that its exposure for these indemnification
obligations is minimal. Accordingly, the Company has no liabilities recorded for these indemnity agreements as of March 31, 2014 and
December 31, 2013.
Product Warranties
The Company provides product warranties in conjunction with certain product sales. Generally, product sales are accompanied by a one-year
warranty period. These warranties cover factors such as nonconformance to specifications and defects in material and workmanship. Estimated
standard warranty costs are recorded in the period in which the related product sales occur. The Company’s warranty accrual and related expense
were immaterial to the Company’s financial position and results of operations for the periods presented herein.
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Intellectual Property Claims
In recent years there has been significant litigation involving intellectual property rights in many technology-based industries, including the
Company’s. Because patent applications often are not disclosed until a patent is issued, it is not always possible for the Company to know
whether patent applications are pending that might be infringed by its products, and there could be issued patents that are pertinent to the
Company’s business of which it is not aware. The Company’s products may also be claimed to infringe intellectual property rights of others as a
result of activities by its foundries or other suppliers with respect to which it has no control or knowledge.
The Company has from time to time been the subject of litigation alleging that sales by the Company of its products infringe patents held by
such third parties. In addition, the Company has from time to time received letters asserting that it infringes patents held by third parties that
have not resulted in litigation. The Company has incurred significant costs in investigating and defending intellectual property claims, and there
can be no assurance that pending or future litigation or claims relating to infringement of third-party intellectual property rights can be resolved
in a manner favorable to the Company. Claims relating to the alleged infringement by the Company of third-party proprietary rights, whether
meritorious or not, could be time-consuming to defend and could harm the Company’s working relationships with its foundries and customers,
damage its reputation, result in substantial and unanticipated costs associated with litigation, require the Company to enter into royalty or
licensing agreements, which may not be available on acceptable terms or at all, or result in the payment by the Company of substantial damages.
If any of the Company’s products were found to infringe the intellectual property rights of any third party and if a license were not available on
reasonable terms, the Company could be required to redesign the infringing product so as not to infringe, which could be time consuming and
costly, or if this is not feasible, could be required to withdraw the infringing product from the market.
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5. Earnings per Share
The following table sets forth the computation of basic and diluted net income per share:
Three Months Ended March 31,
2014
2013
(in thousands, except per share data)
Basic earnings per share:
Net income
$
16,446
$
31,363
Weighted average common shares outstanding
17,598
30,540
Basic earnings per share
$
0.52
$
0.58
Diluted earnings per share:
Net income
$
16,446
$
17,598
Weighted average common shares outstanding
Effect of dilutive equity awards
31,363
31
30,540
509
Adjusted weighted average shares — diluted
31,394
31,049
$
Diluted earnings per share
0.52
$
0.57
The dilutive effect of outstanding equity awards, in the form of stock options, restricted stock awards and restricted stock units, is reflected in
diluted earnings per share by application of the treasury stock method, which includes consideration of unamortized compensation cost and
excess tax benefits on stock-based compensation. For all periods presented, an immaterial number of such securities were excluded from the
calculation of diluted earnings per share, as their impact would have been anti-dilutive.
6. Stock-Based Compensation
On March 7, 2014, the Company granted to nine of its executive officers: (a) a total of 25,625 time-vested restricted stock unit awards, vesting in
four equal annual installments; and (b) a total of 25,625 market-based restricted stock unit awards, vesting in three equal annual installments on
the second, third and fourth anniversaries of the grant (the “target award”). The market conditions to which the target award is subject relate to
the relative total shareholder return, or TSR, of the Company’s common stock over the two-, three- and four-year vesting periods, in comparison
to the TSRs of a group of comparable companies. The number of shares constituting the target award may be increased by up to 100% in the
event that the Company’s TSR is positive and exceeds the 50th percentile in the comparison group. The number of shares to be issued upon
vesting is capped such that the aggregate market value of the shares delivered will not exceed three times the grant date fair value of the award as
of the vesting date. The comparison group consists of the companies included in the Philadelphia Stock Exchange Semiconductor Sector
(SOXX) index, a capitalization-weighted index composed of companies primarily involved in the design, distribution, manufacture and sale of
semiconductors.
The market-based restricted stock unit awards have been classified as equity by the Company. The equity classification reflects the Company’s
determination that it is not probable that the aggregate market value of the shares to be delivered upon vesting will be limited by the cap. The
grant date fair market value of the market-based restricted stock unit awards will be recognized as stock-based compensation over the four-year
service term whether or not the market condition is ultimately satisfied.
7. Dividends
On February 6, 2014, the Company announced that its Board of Directors had declared a cash dividend of $0.15 per common share. The
dividend totalled $4,700,000 and was paid on March 27, 2014 to shareholders of record as of March 4, 2014.
On April 24, 2014, the Company announced that its Board of Directors had declared a dividend of $0.15 per common share to be paid in cash on
June 27, 2014 to shareholders of record as of June 4, 2014. The Company estimates the dividend will result in a cash payment of approximately
$4,700,000 in the second quarter of 2014.
8. Subsequent Event
On May 1, 2014, the Company acquired substantially all of the assets of Keragis Corporation, a provider of extremely high power, wideband
amplifier modules, located in San Diego, California, for approximately $11,000,000 in cash.
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with our audited consolidated financial statements and notes thereto and Management’s
Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended
December 31, 2013.
Description of Our Revenue, Costs and Expenses
Revenue. Our revenue is derived primarily from the sale of standard and custom products. We develop standard products from our own
specifications, which we sell through our direct sales organization, our network of independent sales representatives, two distributors and our
website. We also develop custom products to meet the specialized requirements of individual customers, which are sold by our direct sales
organization.
We sell our products to original equipment manufacturers, or OEMs, that supply advanced electronic systems to commercial and military end
users, and to these OEMs’ contract manufacturers. In general, the decision to purchase our product is made by the OEM, which has designed our
product into its system. In the event that we sell to an OEM’s contract manufacturer, the contract manufacturer typically does not have discretion
to replace our product with one from a different supplier.
Our sales cycle varies substantially, ranging from a period of a month or less when a customer selects a standard product from our selection
guide or website, to as long as two years or more for custom products. In the sales process, our sales and application engineers work closely with
the OEM customer to analyze the customer’s system requirements and select an appropriate standard product or establish a technical
specification for a custom product. In the case of a custom product, we also select a semiconductor process and foundry, and evaluate test wafers
and finished components before manufacturing in commercial quantities can begin. Volume purchases of our products by an OEM customer, or
its contract manufacturer, generally do not occur until the OEM customer has made the decision to begin production of the system incorporating
our product. Our receipt of substantial revenue from sales of a product to an OEM customer depends on that customer’s commercial success in
manufacturing and selling its system incorporating our product. It may take several years for a newly introduced standard product to generate
substantial revenue, if ever. However, the life cycles of our standard products tend to be lengthy.
Although most of our revenue is derived from sales of our products, we also receive a small percentage of our revenue from customer-sponsored
research and development activities. These activities range from pure research, in which we investigate integrated circuit, or IC, design
techniques on new semiconductor technologies at the request of a government agency or commercial customer, to custom development projects
in which we are paid to enhance or modify an existing product or develop a new product to meet a customer’s specifications.
Cost of revenue. Cost of revenue consists primarily of the cost of semiconductor wafers that we purchase from our third-party foundries and
other materials such as packages, epoxies, connectors and production masks. Cost of revenue also includes personnel costs and overhead related
to our manufacturing and engineering operations, including occupancy and equipment costs, shipping costs, charges for inventory excess and
obsolescence and warranty obligations and amortization of related intangible assets.
Research and development. Research and development expense consists primarily of personnel costs of our research and development
organization, third-party consulting costs, costs of development wafers, license fees for computer-aided design software, costs of development
testing and evaluation, costs of developing automated test software, related occupancy and equipment costs and amortization of related
intangible assets. We expense all research and development costs as incurred.
Sales and marketing. Sales and marketing expense consists primarily of personnel costs of our sales and marketing organization, sales
commissions paid to independent sales representatives, costs of advertising, trade shows, corporate marketing, promotion, travel, related
occupancy and equipment costs, amortization of related intangible assets and other marketing costs.
General and administrative. General and administrative expense consists primarily of personnel costs of our executive management, finance,
and other administrative staff, outside professional fees including legal and accounting, related occupancy and equipment costs and other
corporate expenses.
Trends and Uncertainties
We have been transitioning away from one of our principal foundries from which we historically sourced a substantial portion of our GaAs
wafers. We have been working with the foundry to manage this transition with the goal of maintaining adequate supplies of the affected products
over their natural life cycles, which are typically five to ten years. The impact of this transition on our business remains uncertain. We have made
larger than normal purchases of raw materials inventory from this foundry, which we refer to as advance purchases, in order to support the
products which have the longest life cycles. This consumes cash and could expose us to increased risk of inventory write-offs. At March 31,
2014, raw material inventory includes $35.2 million of advance purchases of wafers from this foundry, down from $38.0 million at December
31, 2013. During this transition, we could experience adverse reactions from customers, which could affect our revenues. The productivity of our
new product development efforts has been, and may continue to be, adversely affected as we divert engineering resources in order to translate
certain existing products to other foundries, which could affect our profitability. Further, products translated to other foundries could have
inferior performance, production yields or costs. If we fail, or are unable, to purchase adequate quantities of GaAs wafers from this foundry to
meet future demand of the related products, we may lose opportunities to sell these products to our customers. If any of these events were to
occur to a more significant degree than they have to date, our business, revenues, profitability and financial condition could be adversely
affected.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. The
preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, 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 revenue and expenses during the reporting period. By their nature,
these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we re-evaluate our judgments and estimates
including those related to revenue recognition, uncollectible accounts receivable, inventories, fixed assets, intangible assets, stock-based
compensation, income taxes, accrued expenses and other contingencies. We base our estimates and judgments on our historical experience and
on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and
material effects on our operating results and financial position may result.
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For a description of the accounting policies which, in our opinion, involve the most significant application of judgment, or involve complex
estimation, and which could, if different judgments or estimates were made, materially affect our reported results of operations, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our
Annual Report on Form 10-K for the year ended December 31, 2013.
Results of Operations
Comparison of the Three Month Periods Ended March 31, 2014 and 2013
Revenue. In the three months ended March 31, 2014, our revenue increased $2.9 million, or 4.3%, to $70.6 million compared with $67.7 million
in the corresponding period of 2013. Revenue from sales to customers outside the United States accounted for 60.6% of our total revenue in the
three months ended March 31, 2014, compared with 55.3% in the corresponding period of 2013. Our revenue increase was primarily attributable
to a $7.3 million increase in sales to the microwave and millimeterwave communications market and a $6.7 million increase in sales to the
cellular market, which were partially offset by a $7.5 million decrease in sales to the test and measurement market and $4.1 million decrease in
sales to the military market. We believe that the growth in sales to the microwave and millimeterwave communications and cellular markets
reflects stronger demand for our products used in infrastructure projects by our telecommunications customers. The decrease in sales to the
military market primarily relates to decreased volume on certain military programs, which was partially offset by higher pricing on those
programs.
Gross margin. In the three months ended March 31, 2014, our gross margin was 67.4% compared with 73.7% in the corresponding period of
2013. The decrease in our aggregate gross margin across all products was attributable to a net 420 basis point decrease due to product mix and
the impact of certain development contracts and a net 250 basis point decrease due to pricing, partially offset by a 40 basis point improvement
due to lower manufacturing costs. Our gross margin for the three months ended March 31, 2014 was within the low end of our operating range.
Research and development expense. In the three months ended March 31, 2014, our research and development expense decreased $1.3 million,
or 10.0%, to $11.9 million and represented 16.8% of our revenue, compared with $13.2 million, or 19.5% of our revenue, in the corresponding
period of 2013. The decrease in our research and development expense was primarily attributable to a $0.9 million decrease in supplies and
materials and a $0.4 million decrease in personnel and other costs.
Sales and marketing expense. In the three months ended March 31, 2014, our sales and marketing expense increased $1.2 million, or 19.9%, to
$6.9 million, and represented 9.8% of our revenue, compared with $5.8 million, or 8.6% of our revenue, in the corresponding period of 2013.
The increase in our sales and marketing expense was primarily attributable to a $0.8 million increase in personnel costs, a $0.2 million increase
in travel costs and a $0.2 million increase in advertising and other costs.
General and administrative expense. In the three months ended March 31, 2014, our general and administrative expense decreased slightly to
$3.7 million, and represented 5.3% of our revenue, compared with $3.8 million, or 5.6% of our revenue, in the corresponding period of 2013.
The decrease in our general and administrative expense was primarily attributable to a $0.5 million decrease in professional fees and other costs,
partially offset by a $0.4 million increase in personnel costs.
Interest income. In the three months ended March 31, 2014, our interest income was $81,000 compared with $66,000 in the corresponding
period of 2013. Interest income in both periods reflects the low effective yields that are available due to the current market conditions.
Other (expense) income, net. In the three months ended March 31, 2014, our other expense, net was $33,000 compared with other income, net of
$30,000 in the corresponding period of 2013. The change was primarily due to increased net foreign currency losses.
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Provision for income taxes. Our provision for income taxes decreased $1.0 million to $8.6 million in the three months ended March 31, 2014,
from $9.6 million in the corresponding period of 2013, representing an effective tax rate of 34.4% and 35.3% during the quarter ended March 31,
2014 and 2013, respectively.
Our effective tax rate decreased 90 basis points, representing the net effect of three primary factors. Our effective tax rate decreased by 600
basis points due to a decrease in deemed dividends from our foreign subsidiaries, pursuant to Subpart F of the Internal Revenue Code. This
decrease was partially offset by a reduction in benefits from foreign tax rate differentials and foreign tax credits, resulting in a 220 basis point
increase to our effective tax rate. Additionally, our effective tax rate increased 230 basis points due to the expiration of the federal R&D credit
for expenses incurred after December 31, 2013, as well as, the impact of The American Taxpayer Relief Act of 2012 (“Act”), which was enacted
on January 2, 2013. Under the Act, the federal research and development credit was retroactively extended for amounts paid or incurred after
December 31, 2011 through December 31, 2013. The effects of the change in the tax law were recognized in the first quarter of 2013, which is
the quarter in which the law was enacted.
Liquidity and Capital Resources
As of March 31, 2014, we held $172.4 million of cash and cash equivalents. We also held $320.0 million of marketable securities consisting of
treasury bills and treasury notes. Cash provided by our operations was $27.2 million in the three months ended March 31, 2014, of which the
principal components were our net income of $16.4 million and non-cash charges of $10.8 million. Our operating assets and liabilities resulted
in no net change to our cash provided by operations. Net operating assets and liabilities includes a $7.8 million decrease in net income taxes
receivable, due to the timing of tax payments and receipts and a $0.8 million increase in accounts payable and accrued expenses, due to the
timing of disbursements, offset by a $3.1 million increase in prepaid expense and other assets, a $2.9 million increase in accounts receivable,
related to the timing of customer shipments and collections, a $2.1 million increase in inventory and a $0.4 million net decrease in deferred
revenue and customer advances, due to product shipments under contracts with advanced billings.
We invested $1.8 million in the purchase of property and equipment in the three months ended March 31, 2014, primarily related to production
tooling equipment, test equipment and software. We purchased $147.0 million of marketable securities in the three months ended March 31,
2014, comprised of United States government treasury notes and bills, while maturities of marketable securities amounted to $181.0 million.
During the three months ended March 31, 2014, shares issued upon vesting of restricted stock were net of 15,090 shares retained by us to cover
employee tax withholdings of $0.9 million paid by us.
In the three months ended March 31, 2014, we paid a cash dividend of $0.15 per share totaling $4.7 million. Future dividends will be declared at
the discretion of the Company’s Board of Directors and will depend upon such factors as the Board deems relevant including, among other
things, our ability to generate positive cash flows from operations.
We believe that our cash, cash equivalents, short term investments and cash generated from operations will be sufficient to meet our anticipated
cash requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue
growth, the timing and extent of spending to support product development efforts, the expansion of our sales and marketing activities, the timing
and introduction of new products, the costs to ensure access to adequate manufacturing capacity and the continuing market acceptance of our
products.
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Recent Accounting Pronouncements
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash, cash
equivalents and marketable securities, as well as foreign currency exchange rate risk.
Interest rate risk. The primary objectives of our investment activity are to preserve principal, provide liquidity and earn a market rate of return.
To minimize market risk, we maintain our portfolio in cash and diversified short-term investments, which may consist of bank deposits, money
market funds and highly rated, short-term government and commercial securities. The interest rates are variable and fluctuate with current
market conditions. The risk associated with fluctuating interest rates is limited to this investment portfolio. We do not believe that a 10% change
in interest rates would have a material impact on our financial position or results of operations.
Foreign currency risk. To date, our international customer sales agreements and our consolidated operating expenses have been denominated
primarily in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and do not enter into foreign
currency hedging transactions.
The functional currency of most of our foreign operations, other than that of our subsidiaries in Ireland, is the local currency. The functional
currency of our subsidiaries in Ireland is the U.S. dollar. Sales contracts and vendor purchase agreements entered into by our subsidiaries in
Ireland are generally U.S. dollar denominated. The functional currency of our other foreign subsidiaries is the local currency reflecting that those
subsidiaries primarily generate and expend cash in their local currency. Accordingly, the effects of exchange rate fluctuations on the net assets of
these operations are accounted for as translation gains or losses in accumulated other comprehensive income within stockholders’ equity.
We face exposure to movements in foreign currency exchange rates whenever we, or any of our subsidiaries, enter into transactions with third
parties or hold cash denominated in currencies other than our functional currency. Intercompany transactions between entities that use different
functional currencies also expose us to foreign currency risk. Accordingly, the effects of exchange rate fluctuations on non-functional currency
assets and liabilities are accounted for as foreign exchange gains and losses in other income (expense) within the Statement of Operations.
We do not believe that a change of 10% in any individual foreign currency exchange rate would have a material impact on our financial position
or results of operations.
Item 4.
(a)
Controls and Procedures
Evaluation of disclosure controls and procedures . Our management, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective to provide a reasonable level of assurance that we record,
process, summarize and report the information we must disclose in the reports that we file or submit under the Securities Exchange Act of
1934, as amended, within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC, and
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that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding disclosure.
The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations,
judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and the risk of
fraud. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in
preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
(b)
Changes in internal control over financial reporting . There were no changes in our internal control over financial reporting that occurred
during the three months ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings.
Item 1a.
Risk Factors
The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This
Quarterly Report on Form 10-Q, and other information provided by us or statements made by our directors, officers or employees from time to
time, may contain “forward-looking” statements and information, which involve risks and uncertainties. Actual future results may differ
materially. Statements indicating that we “expect,” “estimate,” “believe,” “are planning” or “plan to” are forward-looking, as are other
statements concerning future financial results, product offerings or other events that have not yet occurred. There are several important factors
that could cause actual results or events to differ materially from those anticipated by the forward-looking statements. Such factors include those
described below, which have not changed in any material respect as compared with the risk factors in our Annual Report on Form 10-K for the
year ended December 31, 2013. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to
what extent, any of such risks may be realized. We also cannot assure that we have identified all possible issues which we might face. Except as
required by law, we undertake no obligation to update these risk factors or any forward-looking statements that we make.
Uncertain prospects for the global economy could adversely affect our business, results of operations and financial condition.
We are unable to predict the future of the global economy, and there is no certainty that our business will grow in the long term. These
uncertainties, including uncertainties related to the current sovereign debt crisis in certain countries in Europe, the recent U.S. Government
shutdown and to the mandatory reductions in defense spending that may occur under the U.S. Budget Control Act of 2011, affect businesses
such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Uncertain economic
conditions may lead consumers, businesses and governments to reduce or postpone spending, which may cause our customers to cancel,
decrease or delay their existing and future orders with us. The inability of customers to obtain credit could negatively affect our revenue and our
ability to collect receivables. In addition, financial difficulties experienced by our suppliers, independent sales representatives or distributors
could result in product delays, increased accounts receivable defaults and inventory challenges. If uncertain economic conditions continue or
deteriorate, we may recognize charges relating to restructuring costs or the impairment of assets. These uncertainties could have a material
adverse impact on our business, our ability to achieve targeted results of operations and our financial condition.
Our quarterly revenue and operating results are difficult to predict accurately and may fluctuate significantly from period to period.
As a result, we may fail to meet the expectations of investors, which could cause our stock price to decline.
We operate in a highly dynamic industry and our future results could be subject to significant fluctuations, particularly on a quarterly
basis. Our quarterly revenue and operating results have fluctuated significantly in the past and may continue to vary from quarter to quarter due
to a number of factors, many of which are not within our control. Although some of our customers, such as those who serve the military and
space industries, place long-term orders with us or provide us with forecasts of their future requirements for our products, a significant
percentage of our revenue in each quarter is dependent on sales that are booked and shipped during that quarter, typically attributable to a large
number of orders from diverse customers and markets, which we refer to as our “turns business.” Accurately forecasting our turns business and
our total revenue in any quarter is difficult. If our operating results do not meet our publicly stated guidance, if any, or the expectations of
investors, our stock price may decline. Additional factors that can contribute to fluctuations in our operating results include:
• changes in demand for our products due to global economic conditions;
• changes in our product mix or customer mix;
• the increase, reduction, rescheduling or cancellation of significant customer orders;
• the timing of customer qualification of our products and commencement of volume sales of their systems that include our products;
• the rate at which our present and future customers adopt our technologies in our target markets;
• the timing and success of the introduction of new products and technologies by us and our competitors, and the acceptance of our new
products by our customers;
• the gain or loss of one or more key customers;
• the availability, cost and quality of materials and components that we purchase from third-party vendors and any problems or delays
in the fabrication, assembly, testing or delivery of our products;
• the quality of our products and any remediation costs; and
• changes in our effective tax rate.
Due to these and other factors, quarter-to-quarter comparisons of our historical operating results should not be relied upon as accurate
indicators of our future performance.
As a fabless company, we depend on third-party foundries to manufacture semiconductor wafers that are critical to our products,
which makes us susceptible to supply shortages or loss of supply, price fluctuations and quality risks that could adversely affect our operating
results.
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We obtain all the semiconductor wafers used in our products from third-party wafer fabrication facilities, known as foundries. Our
principal third-party foundries include Cree in North Carolina, Global Communications Semiconductors in California, IBM in Vermont,
Northrop Grumman in California, Telefunken Semiconductors in Germany, TriQuint Semiconductor in Oregon and Texas, Tower/Jazz in
California, TSMC in Washington and Taiwan, UMS in France and WIN Semiconductors in Taiwan. We typically rely on a single foundry for
the production of the wafer used in a particular product. We generally have not had long term supply agreements with our foundries. Our
agreements with our foundries fix the prices at which we purchase wafers from them, typically for a period of one year.
Our reliance on third-party foundries involves a number of risks. These include uncertainties as to availability of manufacturing capacity,
reduced control over our manufacturing costs, delivery times, reliability and process quality, which can adversely affect the quality of our
components produced from these wafers, the possible misappropriation of our technology and the possibility that third parties may claim that our
products infringe their intellectual property as a result of activities by our foundries. In addition to wafers, we also purchase a number of other
key components and services from sole source suppliers or a limited number of suppliers, which exposes us to similar risks. For example, we
rely on a small number of subcontractors, primarily in Asia and the United States, to package some of our products, particularly those that utilize
standard plastic encapsulated packages.
The ability of our suppliers to meet our requirements could be impaired or interrupted by constraints on their manufacturing capacity or by
a variety of other factors beyond their control, such as earthquakes or other natural phenomena, labor strikes or shortages or political unrest. One
supplier of wafers that are used in a significant number of our products has, in the past, experienced financial difficulties. Financial or other
difficulties faced by our suppliers, or significant changes in demand for the components, materials or services they use in the products they
supply to us, could limit the availability of those products to us.
The number of foundries that can provide the advanced gallium arsenide, or GaAs, processes that currently account for most of our wafer
purchases is limited. Growth in global demand for RF components, particularly for use in smart phones and other mobile devices, has led to
higher utilization at many GaAs foundries, and at least one of our foundries has experienced capacity constraints that have affected its
operations. Several of our foundries, including TriQuint Semiconductor, UMS and (to a lesser extent) Northrop Grumman, also compete with us
in the business of developing and selling semiconductor ICs, which could affect their willingness to continue to supply us or others with foundry
services or otherwise result in their having objectives that conflict with ours. As a result of these or other factors, one or more of our foundries or
other suppliers could in the future be unable to, or elect not to, make available to us adequate manufacturing capacity to meet our requirements,
extend their lead times or seek to increase the prices of materials we purchase from them as their contracts with us expire. If any of these events
were to occur, our operations could be adversely affected.
We are in the process of transitioning away from one of our principal foundry suppliers, which creates uncertainties that could affect
our business, revenues, profitability and financial condition.
We have been transitioning away from one of our principal foundries from which we historically sourced a substantial portion of our
GaAs wafers. We have been working with the foundry to manage this transition with the goal of maintaining adequate supplies of the affected
products over their natural life cycles, which are typically five to ten years. The impact of this transition on our business remains uncertain. We
have made larger than normal purchases of raw materials inventory from this foundry, which we refer to as advance purchases, in order to
support the products which have the longest life cycles. This consumes cash and could expose us to increased risk of inventory write-offs. At
March 31, 2014, raw material inventory includes $35.2 million of advance purchases of wafers from this foundry. During this transition, we
could experience adverse reactions from customers, which could affect our revenues, and the productivity of our new product development
efforts has been, and may continue to be, adversely affected as we divert engineering resources in order to translate certain existing products to
other foundries, which could affect our profitability. Further, products translated to other foundries could have inferior performance, production
yields or costs. If we fail, or are unable, to purchase adequate quantities of GaAs wafers from this foundry to meet future demand of the related
products, we may lose opportunities to sell these products to
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our customers. If any of these events were to occur to a more significant degree than they have to date, our business, revenues, profitability and
financial condition could be adversely affected.
Our financial results are exposed to the cyclicality of the semiconductor industry and our end markets.
In addition to being subject to such broad, macroeconomic conditions, the semiconductor industry in general, and the market segments
within that industry that we serve, are cyclical in nature and have experienced, and may in the future experience, significant fluctuations in
supply and demand. Such fluctuations could result in product overcapacity, high inventory levels and accelerated erosion of average selling
prices, affecting one or more of the markets we serve. These adverse effects could occur even during periods of growth in the broader economy.
Downturns in many sectors of the electronic systems industry have in the past contributed to weak demand for semiconductor products, which
has sometimes lasted for extended periods of time. A period of weak demand could adversely impact our revenue and harm our business,
financial condition and results of operations.
If our principal markets fail to grow or experience declines, our revenue may suffer.
Although our products are used in a variety of markets, our future growth depends to a significant extent on the success of our principal
markets, which are automotive, broadband, cellular infrastructure, fiber optics, microwave and millimeterwave communications, military, space
and test and measurement systems. Revenue derived from our three largest markets, military, microwave and millimeterwave communications
and test and measurement, represented, in the aggregate 74.0% and 75.6% of our annual revenue in 2013 and 2012, respectively. In 2011, our
three largest markets were military, microwave and millimeterwave communications and cellular infrastructure, which accounted for, in the
aggregate, 76.8% of our annual revenue. Given the current economic climate, the rate at which our principal markets will grow or decline is
difficult to predict. These markets may fail to grow or may decline for many reasons, including insufficient consumer demand, lack of access to
capital, changes in the United States defense budget and procurement processes and changes in regulatory environments. If demand for
electronic systems in which our products are incorporated declines, fails to grow, or grows more slowly than we anticipate, our revenue could
decline.
A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, prolonged U.S. Government shutdown
or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.
Our operating results have in the past been, and could in the future be, adversely affected by spending caps or changes in the budgetary
priorities of the U.S. Government or the Department of Defense, as well as delays in program starts or the award of contracts. Current U.S.
Government spending levels for defense-related programs may not be sustained and future spending and program authorizations may not
increase or may decrease or shift to programs in areas in which we do not participate. Such changes in spending authorizations and budgetary
priorities may occur as a result of the rapid growth of the federal budget deficit, increasing political pressure and legislation, including the
Budget Control Act of 2011, designed to reduce overall levels of government spending, including through sequestration, shifts in spending
priorities from defense-related programs as a result of competing demands for federal funds, the number and intensity of military conflicts or
other factors. Further, the failure of Congress to pass an interim or full-year budget in the immediate future, or increase the amount the U.S.
Government is authorized to borrow (commonly referred to as the debt ceiling), could disrupt our business. These uncertainties could have a
material adverse impact on our business, our ability to achieve targeted results of operations and our financial condition.
If we fail to develop new products that achieve market acceptance or fail to introduce new products that enable us to address
additional markets, our operating results could be adversely affected.
The markets for our products are characterized by frequent new product introductions and changes in product and process technologies.
The future success of our business and continued growth in our revenue will depend on our ability to develop new products for existing and new
markets, introduce these products in a cost-effective and timely manner and have our products designed into the products of OEMs. The
development of new high
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performance semiconductor ICs, modules, subsystems and instrumentation is highly complex, and from time to time we may experience delays
in completing the development and introduction of new products or fail to efficiently manufacture such products in the early production phase.
As the complexity and degree of integration of our products increases, maintaining or increasing our historical rate of new product introductions
will become increasingly challenging. Our ability to successfully develop, manufacture, introduce and deliver new types of high performance
semiconductor ICs, modules, subsystems and instrumentation will depend on various factors, including our ability to:
• attract and retain skilled engineering personnel;
• accurately understand market requirements;
• complete and introduce new products;
• achieve design wins with our customers;
• obtain adequate supplies of materials and components that meet our quality requirements; and
• achieve adequate manufacturing yields.
Furthermore, a newly introduced standard product generally has little immediate impact on our revenue. A new standard product may not
generate meaningful revenue for two or more years, if ever. In the meantime, we will have incurred expenses to design and produce the product,
and we may not recover these expenses if demand for the product fails to reach forecasted levels. As the complexity and level of integration of
our products has grown, the number of new products that we have introduced each year has decreased in each of the last three years, and the
average investment in research and development cost in each such new product has increased. We believe the revenue potential of these new
products justifies this larger investment. However, greater concentration of our research and development resources on a smaller number of
products increases the risk of harm to our business if any one of these new products fails to achieve market acceptance.
Our gross margin fluctuates from period to period, which affects our results of operations.
Our gross margin has fluctuated on a quarterly basis. For example, our quarterly gross margin since the first quarter of 2010 has ranged
from a low of 67.3% to a high of 74.8%, including sequential, quarterly variations as high as 390 basis points, as in the fourth quarter of 2013.
We believe that our gross margin in prior periods has been at the high end of what we consider our normal range, while our gross margin of
67.3% in the fourth quarter of 2013 was at the lower end of our normal range. A number of factors can cause our gross margin to fluctuate from
period to period. Our gross margin in any period is significantly affected by industry demand and the intensity of competition in the markets into
which we sell our products. Our gross margin is also significantly affected by product mix, that is, the percentage of our revenue in that period
that is attributable to higher or lower margin products, and by pricing, including fluctuations in the relative proportion of high volume orders, on
which we offer higher discounts. In addition, we may from time to time enter into development contracts, typically with government customers,
that initially generate low gross margins, in the hope that these development projects will lead to higher margin production contracts. Such
contracts may initially have an adverse effect on our gross margin.
Additional factors affecting our gross margin include changes in the cost of wafers and materials, the timing of indirect costs for preproduction masks and evaluation materials, project cost variations on customer-funded contracts, changes in overhead absorption, charges for
excess or obsolescent inventory, changes in manufacturing efficiencies, and other factors, some of which are not under our control. Our margin
also can be substantially affected by variations in our manufacturing yields. Our yields depend on many factors that we control, such as product
design and the effectiveness of our own assembly and test operations, but they are also affected by the activities of third parties, such as the
foundries and packaging and test subcontractors that supply us with critical materials and services, that are beyond our control. Our margins may
also be adversely affected by the transition away from one of our principal foundry suppliers discussed above. As a result of these or other
factors, our gross margin may fluctuate, or even trend down over time. A significant decrease in our gross margin would affect our profitability
and likely have an adverse effect on our stock price.
We may be subject to claims that we are infringing third-party intellectual property rights, which could result in costly and lengthy
litigation that could harm our business.
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In recent years there has been significant litigation involving intellectual property rights in many technology-based industries, including
our own. Because patent applications often are not disclosed until a patent issues, it is not always possible for us to know whether patent
applications are pending that might be infringed by our products, and there could be issued patents that are pertinent to our business of which we
are not aware. Our products may also be claimed to infringe intellectual property rights of others as a result of activities by our foundries or other
suppliers with respect to which we have no control or knowledge. In connection with the sale of our products, we often make representations
affirming, among other things, that our products do not infringe on the intellectual property rights of others, and we agree to indemnify
customers against third-party claims of such infringement.
We have from time to time been the subject of litigation alleging that sales by us of our products infringe patents held by such third
parties. We have also from time to time received letters asserting that we infringe patents held by third parties that have not resulted in litigation.
We have incurred significant costs in investigating and defending these actions and claims, and there can be no assurance that these or any other
pending or future litigation or claims relating to infringement of third-party intellectual property rights can be resolved in a manner favorable to
us. Any claims relating to the alleged infringement by us of third-party proprietary rights, whether meritorious or not, could be time-consuming
to defend and could harm our working relationships with our foundries and customers, damage our reputation, result in substantial and
unanticipated costs associated with litigation, require us to enter into royalty or licensing agreements, which may not be available on acceptable
terms or at all, or result in the payment by us of substantial damages. If any of our products were found to infringe the intellectual property rights
of any third party and if a license were not available on reasonable terms, we could be required to redesign the infringing product so as not to
infringe, which could be time consuming and costly, or if this is not feasible, we could be required to withdraw the infringing product from the
market.
Operations at our Chelmsford, Massachusetts facilities and at our warehouse facility in Malaysia that are critical to our business are
subject to disruption from a variety of causes, including those that may be beyond our control.
Our executive management, sales, marketing and administrative functions in the United States, and a substantial portion of our research
and development and product design activities, are carried out at our headquarters facility in Chelmsford, Massachusetts, while final assembly of
our module and subsystem-level products, and final testing for most of our products, are carried out at our separate manufacturing facility, also
located nearby in Chelmsford, Massachusetts. These activities are critical to our business, and could be affected by disruptions such as electrical
power outages, fire, earthquake, flooding, acts of terrorism, health advisories or risks, or other natural or man-made disasters that could damage
these facilities. Additionally, a majority of our raw materials inventory is held in a warehouse facility operated by a third party in Malaysia, and
is subject to risks of theft, fire, earthquake, flooding and other similar casualty risks. Although we seek to mitigate these risks by maintaining
casualty and business interruption insurance, this insurance would not be adequate to protect against all the consequences of such occurrences. A
major disruption affecting our Chelmsford assembly and test operations, or our Malaysia warehouse, could cause significant delays in shipments
until we are able to procure and outfit another suitable facility or to qualify and contract with alternative third party suppliers, or procure
replacement inventory, processes which could take many months. A significant portion of the inventory held in our Malaysia warehouse consists
of advance purchase material procured from a foundry from which we likely would not be able to obtain replacement inventory. Loss of this
inventory would therefore result in a substantial loss of revenue that would likely not be covered by insurance, and could have a material adverse
effect on our results of operations. Even if alternative assembly and test capacity or sources of supply are available, we may not be able to obtain
them on a timely basis, or favorable terms, which could result in higher costs and/or a loss of customers.
We may be subject to information technology system failures, network disruptions and breaches in data security.
Information technology system failures, network disruptions and breaches of data security could disrupt our operations by causing delays
or cancellation of customer orders, impeding the manufacture or shipment of products, preventing the processing of transactions and interfering
with the accurate reporting of our financial results. They could also result in the unintentional disclosure of confidential information about our
company, or our intellectual property, or with respect to our customers and employees. While we have taken, and will continue to take, steps to
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address these concerns by implementing network security and internal control measures, there can be no assurance that a system failure or data
security breach will not have a material adverse effect on our business or our financial condition or operating results.
We may not be able to effectively manage the challenges associated with global business expansion, including the need to make
improvements in our infrastructure and systems, and any failure by us to manage these challenges could harm our business and operating
results.
We have expanded internationally, including our acquisition of Arctic Silicon Devices in Norway, the establishment of our international
operations center in Ireland, the opening of our new design center in Egypt and the establishment of a warehouse facility operated by a third
party in Malaysia. Our long-term global expansion project has many goals, including optimizing how we execute our growing international
business. We believe that our new corporate structure will enable us to service our international customers, better manage our global suppliers
and have significant long-term benefits, including improving customer satisfaction, reducing manufacturing cost and cycle times and lowering
our financial risk.
It requires significant attention and resources to manage geographically dispersed operations, and the recent expansion of our headcount
and in the geographical scope of our operations have placed additional demands on our management and other resources. To accommodate any
future growth, we must continue to expand and upgrade our operational and financial systems, procedures and controls, and other internal
management systems. As a result of our international expansion and the increasing scale and complexity of our operations, we are now in the
process of implementing an entirely new ERP system with substantially greater functionality, a project that we expect will not be completed until
at least the second quarter of 2014.
These projects and other planned improvements to our facilities and our operational, financial and management information systems
require substantial managerial and financial resources, and our efforts in this regard may not be successful. The implementation of new or
upgraded management information systems, and their adaptation to our more complex international structure, is a complex and costly process
that involves numerous risks. Any failure of these systems to function as expected that is not detected by our system of internal control over
financial reporting could result in errors in our financial reporting, which could be material, or cause delays in reporting results in accordance
with our regulatory requirements. In general, if we fail to adequately manage our global business expansion, or to improve our operational,
financial and management information systems in a timely and effective manner, our business and results of operations could be materially
adversely affected.
We design and manufacture products in our standard product line based upon our internal assessment and forecasts of market
requirements, and our results of operations will be adversely affected if we fail to assess market requirements accurately.
A majority of our revenue is typically derived from sales of our standard products. We order components and materials, such as
semiconductor wafers, used in the manufacture of our standard products 12-14 weeks in advance, while our customers typically place orders for
those products one to eight weeks in advance, exposing us to inventory and manufacturing costs in advance of anticipated revenue. If we or our
customers fail to predict market demand accurately for new and existing standard products, we may experience a delay or reduction of
anticipated revenue without having sufficient time to adjust our inventory and operating expenses. Over the past several years, our customer’s
requested lead times have continued to decrease. As the number of products we offer increases, and our customers’ expected lead times grow
shorter, we have been required to carry larger amounts of inventory, which exposes us to increased inventory risk. Additionally, as customers’
lead times become shorter, changes in their buying patterns or in our product mix can manifest themselves rapidly and unexpectedly, and can
affect our results of operations in a manner that is difficult to predict or plan for.
Lead times for our manufacturing materials can vary significantly and depend on factors such as specific supplier requirements, the size of
the order, contract terms, current market demand and the availability of manufacturing capacity at our third-party foundries. As a result, we make
financial commitments in the form of purchase commitments. Furthermore, we generally lack visibility into the finished goods inventories of our
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customers, which makes it more difficult for us to accurately forecast their requirements. If we overestimate our customers’ requirements, we
may have excess inventory, which would increase our costs. If we underestimate our customers’ requirements, we may have inadequate
inventory, which could prevent us from delivering our products to our customers on a timely basis, which could disrupt our customers’
production schedules. If we are unable to accurately forecast the mix of higher margin and lower margin products that we sell, our gross margins
and profitability could be adversely affected. Any of these occurrences could negatively impact our operating results and our business.
We design custom products to meet specific requirements of our customers. The amount and timing of revenue from such products
can cause fluctuations in our quarterly operating results.
The design and sales cycle for our custom products, from initial contact by our sales force to the commencement of shipments of those
products in commercial quantities, is lengthy and can range from three months to as long as two years or more. In this process, our sales and
application engineers work closely with the OEM customer to analyze the customer’s system requirements and establish a technical specification
for the custom product. We then select a semiconductor process and foundry, evaluate test wafers and components, and establish assembly and
test procedures before manufacturing in commercial quantities can begin. The length of this cycle is influenced by many factors, including the
difficulty of the technical specification, the novelty and complexity of the design and the customer’s procurement processes. OEMs typically do
not commit to purchase significant quantities of the custom product until they are ready to commence volume shipment of their own systems,
and volume purchases of our products by an OEM customer or its contract manufacturer generally do not occur until the OEM customer has
successfully introduced the system incorporating our product. Our receipt of substantial revenue from sales of a custom product depends on that
customer’s commercial success in manufacturing and selling its system incorporating our product. As a result, a significant period may elapse
between our investment of time and resources in a custom product and our receipt of substantial revenue from sales of that product.
The length of this process increases the risk that a customer will decide to cancel or change its product plans. Such a cancellation or
change in plans by a customer could cause us to lose anticipated sales. In addition, our business, financial condition and results of operations
could be adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle, chooses not to release equipment
that contains our products, or is not successful in the sale and marketing of its products that incorporate our custom products.
Finally, if we fail to achieve initial design wins in the customer’s qualification process, we may lose the opportunity for significant sales to
that customer for a lengthy period of time because the customer may be unlikely to change its source for those products in the future due to the
significant costs associated with qualifying a new supplier and potentially redesigning its product.
We rely on a small number of customers for a significant percentage of our revenue, and the loss of, or a reduction in, orders from
these customers could result in a decline in revenue.
We have historically depended on a small number of customers for a large percentage of our annual revenue. Revenue derived from our 10
largest customers as a percentage of our annual revenue was 35.4% in 2013, 40.2% in 2012 and 43.2% in 2011, and was 40.1% of our revenue
during the three months ended March 31, 2014. During 2013, 2012 and 2011, Boeing accounted for 13.5%, 16.1% and 16.4%, respectively of
our total sales. We include in these calculations revenue from products sold to these customers directly by us or through sales representatives and
our distributors, as well as from products sold to contract manufacturers for use in a system manufactured by the contract manufacturer for that
customer. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within
the customer’s organization, each having differing product life cycles, end customers and market dynamics. While the composition of our top 10
customers varies from year to year, we expect that sales to a limited number of customers will continue to account for a significant percentage of
our revenue for the foreseeable future. Additionally, we have noted consolidation among OEMs in some of our markets, which could result in an
increased concentration in our sources of revenue. It is possible that any of our major customers could terminate its purchasing arrangements
with us or significantly reduce or delay the amount of our products that it orders, purchase products from our competitors or develop its own
products internally. The loss of, or a reduction in, orders from any major customer could cause a decline in revenue and adversely affect our
results of operations.
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Our failure to continue to keep pace with new or improved semiconductor process technologies could impair our competitive position.
Semiconductor manufacturers constantly seek to develop new and improved semiconductor process technologies. Our future success
depends in part upon our ability to continue to gain access to these semiconductor process technologies in order to adapt to emerging customer
requirements and competitive market conditions. Our access to advanced GaAs semiconductor process technologies for new product
development may be adversely affected by the transition away from one of our principal foundry suppliers discussed above. If we fail for any
reason to remain abreast of new and improved semiconductor process technologies as they emerge, we may lose market share which could
adversely affect our operating results.
Our business depends on international customers, suppliers and operations, and as a result we are subject to regulatory, operational,
financial and political risks which could adversely affect our financial results.
The percentage of our revenue attributable to sales to customers outside the United States, based on the customer location, was 56.7% in
2013, 52.9% in 2012 and 54.8% in 2011, and was 60.6% of our revenue during the three months ended March 31, 2014. We expect that revenue
from customers outside the United States will continue to account for the majority of our revenue. Currently, we maintain international sales
offices in Europe and Asia, and we rely on a network of independent sales representatives to sell our products internationally. We also have
design centers in Turkey, Canada, Norway and Egypt. In 2012, we established an international headquarters in Ireland as part of our global
expansion project. We have in the past relied on, and expect to continue to rely on, suppliers, manufacturers and subcontractors located in
countries other than the United States, including France, Germany, Malaysia, the Philippines, Korea and Taiwan. Accordingly, we will be
subject to several risks and challenges, any of which could adversely affect our business and financial results. These risks and challenges
include:
• difficulties and costs of staffing and managing international operations across different geographic areas and cultures;
• compliance with a wide variety of domestic and foreign laws and regulations, including those relating to the import or export of
semiconductor products;
• legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers;
• changes in the statutory tax rate in the various foreign jurisdictions that we operate in;
• changes in our effective tax rate due to the outcome of future tax audits or examinations;
• managing our global expansion project;
• seasonal reductions in business activities;
• our ability to receive timely payment and collect our accounts receivable;
• political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in
which we and our customers, suppliers, manufacturers and subcontractors are located;
• legal uncertainties regarding protection for intellectual property rights in some countries; and
• fluctuations in freight rates and transportation disruptions.
Political and economic instability and changes in governmental regulations could adversely affect our ability to effectively operate our
foreign sales offices and foreign design centers, as well as the ability of our foreign suppliers to supply us with required materials or services.
Any interruption or delay in the supply of our required components, products, materials or services, or our inability to obtain these components,
materials, products or services from alternate sources at acceptable prices and within a reasonable amount of time, could impair our ability to
meet scheduled product deliveries to our customers and could cause customers to cancel orders.
Additionally, most of our foreign sales, as well as our purchases of material from international suppliers, are denominated in U.S. dollars.
An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive for our international customers
to purchase, thus rendering the prices of our products less competitive. Conversely, a reduction in the value of the U.S. dollar relative to foreign
currencies could increase our supply costs.
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The segment of the semiconductor industry in which we participate is intensely competitive, and our inability to compete effectively
would harm our business.
The markets for our products are extremely competitive, and are characterized by rapid technological change and continuously evolving
customer requirements. We compete primarily with other suppliers of high performance analog and mixed-signal semiconductor components
used in RF, microwave and millimeterwave applications. These competitors include large, diversified semiconductor manufacturers with broad
product lines, such as Avago and Analog Devices, with whom we compete in a number of our markets. We also compete in specific markets or
product categories with a large number of semiconductor manufacturers such as IDT, Linear Technology, Cree, M/A-COM, Peregrine
Semiconductor, RFMD, Skyworks, TriQuint Semiconductor and UMS. We also encounter competition from manufacturers of advanced
electronic systems that also manufacture semiconductor components internally. Additionally, in certain product categories we compete with
semiconductor manufacturers from which we also obtain foundry services, such as Cree, TriQuint Semiconductor and UMS. Our competitors
may develop new technologies, enhancements of existing products or new products that offer price or performance features superior to ours.
Many of our competitors have significantly greater financial, technical, manufacturing, sales and marketing resources than we do, and might be
perceived by prospective customers to offer financial and operational stability superior to ours. This is particularly true of competitors in the
markets for silicon-based products. We expect competition in our markets to intensify, as new competitors enter the RF, microwave and
millimeterwave component market, existing competitors merge or form alliances, and new technologies emerge. If we are not able to compete
effectively, our market share and revenue could be adversely affected, and our business and results of operations could be harmed.
We rely on the significant experience and specialized expertise of our senior management and engineering staff and must attract and
retain qualified engineers and other highly skilled personnel in order to grow our business successfully.
Our performance is substantially dependent on the continued services and performance of our senior management and our highly qualified
team of engineers, many of whom have numerous years of experience and specialized expertise in our business. Highly skilled analog and
mixed-signal IC engineers, in particular, are in short supply. We expect to continue to hire additional engineering personnel as we expand our IC
design and system-level engineering capabilities. If we are not successful in hiring and retaining highly qualified engineers, we may not be able
to extend or maintain our engineering expertise, and our future product development efforts could be adversely affected.
Our future success also depends on our ability to identify, attract, hire, train, retain and motivate highly skilled managerial, financial,
operations, sales, marketing and customer service personnel. If we fail to attract, integrate and retain the necessary personnel, our ability to
maintain and grow our business could suffer significantly. Further, stock price volatility could impact our ability to retain key personnel.
Our business could be adversely affected if we experience product returns, product liability and defects claims.
We introduce a significant number of new products every year, and we may not be able to anticipate all of the possible performance or
reliability problems that could arise with these products. If such problems occur or become significant, we could experience a reduction in our
revenue and increased costs related to inventory write-offs, warranty claims and other expenses which could have an adverse effect on our
financial condition.
The materials used to manufacture our products are complex and are provided by a significant number of vendors in our supply chain.
While we perform extensive testing and inspections during the manufacturing process, some defects may escape detection in our manufacturing
process and subsequently pass through to our customers. These matters have arisen from time to time and may reasonably be expected to occur
again in the future. The occurrence of defects such as these could result in product returns from, and reduced product shipments to, our
customers. Such defects also could result in the loss of or delay in market acceptance of our products or harm our reputation.
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Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability
claims. However, the limitation of liability provisions contained in these agreements may not be effective as a result of federal, state or local
laws, or ordinances or unfavorable judicial decisions in the United States or other countries. The insurance we maintain to protect against claims
associated with the use of our products may not adequately cover all claims asserted against us. In addition, even if ultimately unsuccessful, such
claims could result in costly litigation, divert our management’s time and resources, and damage our customer relationships.
Deviations in the manufacturing process can cause unacceptable manufacturing yield loss or halts in production, which could have a
material adverse effect on our revenue and gross margin.
Our products involve complexities in both their design and the semiconductor process technology employed in their fabrication. In many
cases, the products are assembled into customized packages or integrated into higher level modules and subsystems. Our products must meet
exacting customer specifications for quality, performance and reliability. Our manufacturing yield, the percentage of “good” units produced in a
given period, is a combination of yields including wafer fabrication, assembly, and test yields. Due to the complexity of our products, we
periodically experience difficulties in achieving acceptable yields as even minor deviations in the manufacturing process can cause unacceptable
manufacturing yield loss or halts in production. The number of usable products that result from our production process can fluctuate as a result
of many factors, including the following:
• design errors;
• processing defects in the procured wafers;
• impurities or contamination in the materials used;
• contamination of the manufacturing environment;
• equipment failure or variations in the manufacturing processes;
• losses from broken wafers or other human error;
• defects in packaging; and
• issues and errors in testing.
Typically, when our yields improve, our gross margin improves. When our yields decrease, our unit costs are typically higher, our gross
margin is lower and our profitability is adversely affected, any or all of which can harm our results of operations and lower our stock price.
Our signal generator instrument products are more complex than our core IC products, and as a result, present quality, regulatory
and product liability risks that differ from those we have faced in our core IC business.
Our signal generators are complex microwave test instruments and could be subject to multiple internal component failures and
manufacturing and software defects which could result in product failure. Defects in the hardware or software incorporated in these products
could cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product
development efforts and harm our relationship with our customers. Our test and measurement instrument products operate using line voltages of
100 volts or more and certain products require AC-to-DC power transformers which we purchase from a third party and supply to our customers.
The failure of these products or their power transformers could cause safety problems for the operator, including the risk of electrical shock,
injury or death in the event of a short circuit or other malfunction, and a product liability claim brought against us, even if unsuccessful, would
likely be time consuming and costly to defend. We may be required to comply with various domestic and international legal directives governing
the manufacture of our test and measurement instrument products. Failure of our test and measurement system products to meet domestic and
international safety and other regulatory requirements for electromagnetic radiation, power consumption or workmanship standards could result
in a loss of revenue, loss of market share or failure to achieve market acceptance. We generally seek certification of these products by various
third parties such as Underwriters Laboratories (UL) in the United States or Conformité Européenne (CE) in Europe.
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We cannot ensure that we will be able to obtain, or if obtained, maintain any such certifications for our test and measurement instrument
products. Our failure to obtain or maintain such certifications could adversely affect the market acceptance of the products.
We use specialized technologies and know-how to design, develop and manufacture our products. Our inability to protect our
intellectual property could hurt our competitive position, harm our reputation and adversely affect our results of operations.
We seek to protect our proprietary technology under United States and foreign laws affording protection for trade secrets, and seek United
States and foreign patent, copyright and trademark protection of our products and developments where appropriate. We rely primarily on trade
secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities.
While we own a small number of patents, we have not historically emphasized patents as a source of significant competitive advantage. We
believe that while the protection afforded by trade secret, patent, copyright and trademark laws may provide some advantages, the competitive
position of participants in our industry is largely determined by such factors as the technical and creative skills of their personnel, the frequency
of their new product developments and their ability to anticipate and rapidly respond to evolving market requirements. To the extent that a
competitor effectively uses its intellectual property portfolio, including patents, to prevent us from selling products that allegedly infringe such
competitor’s products, our operating results would be adversely affected.
We seek to protect our trade secrets and proprietary information, in part, by requiring our employees to enter into agreements providing for
the maintenance of confidentiality and the assignment of rights to inventions made by them while employed by us. We also enter into nondisclosure agreements with our consultants, semiconductor foundries and other suppliers to protect our confidential information delivered to
them. There can be no assurance that our confidentiality agreements with employees, consultants and other parties will not be breached, that we
will have adequate remedies for any breach or that our trade secrets and other proprietary information will not otherwise become known. There
also can be no assurance that others will not independently develop technologies that are similar or superior to our technology or reverse
engineer our products.
Additionally, the laws of countries in which we operate may afford little or no protection to our intellectual property rights. If we are
unable to prevent misappropriation of our technology or to deter independent development of similar technologies, our competitive position and
reputation could suffer.
We generate a portion of our revenue from sales made by third parties, including our independent sales representatives and our
distributors, and the failure to manage successfully our relationships with these third parties could cause our revenue to decline and harm
our business.
We rely in part upon third parties, including our independent sales representatives and our distributors, Future Electronics and Digi-Key
Corporation, to promote our products, generate demand and sales leads, and obtain orders for our products. In addition, these parties provide
technical sales support to our customers. The activities of these third parties are not within our direct control. Our failure to manage our
relationships with these third parties effectively could impair the effectiveness of our sales, marketing and support activities. A reduction in the
sales efforts, technical capabilities or financial viability of these parties, a misalignment of interest between us and them, or a termination of our
relationship with a major sales representative or our distributors could have a negative effect on our sales, financial results and ability to support
our customers. These parties are engaged under short-term contracts, which typically may be terminated by either party on 30 to 60 days notice.
It generally takes approximately three to six months for a third party such as a sales representative to become educated about our products and
capable of providing quality sales and technical support to our customers. If we were to terminate our relationship with one of our distributors or
one of our larger sales representatives, or if one of them decided to discontinue its relationship with us, sales to current and prospective
customers could be disrupted or delayed, and we could experience a diversion of substantial time and resources as we seek to identify, contract
with and train a replacement.
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We may pursue acquisitions and investments in new businesses, products or technologies that involve numerous risks, which could
disrupt our business and may harm our financial results.
We have previously made, and may in the future pursue, acquisitions of and investments in new businesses, products and technologies, or
we may acquire other operations that expand our current capabilities. Acquisitions and investments present a number of potential risks and
challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired business,
product or technology. For example, if we identify an acquisition or investment candidate, we may not be able to successfully negotiate or
finance the transaction on favorable terms. Even if we are successful, we may not be able to integrate the acquired businesses, products or
technologies into our existing business and products. Further, there can be no assurance that we will be successful in retaining key employees or
customers of the acquired business. In some cases, the consent of a customer may be required before contracts between that customer and a
company that we acquire may be assumed by us, and it may not be feasible to obtain all such consents prior to closing. As a result of the rapid
pace of technological change, we may misgauge the long-term potential of the acquired business or technology, or be unable to commercialize
the acquired technology in time to capitalize on available market opportunities, or may find that the acquisition is not complementary to our
existing business. Potential acquisitions and investments, whether or not consummated, may divert our management’s attention and require
considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions and investments, we may issue
equity securities, incur debt or assume contingent liabilities. Additionally, acquisitions could result in increased amortization expenses and, to
the extent such acquisitions are not successful, write-downs of acquired assets, which would adversely affect our profitability.
Our financial results may be adversely affected by increased tax rates and exposure to additional tax liabilities.
As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax
regulations governing each region. We are subject to income taxes in both the United States and various foreign jurisdictions, and significant
judgment is required to determine worldwide tax liabilities. Our effective tax rate as well as the actual tax ultimately payable could be adversely
affected by changes in the split of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws
or by material audit assessments, which could affect our profitability. In addition, the amount of income taxes we pay is subject to ongoing
audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability.
If we fail to comply with export control regulations we could be subject to substantial fines or other sanctions.
Certain of our products are subject to the Export Administration Regulations, administered by the Department of Commerce, Bureau of
Industry Security, which require that we obtain an export license before we can export products or technology to specified countries.
Additionally, some of our products are subject to the International Traffic in Arms Regulations, which restrict the export of information and
material that may be used for military or intelligence applications by a foreign person. Our export compliance procedures and classification of
our products are subject to review from time to time by the relevant government authorities. Our failure to comply with these laws, or failure to
properly classify our products for purposes of these laws, could result in sanctions by the government, including substantial monetary penalties,
denial of export privileges and debarment from government contracts.
If we fail to comply with government contracting regulations, we could suffer a loss of revenue or incur price adjustments or other
penalties.
Some of our revenue is derived from contracts with agencies of the United States Government and subcontracts with its prime contractors.
As a United States Government contractor or subcontractor, we are subject to federal contracting regulations, including the Federal Acquisition
Regulations, which govern the allowability of costs incurred by us in the performance of United States government contracts. Certain contract
pricing is based on
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estimated direct and indirect costs, which are subject to change. Additionally, the United States government is entitled after final payment on
certain negotiated contracts to examine all of our cost records with respect to such contracts and to seek a downward adjustment to the price of
the contract if it determines that we failed to furnish complete, accurate and current cost or pricing data in connection with the negotiation of the
price of the contract.
In connection with our United States government business, we are also subject to government audits and to review and approval of our
policies, procedures, and internal controls for compliance with procurement regulations and applicable laws. In certain circumstances, if we do
not comply with the terms of a contract or with regulations or statutes, we could be subject to downward contract price adjustments or refund
obligations or could in extreme circumstances be assessed civil and criminal penalties or be debarred or suspended from obtaining future
contracts for a specified period of time. Any such suspension or debarment or other sanction could have an adverse effect on our business.
Under some of our government subcontracts, we are required to maintain secure facilities and to obtain security clearances for personnel
involved in performance of the contract, in compliance with applicable federal standards. If we were unable to comply with these requirements,
or if personnel critical to our performance of these contracts were to lose their security clearances, we might be unable to perform these contracts
or compete for other projects of this nature, which could adversely affect our revenue.
Some of our long-term contracts may be terminated for the convenience of the customer and may involve significant expenditures on
our part that, if the contract is terminated early, we may be unable to recover.
Our United States Government contracts and subcontracts may be funded in increments over a number of government budget periods and
typically can be terminated by the government for its convenience. Some of these contracts are long-term agreements for the manufacture of
complex subsystems for which we are required to expand our production facilities, hire additional personnel, incur costs to meet customer
qualification requirements and make other substantial investments in advance of our receipt of significant revenue. If such a contract is
terminated, in addition to the loss of anticipated revenue, we may be unable to recover all of our costs incurred or committed.
In order to comply with current and pending environmental and climate change laws and regulations, we may need to modify our
activities or incur substantial costs, and if we fail to comply with environmental regulations we could be subject to substantial fines or be
required to suspend production, alter manufacturing processes or cease operations.
We are subject to a variety of international, federal, state and local governmental regulations directed at preventing or mitigating climate
change and other environmental harms, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other
hazardous substances used to manufacture our products. If we fail to comply with these regulations, substantial fines could be imposed on us,
and we could be required to suspend production, alter manufacturing processes or cease operations, any of which could have a negative effect on
our sales, income and business operations. Failure to comply with environmental regulations could subject us to civil or criminal sanctions and
property damage or personal injury claims. Compliance with current or future environmental laws and regulations could restrict our ability to
expand our facilities or build new facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or
incur other substantial expenses which could harm our business, financial condition and results of operations. In response to environmental
concerns, some customers and government agencies impose requirements for the elimination of hazardous substances, such as lead (which is
widely used in soldering connections in the process of semiconductor packaging and assembly), from electronic equipment. For example, in
2003, the EU adopted its RoHS Directive. Effective July 1, 2006, the RoHS Directive prohibits, with specified exceptions, the sale in the EU
market of new electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials. We have a program
in place to meet these customer and governmental requirements, including the RoHS Directive, where applicable to us, by making available
versions of our products that do not include lead or other hazardous substances. The European Parliament has also adopted the Waste Electrical
and Electronic Equipment Directive, or WEEE Directive, which makes producers of electrical and electronic equipment financially responsible
for specified collection, recycling, treatment and disposal of past and future covered products. Environmental laws and regulations such as these
could become more stringent over time, imposing even greater compliance costs and
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increasing risks and penalties associated with violations, which could seriously harm our business, financial condition and results of operations.
New regulations related to conflict minerals will force us to continue to incur additional expenses, may make our supply chain more
complex and may result in damage to our relationships with customers.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC
adopted new requirements for companies that manufacture products that contain certain minerals and metals, known as conflict minerals. These
rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate from the Democratic
Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and
pricing of minerals we use in the manufacture of our products. In addition, we have incurred and will incur additional costs to comply with the
disclosure requirements, including costs related to seeking to determine the source of any of the relevant minerals used in our products. Since our
supply chain is complex, we may not be able to ascertain the origins for these minerals used in our products through the due diligence
procedures that we implement, which may harm our reputation. We may also face difficulties in satisfying customers who may require that our
products be certified as conflict-free, which could harm our relationships with these customers and lead to a loss of revenue. These new
requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at
competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.
We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and
any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on
our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish annually a report by our management, and an
opinion of our independent registered public accounting firm, on the effectiveness of our internal control over financial reporting. Our
management report is required to contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This
assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.
If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert
that our internal control is effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent
registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, investors could lose confidence in
the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.
We could be the subject of securities class action litigation due to stock price volatility or in connection with matters related to our
corporate governance, which could divert management’s attention and adversely affect our financial position or results of operations.
The stock market in general, and market prices for the securities of technology companies like ours in particular, have experienced
volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations
may adversely affect the market price of our common stock, regardless of our operating performance. In recent situations where the market price
of a stock has been volatile, holders of that stock have initiated securities class action litigation against the company that issued the stock.
Additionally, there has recently been a significant increase in litigation commenced by stockholders of public companies unrelated to changes in
the company’s stock price. Such litigation may, for example, challenge actions taken by the board of directors related to the company’s corporate
governance, such as a proposal to adopt new or amended bylaws, or allege that a company’s proxy disclosures, even in connection with a routine
annual meeting, are defective. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be
costly and divert the time and attention of our management and harm our business.
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Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control of our Company that
stockholders may consider beneficial and may adversely affect the price of our stock.
Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or change of control that
a stockholder may consider favorable. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect
directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions include authorizing the issuance of “blank check” preferred stock and establishing
advance notice requirements for nominations for election to the board of directors and for proposing matters to be submitted to a stockholder
vote.
Provisions of Delaware law may also discourage, delay or prevent someone from acquiring or merging with our Company or obtaining
control of our Company. Specifically, Section 203 of the Delaware General Corporate Law may prohibit business combinations with
stockholders owning 15% or more of our outstanding voting stock and could reduce the value of our Company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of our common stock
The agreements governing restricted stock and restricted stock units issued to our employees generally provide that upon vesting of such awards
the recipients must pay any Federal, state, local and/or payroll taxes required by law to be withheld with respect to such income. Alternatively,
recipients may elect to have such tax withholding obligation satisfied by delivering to us for cancellation shares subject to such award in order to
satisfy the minimum statutory withholding amount due, in which case we will pay the required amounts to the appropriate taxing authorities on
the recipient’s behalf. All such shares retained by us in satisfaction of tax withholding obligations are retired and restored to the status of
authorized and unissued shares.
During the three months ended March 31, 2014, an aggregate of 15,090 shares were retained by us to cover aggregate employee tax withholdings
of $857,000, as follows:
Total number
of shares
purchased
Period
January 2014
February 2014
March 2014
Total
1,319
13,469
302
15,090
Average price
paid per
share (1)
$
59.67
56.40
60.71
56.77
(1) Represents the weighted average closing price per share of the shares withheld in satisfaction of withholding tax obligations, as
reported by the Nasdaq Stock Market, as of the date the withholding was effected.
Item 3. Defaults Upon Senior Securities
Not applicable.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
(a) 2014 Senior Executive Cash Incentive Compensation Plan.
The Compensation Committee of our Board of Directors has approved a Senior Executive Cash Incentive Compensation Plan for calendar year
2014 (the “Plan”) for our Named Executive Officers and other senior executives.
Each participant is assigned a target bonus amount, representing a fixed percentage of his base salary. The target amount is allocated to two
components as follows:
• 70% will be determined based on our company financial performance in 2014 (the “Company Performance Bonus”); and
• 30% will be determined based upon the individual’s performance in relation to individual performance objectives, or MBOs (the “MBO
Bonus”).
The target bonus represents the amount to be paid assuming 100% attainment of the company financial performance targets and individual MBO
targets, as specified in the Plan. The actual bonus awarded will be reduced to as little as zero, or increased within stated limits, to the extent that
actual performance varies from the targeted levels set forth in the Plan.
The 2014 target bonus for each of our Named Executive Officers who remains employed by us, as a percentage of his salary for 2014, is as
follows:
Name
Title
Target Bonus
as
Percentage of
Salary
Rick D. Hess
President and Chief Executive Officer
60%
William W. Boecke
Chief Financial Officer
50%
William D. Hannabach
Vice President of Global Operations
40%
Thomas Hwang
Vice President
40%
Antonio Visconti
Vice President
40%
The Company Performance Bonus will be determined based on two equally weighted measures of our financial performance for calendar year
2014, as follows:
• One-half based upon the amount of our total revenue for 2014; and
• One-half based upon our net income margin for 2014; provided that
• In no event will any Company Performance Bonus be paid if our earnings per share for 2014 shall not equal or exceed our EPS for 2013.
The amount of the bonus paid on account of each of these company performance measures will be equal to the portion of the target bonus that is
allocated to that measure, multiplied by a pay-out factor (ranging from zero to 200%) based on the actual value of such measure for 2014,
determined in accordance with a matrix set forth in the Plan.
For this purpose, our revenue growth and net income margin will be determined by reference to our financial statements prepared in accordance
with U.S. generally accepted accounting principles; provided, that in determining the extent to which the performance targets have been
achieved the Compensation Committee may adjust the GAAP measures to include or exclude special or unusual items such as restructuringrelated expense, acquisition-related expense, gain or loss on disposition of businesses, non-recurring royalty payments, impairments of
acquisition-related intangible assets, deferred tax adjustments, asset write-offs, write-downs and impairment charges, significant unforeseen legal
costs or settlements and such other similar non-cash or non-recurring items as the Compensation Committee may determine in its sole discretion.
In making any such adjustments the Committee will be guided by the principle that our compensation practices should not have the effect of
deterring participants from taking actions that are beneficial for our company and stockholders because they might decrease the participants’
bonus payments, nor should they encourage participants to take actions that are detrimental to our company and stockholders because they might
increase participants’ bonus payments.
The percentage of the MBO Bonus paid to any participant will be based on the Committee’s determination, in its sole discretion, as to the extent
to which the participant has attained or exceeded his MBO objectives, provided that in no case will the MBO Bonus be paid at more than 150%
of the targeted level.
34
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We expect that the amounts, if any, of the Company Performance Bonus and MBO Bonus will be determined by the Compensation Committee
at its first regularly scheduled meeting following the issuance of our earnings release for 2014, and that such amounts, if any, shall be paid
during the first quarter of 2015.
(b) Senior Executive Change in Control Retention Agreements
In April 2014 we entered into an amendment to our employment agreement with our chief executive officer, and change in control retention
agreements with each of our other Named Executive Officers who remains employed by us, that provide them with severance benefits if any of
the following occurs, each of which we refer to as a severance trigger event:
•
within 12 months after a change in control (as defined in each agreement) we terminate the employee’s employment for a reason other
than “cause” or “misconduct” (as defined in the agreement) or the employee’s death or disability; or
•
the executive terminates his or her employment following an event that occurs within 12 months after a change in control and that
constitutes “constructive termination” of his or her employment or “good reason” (as defined in the agreement).
For purposes of these agreements, a “change in control” occurs when:
•
any person or entity becomes the beneficial owner of 50% or more of the combined voting power of our outstanding securities;
•
our shareholders approve specified mergers of Hittite with another entity; or
•
our shareholders approve a plan of liquidation or sale of all, or substantially all, of our assets.
These agreements provide for the following benefits upon the occurrence of a severance trigger event:
•
payment of an amount equal to one times the executive’s annual base salary;
•
payment of an amount in lieu of bonus equal to the product of the executive’s target cash incentive bonus for the year in which
termination of employment occurs, multiplied by the sum of 1.0 plus a fraction equal to the quotient of the number of days during such
year on which he or she was employed by us, divided by 365; and
•
we will pay the difference between the cost of COBRA continuation coverage (for the executive and any dependent who received
health insurance coverage prior to such termination) and any premium contribution amount applicable to the executive as of such
termination.
Item 6. Exhibits
Exhibit
No.
Description
3.1
Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Form 10-Q for the
quarter ended March 31, 2012)
3.2
Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed on January 7, 2013.
4.1
Specimen certificate for common stock of Hittite Microwave Corporation (incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form S-1, File No. 333-124664)
10.1*
2014 Senior Executive Cash Incentive Compensation Plan
10.2*
Amendment No. 2 to Employment Agreement between us and Rick D. Hess dated April 14, 2014
10.3*
Form of Change in Control Retention Agreement entered into between us and each of William Boecke, Susan DiCecco, Bryan
Goldstein, Gorkem Guven, William Hannabach, Gregory Henderson, Jason Lynch, Michael McCullar, Antonio Visconti, and Larry
Ward.
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
32.1
Certification of Chief Executive Officer pursuant to Section 1350
32.2
Certification of Chief Financial Officer pursuant to Section 1350
101
The following materials from the Hittite Microwave Corporation Quarterly Report on Form 10-Q for the quarter ended March 31,
2014, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of March 31,
2014 and December 31, 2013; (ii) Condensed Consolidated Statements of Operations for the Three Months March 31, 2014 and
March 31, 2013; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014
and March 31, 2013; (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and
March 31, 2013; and (v) Notes to Condensed Consolidated Financial Statements
*
Compensation plan or arrangement
35
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 6, 2014
HITTITE MICROWAVE CORPORATION
(Registrant)
By: /s/ William W. Boecke
William W. Boecke
Chief Financial Officer
36
Exhibit 10.1
HITTITE MICROWAVE CORPORATION
2014 Senior Executive Cash Incentive Compensation Plan
The officers and other executives of Hittite Microwave Corporation (the “Company”) named on Exhibit A-1 are eligible to receive cash
bonuses under the 2014 Senior Executive Cash Incentive Compensation Plan (the “Plan”), subject to execution of the Terms and Conditions of
Participation set forth on Exhibit B .
1.
Each participant will be eligible to receive a cash bonus in respect of his or her services during 2014 (the “Bonus”), consisting of two
components: an amount determined by reference to the Company’s financial performance in 2014 (the “Company Performance
Bonus”) and an amount determined by the Compensation Committee of the Board of Directors based upon its determination, in its
sole discretion, as to the extent to which individual performance objectives established by the Committee in advance for such
participant (“MBOs”) have been met by the participant during 2014 (the “MBO Bonus”).
2.
Each participant will be assigned a target bonus amount (the “Target Bonus”), determined as a percentage of his or her base salary,
of which 70% will be allocated to the Company Performance Bonus and 30% will be allocated to the MBO Bonus, which amounts
will represent the bonuses to be paid assuming 100% attainment of the stated Company performance metrics and MBOs.
3.
The percentage of the MBO Bonus paid to any participant will be subject to increase or reduction based on the Committee’s
determination, in its sole discretion, as to the extent to which the participant has attained or exceeded his or her MBO objectives;
provided, that in no case will the MBO Bonus be paid at more than 150% of the targeted level.
4.
The percentage of the Company Performance Bonus paid will be subject to increase or reduction, in accordance with the matrices
provided in paragraph 8 below, to the extent that actual performance varies from the targeted levels, and will be the same for all
participants.
5.
The Company Performance Bonus will be allocated to the following Company financial performance measures:
(a)
One-half based upon the amount of the Company’s total revenue for 2014 (“Revenue”); and
(b)
One-half based upon the Company’s net income margin for 2014 (i.e., the percentage determined by dividing the
Company’s net income by its revenue) (“Net Income Margin”); provided that
(c)
In no event will any Company Performance Bonus be paid if the Company’s earnings per share (“EPS”) for 2014 shall
not equal or exceed its EPS for 2013 (the “Minimum EPS Requirement”).
6.
The Target Bonus for each participant in the Plan shall be as set forth on Exhibit A-1 .
7.
For purposes of the foregoing paragraph 5, Revenue, Net Income Margin and EPS shall be determined by reference to the
Company’s financial statements prepared in accordance with U.S. generally accepted accounting principles and, in the case of the Net
Income Margin and EPS, after taking into account an accrual for the compensation expense associated with the bonuses to be paid
hereunder; provided, that in determining the extent to which the targets for such performance measures have been achieved the
Compensation Committee shall have discretion to increase or decrease the GAAP measures to include or exclude items that the
Committee believes to be special or extraordinary, including, without limitation, restructuring-related expense, acquisition-related
expense, gain or loss on disposition of businesses, non-recurring royalty payments, impairments of acquisition-related intangible
assets, deferred tax adjustments, asset write-offs, write-downs and impairment charges, significant unforeseen legal costs or
settlements and such other similar non-cash or non-recurring items as the Compensation Committee may determine in its sole
discretion. In making any such adjustments the Committee will be guided by the principle that the Company’s compensation
practices should not have the effect of deterring participants from taking actions that are beneficial for the Company because they
might decrease the participants’ bonus payments, nor should they encourage participants to take actions that are detrimental to the
Company because they might increase participants’ bonus payments.
8.
The amount, if any, of the Company Performance Bonus that is payable to any participant in respect of the Company’s Revenue or
Net Income Margin shall be equal to the amount of the participant’s Target Bonus that is allocated to that measure, multiplied by a
pay-out factor based on the actual value of such measure as determined by the Committee, in accordance with the tables set forth on
Exhibit A-2 , with linear interpolation between the nearest stated values where necessary.
9.
It is anticipated that the amounts, if any, of the Company Performance Bonus and MBO Bonus will be determined by the
Compensation Committee at its first regularly scheduled meeting in 2015 and that such amounts, if any, shall be paid during the first
quarter of 2015.
*
*
*
Exhibit 10.2
April 9, 2014
Rick D. Hess
65 Village Road
Westford, MA 01886
Re: Amendment No. 2 to Employment Agreement
Dear Rick,
Reference is made to the employment agreement dated March 13, 2013 between Hittite Microwave Corporation (“Hittite” or the “Company”)
and you, as amended on or about August 8, 2013 (the “Employment Agreement”).
This is to confirm our agreement that, for consistency with those certain Change in Control Agreements being extended to certain other
executive officers of the Company on the date hereof, we have agreed that:
1. Section 10(a) of the Employment Agreement shall be amended to read in its entirety as follows:
(a) In the event of your Involuntary Termination for any reason other than Misconduct during the period ending two (2) years from your
Employment Start Date (the “Protected Period”) or within the 12-month period following a Change of Control (as defined below), you
will be entitled to receive, in addition to your base salary and any other compensation earned to date hereunder and not yet paid, a gross
payment equal to the sum of:
(i) an amount equal to one times your annual Base Salary; plus
(ii) a payment in lieu of bonus in an amount equal to the following:
(A) if such Involuntary Termination occurs other than following a Change in Control, the greater of (I) one times the
amount of the Target Award or (II) your actual bonus for the fiscal year prior to your Involuntary Termination; or
(B) if such Involuntary Termination occurs within the 12-month period following a Change of Control, the product of
your target cash incentive bonus for the year in which termination of employment occurs, multiplied by the sum of
(i) 1.0 plus (ii) a fraction equal to the quotient of the number of days during such year on which you were employed
by the Company, divided by 365;
(such sum of (i) and (ii) being referred to herein as the “Severance Payment”), in each case contingent upon your execution and delivery
to the Company, within 30 days after the date of your termination of employment, of an agreement in a form satisfactory to the
Company containing a general release of any and all potential claims against the Company and its affiliates and agents (the “Release”),
which Release has not been revoked by you within the 7-day period following its delivery to the Company. Such Severance Payment
will be made less all applicable deductions and authorized withholdings and be paid in a lump sum within 15 days after delivery of the
Release, provided that the Release has not been timely revoked. In addition and similarly contingent upon execution and delivery of an
effective Release, for one year after your date of termination, should you elect COBRA continuance coverage, the Company shall be
responsible for paying the difference between the cost of COBRA continuation coverage (for you and any dependent who received
health insurance coverage prior to such termination) and any premium
contribution amount applicable to you as of such termination (“Continuation Benefits”). Continuation Benefits otherwise receivable by
you will be reduced to the extent benefits of the same type are received by or made available to you during the applicable one-year
period (and any such benefits received by or made available to you shall be reported by you to the Company). In the event of your
Misconduct, you will repay any Severance Payment and Continuation Benefits previously paid to you, and your right to receive any
future Severance Payments or Continuation Benefits will terminate.
2. Section 10(c) of the Employment Agreement shall be amended to read in its entirety as follows:
(c) In the event of your Involuntary Termination for any reason other than Misconduct within the 12-month period following a Change
of Control, (i) the vesting of your Annual Grant for 2013 and your Retention Award will be accelerated in full (as to the latter, as if any
performance condition specified therein had been satisfied to the maximum extent possible, but subject to any dollar limitation provided
therein), and (ii) the remaining unvested portion of any other stock option, restricted stock award, restricted stock unit or other
compensatory stock-based award (each an “Award”) then held by you shall be accelerated such that all such Awards shall be fully
vested; provided, in the case of any Award the vesting of which is contingent in whole or in part upon the attainment of any Company
or market performance condition that has not yet been satisfied, such condition shall be deemed to have been satisfied as of the date of
termination at the level that would result in vesting of 100% of the number of shares stated as the target award.
Except as expressly amended hereby, the Employment Agreement shall remain in force and be given effect in accordance with its terms.
Please confirm that this letter correctly sets forth our agreement by signing where indicated below and returning an executed copy of this offer to
me at your earliest convenience.
Sincerely,
/s/ Franklin Weigold
Franklin Weigold
Chairman of the Board
Acknowledged and agreed:
/s/ Rick D. Hess
Rick D. Hess
cc: HR file
4/14/14
Date
Exhibit 10.3
CHANGE IN CONTROL RETENTION AGREEMENT
This Agreement is entered into as of
2014, by and between Hittite Microwave Corporation, a Delaware corporation with its
principal offices located at 2 Elizabeth Drive, Chelmsford, MA 01824 (together with its successors and assigns, the “Company”), and [ name of
executive ], an individual residing at
, (the “Executive”).
WHEREAS, the Executive is currently employed by the Company as [ specify office ]; and
WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control, as defined in Section 1.1(a) below, of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows:
1.
Termination of Employment Following a Change in Control.
1.1.
Definition of Terms
(a) For purposes of this Agreement, a “ Change of Control ” shall mean the occurrence of any of the following:
(i) the acquisition by an individual, entity, group or any other person of beneficial ownership of more than fifty percent (50%) or more of either
(x) the then-outstanding shares of common stock of the Company or (y) the combined voting power of the election of directors for the Company;
and/or (ii) the sale of substantially all of the Company’s assets or a merger or sale of stock wherein the holders of the Company’s capital stock
immediately prior to such sale do not hold at least a majority of the outstanding capital stock of the Company or its successor immediately
following such sale; and/or (iii) individuals who, as of the date hereof, constitute the Board of Directors (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequently to the
date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office occurs as result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person
other than the Board of Directors.
(b) The Severance Amount shall be equal to the sum of (A) the amount of the Executive’s then-current monthly base
salary multiplied by twelve (12), plus (B) an amount in lieu of bonus equal to the product of the Executive’s target cash incentive bonus for the
year in which termination of employment occurs, multiplied by the sum of (i) 1.0 plus (ii) a fraction
equal to the quotient of the number of days during such year on which the Executive was employed by the Company, divided by 365.
(c) Continuation Benefits shall consist of the Company paying the difference between the cost of COBRA
continuation coverage, should the Executive elect to receive it, for the Executive and any dependent who received health insurance coverage
prior to termination of the Executive’s employment, and any premium contribution amount applicable to the Executive as of such termination,
for a period of one year following the date of termination. Continuation Benefits otherwise receivable by the Executive will be reduced to the
extent benefits of the same type are received by or made available to him or her during the applicable one-year period (and any such benefits
received by or made available to the Executive shall be reported by him or her to the Company).
(d) An “ Event of Constructive Termination ” shall mean the occurrence of any of the following events at any time
during the twelve (12) month period following the occurrence of a Change in Control:
(i)
a relocation of the Executive’s principal workplace to a location more than 50 miles from the location of
such workplace immediately prior to the Change in Control without the Executive’s express written consent;
(ii)
a material diminution in the Executive’s authority or responsibilities, provided that a change in title or
reporting relationship shall not, in and of itself, be deemed to constitute such a material diminution, or the
assignment to the Executive of duties or responsibilities inappropriate to the office of [specify title] ;
(iii)
a material diminution in the Executive’s compensation or benefits without the express written consent of
the Executive, other than an across-the-board reduction in compensation levels that applies to all senior
executives generally; or
(iv)
any other action or inaction that constitutes a material breach by the Company of any written agreement
under which the Executive provides services to the Company;
provided, that no such event or occurrence shall constitute an Event of Constructive Termination unless (x) written notice thereof is given by the
Executive to the Company within ninety (90) days of its occurrence, (y) the Company shall fail to remedy or cure such event or occurrence
within thirty (30) days following its receipt of such notice from the Executive, and (z) the Executive shall within sixty (60) days after the
expiration of such 30-day period give written notice to the Company of his election to terminate his employment pursuant to this paragraph by
reason of such event or occurrence.
1.2.
Termination for Cause . In the event of termination of the Executive’s employment for Cause following a Change in
Control, all compensation of the Executive and any other rights the Executive may have under this Agreement shall cease upon the termination
date of his employment, the Executive shall receive no Severance Amount, no Continuation Benefits and no further payments or benefits shall be
paid or payable to the Executive by the Company for any period thereafter, except to the extent that Executive shall have accrued benefits under
any retirement plan adopted by the Company for the benefit of its employees and except for all compensation owing hereunder to the Executive
as of the date of termination for Cause. If following termination of the Executive’s employment other than for Cause there shall occur any event
that would otherwise constitute Cause for termination of such employment, the Executive will repay any Severance Payment and Continuation
Benefits previously paid, and his or her right to receive any future Severance Payments or Continuation Benefits will terminate.
For purposes of this Agreement, “ Cause ” shall mean:
(a) Executive has been charged by the United States or a State or political subdivision thereof with conduct which is
a felony or which is a misdemeanor involving moral turpitude, deceit , dishonesty or fraud under the laws of the US or any state or political
subdivision thereof;
(b) fraud or embezzlement with respect to funds of the Company or dishonest, unethical or improper conduct by the
Executive that has had, or is reasonably likely to have, a material adverse impact on the reputation for honesty and fair dealing of the Company;
(c) the Executive’s failure to comply with lawful instructions not inconsistent with this Agreement given to the
Executive by the Board of Directors, which failure is not cured or corrected within thirty (30) days after the Executive’s receipt of written notice
from the Company referring to this paragraph and describing with specificity the instructions with which the Executive did not comply;
(d) the Executive’s material failure to comply with reasonable policies, directives, standards and regulations adopted
by the Company, including, without limitation, the Company’s policies regarding insider trading, except any such failure, that, if capable of cure,
is remedied by the Executive within thirty (30) days after the Executive’s receipt of written notice from the Company referring to this paragraph
and describing with specificity the failure of the Executive to comply; and
(e) material breach by the Executive of the Company Proprietary Rights Agreement or any other written agreement
between the Executive and the Company.
1.3.
Voluntary Termination by Executive.
(a) The Executive may voluntarily terminate his employment at any time by written notice to the Company, in
which case the Executive shall receive no Severance Amount, no Continuation Benefits and no further payments or benefits shall be paid or
payable to the Executive by the Company for any period after such termination of employment, except to the extent that Executive shall have
accrued benefits under any plan adopted by the Company for the benefit of its employees generally and except for all compensation owing
hereunder to the Executive as of the date of voluntary termination.
(b) Notwithstanding the foregoing, upon the occurrence of an Event of Constructive Termination the Executive
may, by written notice to the Company pursuant to clause (z) of Section 1.1 above, voluntarily terminate his employment, and in such event:
(i) within ten (10) days of the date of such termination, the Company shall pay to the Executive in a lump sum the Severance Amount, plus all
other compensation, including, without limitation, any commissions earned but not yet paid, owed by the Company to the Executive as of the
date of his termination (ii) the Company shall provide to the Executive the Continuation Benefits for a period of twelve (12) months following
such termination, and (iii) the remaining unvested portion of any stock option, restricted stock award, restricted stock unit or other compensatory
stock-based award (each an “Award”) then held by the Executive shall be accelerated such that all such Awards shall be fully vested; provided,
in the case of any Award the vesting of which is contingent in whole or in part upon the attainment of any Company or market performance
condition that has not yet been satisfied, such condition shall be deemed to have been satisfied as of the date of termination at the level that
would result in vesting of 100% of the number of shares stated as the target award.
1.4.
Termination by the Company without Cause Following a Change in Control.
(a)
In the event that the Executive’s employment under this Agreement is terminated by the Company other than for
Cause at any time during the twelve (12) month period following a Change in Control, then: (i), on the date of such termination, the Company
shall pay to the Executive in a lump sum the Severance Amount, plus all other compensation, including, without limitation, any commissions
earned but not yet paid, owed by the Company to the Executive as of the date of his termination, (ii) the Company shall provide to the Executive
the Continuation Benefits for a period of twelve (12) months following such termination, and (iii) the remaining unvested portion of any Award
then held by the Executive shall be accelerated in the manner provided in Section 1.3(b)(iii) above.
(b)
If during the twelve (12) month period following the occurrence of a Change in Control the employment of the Executive is
terminated by the Company for Cause pursuant to paragraph 1.2(a) above, and if the charges of criminal conduct are subsequently dismissed, or
the Executive is acquitted of such charges, then in such event the Executive’s termination shall be deemed to have been made without Cause, and
in such event the Company shall pay to the Executive within thirty (30) days of such dismissal or acquittal, in a lump sum (i) the Severance
Amount, plus all other compensation, including, without limitation, any commissions earned but not yet paid, owed by the Company to the
Executive as of the date of his termination, (ii) an amount equal to the fair value of the Continuation Benefits for a period of twelve (12) months
following the termination of his employment, and (iii) an amount equal to the fair value of the remaining unvested portion of any Awards that
were held by the Executive immediately prior to such termination, giving effect to the acceleration of such Awards in the manner provided in
Section 1.3(a)(iii) above, determined as of the date of such termination.
2.
Other Provisions.
Amounts Payable Less Withholding Taxes . The amounts payable by the Company hereunder shall be less any
2.1.
federal, state or local withholding taxes and social security.
2.2.
Excise Tax . Notwithstanding any other provisions of this letter agreement, in the event that any payment or benefit
received or to be received by the Executive in connection with a Change in Control, whether pursuant to the terms of this agreement or any other
plan, arrangement or agreement (all such payments and benefits, being hereinafter referred to as the “Total Payments”) would be subject (in
whole or part), to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the
Total Payments provided by reason of Section 280G of the Internal Revenue Code (the “Code”) in such other plan, arrangement or agreement,
the severance payments hereunder shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax.
The Total Payments shall be reduced by the Company in its reasonable discretion in the following order: (A) reduction of any cash payment,
excluding any cash payment with respect to the acceleration of equity awards, that is otherwise payable to you that is exempt from Section 409A
of the Code, (B) reduction of any other payments or benefits otherwise payable to you on a pro-rata basis or such other manner that complies
with Section 409A of the Code and (C) reduction of any payment with respect to the acceleration of equity awards that is otherwise payable to
you that is exempt from Section 409A of the Code.
Section 409A . It is intended that this Agreement comply with or be exempt from Section 409A of the Code and the Treasury
Regulations and IRS guidance thereunder (collectively referred to as “ Section 409A ”). Notwithstanding anything to the contrary in this
Agreement, this Agreement shall, to the maximum extent possible, be administered, interpreted, and construed in a manner consistent with
Section 409A. If and to the extent required to comply with Section 409A, no payment or benefit required to be paid under this Agreement on
account of termination of Executive’s employment shall be made unless and until Executive has a “separation from service” within the meaning
of Section 409A. In the case of any amounts payable under this Agreement that may be treated as payable in the form of “a series of installment
payments,” as defined in Treasury Regulation Section 1.409A-2(b)(2)(iii), the right to receive such payments shall be treated as a right to receive
a series of separate payments for purposes of such Treasury Regulation. If Executive is a “specified employee” as determined pursuant to
Section 409A as of the date of termination of employment and if any payment or benefit provided for in this Agreement or otherwise both
(x) constitutes a “deferral of compensation” within the meaning of Section 409A and (y) cannot be paid or provided in the manner otherwise
provided without subjecting Executive to additional tax, interest, or penalties under Section 409A, then any such payment or benefit shall be
delayed until the earlier of (i) the date which is 6 months after Executive’s “separation from service” within the meaning of Section 409A for any
reason other than death, or (ii) the date of Executive’s death. Any payment or benefit otherwise payable or to be provided to Executive upon or
in the 6 month period following “separation from service” that is not so paid or provided by reason of this Section 2.3 shall be accumulated and
paid or provided to Executive in a single lump sum, as soon as practicable (and in all events within 15 days) after the date that is 6 months after
Executive’s “separation from service” (or, if earlier, as soon as practicable, and in all events within 15 days, after the date Executive’s death). All
subsequent payments or benefits, if any, shall be payable or provided in accordance with the payment schedule applicable to each payment or
benefit. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits
to be provided hereunder shall be subject to the additional tax imposed under Section 409A, and any ambiguities herein shall be interpreted to so
comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to
take such reasonable actions that are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to
actual payment to Executive under Section 409A.
2.3.
Noncompetition Agreement and Release . It shall be a condition to the receipt by the Executive of any payment or
benefit pursuant to this Agreement that the Executive shall have executed and delivered to the Company a noncompetition agreement in
substantially the form attached as Exhibit A hereto, and a general release (the “Release”) in substantially the form attached as Exhibit B hereto.
To the extent that the Executive is already a party to a noncompetition agreement with the Company, the Executive acknowledges and agrees
that such agreement is a binding and enforceable obligation of the Executive that inures to the benefit of the Company’s successors and assigns,
including any corporation with which or into which the Company may be merged or which may succeed to its assets or business in a Change of
Control. The timing of any payment or benefit pursuant to this Agreement shall be governed by the following provisions. Executive must
execute and deliver the Release within 45 days after termination of employment. If Executive has revocation rights, such rights must be
exercised, if at all, not later than seven days after execution of the Release. Subject to the execution and effectiveness of such Release, any
payments that, pursuant to this Section 2.4, would otherwise be payable within the 60 day period commencing on termination of Executive’s
employment shall be paid in a lump sum within 10 days after execution of the Release; provided that, if the 60 day period begins in one calendar
year and ends in the subsequent calendar year, the payment shall be made in the subsequent calendar year.
2.4. Term . This Agreement shall expire on the later of (a) the first anniversary of the date of its execution or (b) if a Change
in Control shall have occurred during the term of this Agreement (as extended below), the first anniversary of such Change in Control, or if later,
(c) the expiration of the 60-day period referred to in clause (z) of Section 1.1(d) above; provided that on the third anniversary of the date of
execution, and on the expiration date of any subsequent Extension Term, as defined below, this Agreement shall automatically be extended for
an additional term (each an “Extension Term”) of one (1) year, unless the Company shall, not less than thirty (30) nor more than ninety (90) days
prior to such anniversary or expiration date, as the case may be, notify the Executive in writing that it elects not to extend the Agreement. The
expiration of this Agreement shall not affect the right of the Executive to receive any payment or benefit to which he became entitled by its terms
prior to such expiration.
2.5. Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed
given when delivered personally or sent by facsimile transmission (with confirmation) or, if sent by regular mail, three days after the date of
deposit in the United States mails addressed as follows:
(a) if to the Company, to:
(b) if to the Executive, to:
or to such other address as either party may from time to time provide to the other by notice as provided in this section.
2.6.
Entire Agreement . This Agreement constitutes the entire agreement and understanding between the Company and
the Executive, and supersedes all prior negotiations, agreements (including the Prior Agreement), arrangements, and understandings, both
written or oral, between the Company and the Executive with respect to the subject matter and the Term of this Agreement.
2.7.
Waiver or Amendment.
(a) The waiver by either party of a breach or violation of any term or provision of this Agreement by the other party
shall not operate or be construed as a waiver of any subsequent breach or violation of any provision of this Agreement or of any other right or
remedy.
(b) No provision in this Agreement may be amended unless such amendment is set forth in a writing that
specifically refers to this Agreement and is signed by the Executive and the Company.
Governing Law . This Agreement shall be governed by and construed in accordance with the laws of The
2.8.
Commonwealth of Massachusetts without regard to its conflict of laws rules.
2.9.
Successors; Assignment . The Company shall require any successor via a Change in Control (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such succession had taken place. This Agreement shall inure to the
benefit of, and shall be binding upon, each of the Company and the Executive and their respective heirs, personal representatives, legal
representatives, successors and assigns.
Severability . The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in
2.10.
this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part hereof. If any part of this Agreement
shall be declared invalid by a court of competent jurisdiction, this Agreement shall be construed as if such invalid part had not been inserted.
2.11.
Section Headings . The section and subsection headings contained in this Agreement are for reference purposes only
and shall not affect any way the meaning, construction or interpretation of any or all of the provisions of this Agreement.
2.12.
Counterparts . This Agreement may be executed in any number of counterparts and by the separate parties hereto in
separate counterparts, each of which shall be deemed to constitute an original and all of which shall be deemed to be one and the same
instrument.
Authority to Execute . The undersigned officer represents and warrants that he has full power and authority to enter
2.13.
into this Agreement on behalf of the Company, and that the execution, delivery and performance of this Agreement have been authorized by the
Board of Directors of the Company. Upon the Executive’s acceptance of this Agreement by
signing and returning it to the Company, this Agreement will become binding upon the Executive and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.
EXECUTIVE
HITTITE MICROWAVE CORPORATION
By:
Exhibit A
NONCOMPETE AGREEMENT
(Senior Employee)
This NONCOMPETE AGREEMENT (the “AGREEMENT”), made as of the [ ] day of [
], is entered into between Hittite
Microwave Corporation, a Delaware corporation with offices at 2 Elizabeth Drive Chelmsford, MA 01824 (the “COMPANY”) and
[
], an individual residing at [
] (the “Employee”).
RECITALS:
A.
The Company is willing to grant certain severance and other benefits to the Employee, under the circumstances specified in
that certain Change in Control Agreement dated [ ], 2014 between the Company and the Employee (the “Change in Control Agreement”); and
B.
such benefits;
As set forth in the Change in Control Agreement, the Employee’s execution of this Agreement is a condition to his receipt of
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
NON-COMPETITION COVENANTS.
(a)
NON-COMPETITION COVENANTS. The Employee agrees that he will not, during the NonCompetition Period (as hereinafter defined), directly or indirectly:
(i)
as owner, employee, officer, director, partner, sales representative, agent, stockholder, capital investor,
lessor, consultant or advisor, either alone or in association with others (other than as a holder of not more than one percent of the
outstanding shares of any series or class of securities of a company, which securities of such class or series are publicly traded in the
securities markets), develop, design, produce, market, sell or render (or assist any other person or entity in developing, designing,
producing, marketing, selling or rendering), products or services which are competitive with the Business of the Company (as
hereinafter defined) anywhere in the world;
(ii)
solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the
customers, prospective customers or referral sources of the Company with whom the Company has had a relationship during the period
of the Employee’s employment by the Company; or
(iii)
recruit, solicit or hire any employee of the Company, or induce or attempt to induce any employee of the
Company to terminate his or her employment with, or otherwise cease his or her relationship with, the Company.
(b)
DEFINITIONS. For the purposes of this Section 1, the following terms shall have the respective
meanings indicated below:
(i)
“NON-COMPETITION PERIOD” shall mean the period during which the Employee is employed by the
Company and the one-year period commencing on the last day of the Employee’s employment by the Company, regardless of whether
the Employee’s termination was at the election of the Company, with or without cause, or at the election of the Employee, with or
without good reason.
(ii)
“BUSINESS OF THE COMPANY” shall mean the development, manufacture, marketing and/or
distribution of (A) integrated circuits, modules, subsystems and instrumentation for RF, microwave and millimeter wave applications or
(B) any other products or services which the Company sells, has under development or which are subject to active planning at any time
during the term of the Employee’s employment with the Company.
2.
INJUNCTIVE AND OTHER EQUITABLE RELIEF.
(a)
The Employee consents and agrees that if he violates any of the provisions of Section 1 hereof, the
Company shall be entitled, in addition to any other remedies it may have at law, to the remedies of injunction, specific
performance and other equitable relief for a breach by the Employee of Section 1 of this Agreement. This Section 2
(a) shall not, however, be construed as a waiver of any of the rights which the Company may have for damages or
otherwise.
(b)
Any waiver by the Company of a breach of any provision of Section 1 hereof shall not operate or
be construed as a waiver of any subsequent breach of such provision or any other provision hereof.
(c)
The Employee agrees that each provision of Section 1 shall be treated as a separate and
independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of the other
clauses herein. Moreover, if one or more of the provisions contained in Section 1 shall for any reason be held to be
excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting and reducing it or them so as to be enforceable to the
maximum extent compatible with the applicable law as it shall then appear.
(d)
If the Company shall prevail in any action, suit or other proceeding (whether at law, in equity or otherwise) instituted
concerning or arising out of this Agreement, it shall recover, in addition to any other remedy granted to it therein, all its costs and reasonable
attorneys’ fees incurred in connection with the prosecution or defense of such action, suit or other proceeding.
3.
OTHER AGREEMENTS. The Employee represents and warrants that his performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any other agreement by which he is bound.
4.
NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the
address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 4.
5.
NOT A CONTRACT OF EMPLOYMENT. Employee understands that this Agreement does not constitute a contract of employment
or give Employee rights to employment or continued employment by the Company.
6.
ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this Agreement.
AMENDMENT. This Agreement may be amended or modified only by a written instrument executed by both the Company and the
7.
Employee.
8.
GOVERNING LAW. This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth
of Massachusetts, without regard to its choice of law principles. Employee hereby consents to (a) service of process, and to be sued, in The
Commonwealth of Massachusetts and (b) to the jurisdiction of the courts of The Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the
purpose of any suit, action or other proceeding arising out of any of Employee’s obligations hereunder, and Employee expressly waives any and
all objections he or she may have as to venue in any such courts.
SUCCESSORS AND ASSIGNS . This Agreement shall be binding upon and inure to the benefit of both parties and their respective
9.
successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or
business, provided, however, that the obligations of the Employee are personal and shall not be assigned by him.
10.
MISCELLANEOUS.
(a)
No delay or omission by the Company in exercising any right under this Agreement shall operate
as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
The captions of the sections of this Agreement are for convenience of reference only and in no way
(b)
define, limit or affect the scope or substance of any section of this Agreement.
(c)
This Agreement shall be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision hereof shall be prohibited or invalid under any such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating or nullifying the remainder of such provision or
any other provisions of this Agreement. If any one or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to duration, geographical scope, activity or subject, such provisions shall be
construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
HITTITE MICROWAVE CORPORATION
By:
Name:
Title: President
EMPLOYEE
Name:
Exhibit B
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
(INCLUDING OLDER WORKER BENEFITS PROTECTION ACT CLAIMS)
For good and valuable consideration, including without limitation the compensation and benefits set forth in the Change in Control Agreement
dated [
], 20 (the “Agreement”) between the undersigned and Hittite Microwave Corporation (the “Company”), to which this General
Release and Waiver of All Claims is attached, the terms of which Agreement shall survive this General Release and Waiver of Claims, the
undersigned, on behalf of and for himself or herself and his or her heirs, administrators, executors, representatives, estates, attorneys, insurers,
successors and assigns (hereafter referred to separately and collectively as the “Releasor”), hereby voluntarily releases and forever discharges the
Company, and its subsidiaries (direct and indirect), affiliates, related companies, divisions, predecessor and successor companies, and each of its
and their present, former, and future shareholders, officers, directors, employees, agents, representatives, attorneys, insurers and assigns
(collectively as “Releasees”), jointly and individually, from any and all actions, causes of action, claims, suits, charges, complaints, contracts,
covenants, agreements, promises, debts, accounts, damages, losses, sums of money, obligations, demands, and judgments all of any kind
whatsoever, known or unknown, at law or in equity, in tort, contract, by statute, or on any other basis, for contractual, compensatory, punitive or
other damages, expenses (including attorney’s fees and cost), reimbursements, or costs of any kind, which the undersigned employee ever had,
now has, or may have, from the beginning of the world to the date of this Release, known or unknown, in law or equity, whether statutory or
common law, whether federal, state, local or otherwise, including but not limited to any and all claims arising out of or in any way related to the
undersigned’s engagement by the Company (including the hiring or termination of that engagement), or any related matters including, but not
limited to claims, if any arising under the Age Discrimination in Employment Act of 1967, as amended by the Older Worker Benefits Protection
Act; the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991, as amended; the Family and Medical Leave Act of 1993, as
amended; the Immigration Reform and Control Act of 1986; the Americans with Disabilities Act of 1990, as amended; the Employee Retirement
Income Security Act (ERISA), as amended; the Massachusetts laws against discrimination and harassment (including Mass. Gen. L. c. 151B),
protecting equal rights or concerning the payment of wages (including Mass. Gen. L. c. 149, section 148 et seq. and Mass. Gen. L. c. 151,
section 1A, et seq.), and federal, state or local common law, laws, statutes, ordinances or regulations. Notwithstanding the foregoing, nothing
contained in this General Release and Waiver of Claims shall be construed to bar any claim by the undersigned to enforce the terms of the
Agreement.
[ For employees aged 40 and older:
Releasor represents and acknowledges the following:
(a) that Releasor understands the various claims Releasor could have asserted under federal or state law, including but not limited to
the Age Discrimination in Employment Act, Mass. Gen. L. c. 151B, the Massachusetts Wage Act and Massachusetts overtime pay
law and other similar laws;
(b) that Releasor has read this General Release carefully and understands all of its provisions;
(c)
that Releasor understands that Releasor has the right to and is advised to consult an attorney concerning this General Release and
in particular the waiver of rights Releasor might have under the laws described herein and that to the extent, if any, that Releasor
desired, Releasor availed himself or herself of this right;
(d) that Releasor has been provided at least forty-five (45) days to consider whether to sign this General Release and that to the extent
Releasor has signed this General Release before the expiration of such forty-five (45) day period Releasor has done so knowingly
and willingly;
(e)
(f)
that Releasor enters into this General Release and waives any claims knowingly and willingly; and
that this General Release shall become effective seven (7) days after it is signed. Releasor may revoke this General Release within
seven (7) days after it is signed by delivering a written notice of rescission to [
] at Hittite Microwave Corporation
[ address ]. To be effective, the notice of rescission must be hand delivered, or postmarked within the seven (7) day period and
sent by certified mail, return receipt requested, to the referenced address.
[For California-based employees:
Releasor expressly waive and relinquish all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and dooes
so understanding and acknowledging the significance of such specific waiver of Section 1542. Section 1542 of the Civil Code of the State of
California states as follows:
“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his settlement with the debtor.”
Releasor expressly waives and relinquishes all rights and benefits under that section and under any law of any jurisdiction of similar effect with
respect to the release of any unknown or unsuspected claims Releasor may have against the Releasees specified above.
Signed and sealed this
Signed:
Name (print):
day of
, 20
.
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Rick D. Hess, certify that:
1.
I have reviewed this report on Form 10-Q of Hittite Microwave Corporation.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the periods covered by this report.
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report.
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
5.
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent function):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls over financial reporting.
Date: May 6, 2014
/ s/ RICK D. HESS
Rick D. Hess
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, William W. Boecke, certify that:
1.
I have reviewed this report on Form 10-Q of Hittite Microwave Corporation.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the periods covered by this report.
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report.
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
5.
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent function):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls over financial reporting.
Date: May 6, 2014
/s/ WILLIAM W. BOECKE
William W. Boecke
Vice President, Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hittite Microwave Corporation (the “Company”) on Form 10-Q for the period ended March
31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rick D. Hess, Chief Executive Officer of
the Company, certify, to my best knowledge and belief, pursuant to 18 U.S.C. §1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of
2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 6, 2014
/s/ RICK D. HESS
Rick D. Hess
President and Chief Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Hittite
Microwave Corporation and will be retained by Hittite Microwave Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hittite Microwave Corporation (the “Company”) on Form 10-Q for the period ended March
31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William W. Boecke, Chief Financial
Officer of the Company, certify, to my best knowledge and belief, pursuant to 18 U.S.C. §1350, adopted pursuant to §906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 6, 2014
/s/ WILLIAM W. BOECKE
William W. Boecke
Vice President, Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Hittite
Microwave Corporation and will be retained by Hittite Microwave Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.