<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1996
Registration No. 333-13679
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------
POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 3663 11-2723423
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2026 McGaw Avenue, Irvine, California 92614
(714) 757-0530
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Bruce C. Edwards
President and Chief Executive Officer
Powerwave Technologies, Inc.
2026 McGaw Avenue
Irvine, California 92614
(714) 757-0530
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Nick E. Yocca, Esq. Robert M. Mattson, Jr., Esq.
K.C. Schaaf, Esq. Tamara Powell Tate, Esq.
Michael H. Mulroy, Esq. Kristina M. Jodis, Esq.
Stradling, Yocca, Carlson & Rauth Morrison & Foerster LLP
a Professional Corporation 19900 MacArthur Boulevard,12th Floor
660 Newport Center Drive, Suite 1600 Irvine, California 92612
Newport Beach, California 92660 (714) 251-7500
(714) 725-4000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed maximum
Title of each aggregate offering Amount of
class of securities to be registered price (1) registration fee(2)
- ------------------------------------------------------------------------------
Common Stock ($.0001 par value)....... $31,395,000 $9,514.00
==============================================================================
(1) Includes 315,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee. Of the $9,514.00 registration fee, the Company paid
$8,155.00 with its filing on October 8, 1996.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The Registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, action pursuant to said Section 8(a),
may determine.
Subject to Completion
__________, 1996
2,100,000 Shares
[LOGO OF POWERWAVE TECHNOLOGIES, INC. APPEARS HERE]
POWERWAVE TECHNOLOGIES, INC.
Common Stock
__________
Of the 2,100,000 shares of Common Stock offered hereby, 1,800,000 shares are
being sold by Powerwave Technologies, Inc., a Delaware corporation ("Powerwave"
or the "Company") and 300,000 shares are being sold by the Selling Shareholder.
The Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholder. See "Principal and Selling Shareholders." Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price of the Common
Stock will be between $11.00 and $13.00 per share. See "Underwriting" for the
factors to be considered in determining the initial public offering price. The
Company's Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "PWAV."
----------
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 6.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
=============================================================================
Price Underwriting Proceeds Proceeds
to Discounts and to to Selling
Public Commissions(1) Company(2) Shareholder
=============================================================================
Per Share.. $ $ $ $
- -----------------------------------------------------------------------------
Total (3).. $ $ $ $
=============================================================================
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting offering expenses estimated at $950,000 payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
315,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ respectively. See "Underwriting."
---
____________
The shares of Common Stock are offered by the several Underwriters
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made at
the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
_____, 1996.
Alex. Brown & Sons
Incorporated
UBS Securities
Wessels, Arnold & Henderson
The date of this Prospectus is , 1996
<PAGE>
[Graphic displaying difference between single channel
RF power amplifier using separate cavity filters and
Company's multi-channel RF power amplifier]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
The Company
Powerwave designs, manufactures and markets ultra-linear radio frequency
("RF") power amplifiers for use in the wireless communications market. The
Company's amplifiers, which are key components in wireless communications
networks, increase the signal strength of wireless transmissions while reducing
interference, or "noise." The reduction of noise enables wireless service
providers to offer improved service to subscribers by offering clearer call
connections with less interference. Increasing the signal strength of wireless
transmissions also improves service by reducing the number of interrupted or
dropped calls. Powerwave's RF power amplifiers achieve ultra-linearity at
increased levels of amplification through the application of "feedforward"
technology, which enables the Company's multi-channel power amplifiers to
significantly reduce RF interference thereby increasing the efficiency of the
wireless service provider's network.
Powerwave manufactures both single channel and multi-channel amplifiers,
with a primary focus on multi-channel products. Multi-channel amplifiers
integrate the functions of several power amplifiers and cavity filters within a
single unit, thereby reducing service providers equipment and maintenance costs
and space requirements while providing increased call capacity. The Company's
products are currently being utilized in cellular base stations in both digital
and analog-based networks and the Company has recently delivered initial
prototype units for personal communications services ("PCS") networks. The
Company's products support a wide range of digital and analog transmission
protocols including CDMA, TDMA, GSM, FHMA, AMPS and TACS. The Company also
produces power amplifiers for the specialized mobile radio ("SMR") market, which
is characterized as a two-way radio market with devices commonly utilized by
police and emergency personnel and the business dispatch marketplace. The
Company also manufactures air-to-ground amplifiers used both in ground stations
and in commercial aircraft to amplify telephone transmissions between airline
passengers and ground-based network systems.
The Company began selling RF power amplifiers for use in analog wireless
networks in 1985. In 1995, the Company began selling multi-channel ultra-linear
amplifiers for installation in digital cellular base stations in South Korea,
and the Company believes that it is the leading supplier of amplifiers to the
South Korean market. South Korea is experiencing rapid economic development and
is one of the first countries to begin the process of installing a nationwide
digital cellular network. The Company's customers in the South Korean market
include Hyundai Electronics Industries Co. ("Hyundai"), LG Information &
Communications, Ltd. ("LGIC") and Samsung Electronics Co. Ltd. ("Samsung"). The
Company also sells amplifiers domestically to numerous wireless equipment
suppliers, including ADC Kentrox Industries, Inc., AirNet Communications Corp.,
In-Flight Phone Corp., Metawave Communications Corporation and Phoenix Wireless
Group, Inc.
The worldwide wireless communications market, which consists of
cellular, PCS, SMR, paging, air to ground and other applications, has
experienced significant growth in recent years. The growth in wireless
communications is largely attributable to increased affordability in consumer
equipment, such as cellular phones and pagers, more comprehensive service
coverage at lower prices and technological advancements which have resulted in
improved transmission quality and reliability. International growth has also
been driven by the build-out of cellular networks, including those designed to
serve as primary telephone systems in part due to inadequacies in existing
wireline infrastructures. As demand continues to grow for wireless
communications, many service providers either are switching from analog networks
to digital networks, which provide for a greater number of transmissions and
increased call quality over the same range of existing frequencies, or are
further upgrading the capacity of their existing analog networks.
3
<PAGE>
Consumer demand for additional services, combined with capacity
constraints and other limitations of cellular networks, has also led to the
development of PCS, another form of wireless communications which utilizes
a higher frequency range and lower power than traditional cellular
services. It is anticipated that PCS applications will include voice
communication, personal messaging, mobile facsimile transmission and
wireless computer networking. The continued growth of wireless
communications networks throughout the world along with continued upgrading
of existing analog systems is expected to result in increased demand for
wireless network infrastructure equipment, such as the ultra-linear RF
power amplifiers manufactured by the Company.
The Company's strategic objective is to be the leading third-party
supplier of high performance RF power amplifiers for use in both digital
and analog wireless networks worldwide. The Company's strategy includes
the following key elements: (i) provide leading technology to the RF
amplifier industry; (ii) leverage its position as a leading multi-channel
amplifier supplier; (iii) expand relationships with leading original
equipment manufacturers ("OEMs"); (iv) develop and market amplifier
products for PCS networks; (v) maintain its commitment to quality,
reliability and manufacturability; and (vi) increase Powerwave's
involvement in its customer product development process. The Company
intends to pursue each of these elements of its strategy by focusing its
core strengths on the global wireless communications market.
The Company was incorporated in Delaware in January 1985 under the name
Milcom International, Inc. and changed its name to Powerwave Technologies,
Inc. in June 1996. The Company's headquarters and principal place of
business is located at 2026 McGaw Avenue, Irvine, California 92614, and
its telephone number is (714) 757-0530.
4
<PAGE>
The Offering
Common Stock offered by the Company............... 1,800,000 shares
Common Stock offered by the Selling Shareholder... 300,000 shares
Common Stock to be outstanding after the Offering. 15,862,500 shares(1)(2)
Use of proceeds................................... The net proceeds of the
Offering will be used for
capital expenditures, working
capital, new product
development and other general
corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............ PWAV
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
---------------------------------- September 30, September 29,
1993 1994 1995 1995 1996
----------- ------------ ------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales................................ $ 8,717 $22,861 $36,044 $22,384 $43,594
Cost of sales............................ 6,567 14,466 22,713 14,554 25,371
Gross profit............................. 2,150 8,395 13,331 7,830 18,223
Operating expenses:
Sales and marketing..................... 387 570 1,557 1,013 3,315
Research and development................ 581 1,433 2,252 1,401 4,033
General and administrative.............. 559 1,518 1,958 1,288 2,004
Total operating expenses................. 1,527 3,521 5,767 3,702 9,352
Operating income......................... 623 4,874 7,564 4,128 8,871
Other income (expense)................... (5) (20) 32 -- 333
Income before income taxes............... 618 4,854 7,596 4,128 9,204
Provision for income taxes............... 267 1,908 3,116 1,694 3,774
Net income............................... $ 351 $ 2,946 $ 4,480 $ 2,434 $ 5,430
Pro forma net income per share (2)....... $.30 $.36
Pro forma weighted average
common shares........................... 14,910 14,910
</TABLE>
<TABLE>
<CAPTION>
September 29, 1996
--------------------------------------------------------
Balance Sheet Data: Actual Pro Forma(2) As Adjusted(2)(3)
------------ ---------------- ---------------------
<S> <C> <C> <C>
Working capital..................................... $ 11,197 $ 12,547 $ 31,685
Total assets........................................ 25,060 25,060 44,198
Long-term debt...................................... 41 41 41
Total shareholders' equity (deficit)................ 503 16,351 35,489
</TABLE>
- ------------------
(1) Excludes 1,823,179 shares of Common Stock issuable upon exercise of
outstanding stock options as of September 29, 1996 at a weighted average
exercise price of $3.31 per share. Under an agreement with the Company,
certain shareholders have agreed that, once the Company has issued an
initial 1,170,000 shares of Common Stock under the 1995 Stock Option Plan,
any additional shares issued under that Plan upon an option exercise will be
coupled with a pro rata redemption from those shareholders of an equal
number of shares at a redemption price equaling the option exercise price.
See "Capitalization" and "Management -- 1995 Stock Option Plan."
(2) Gives effect to the conversion of 3,375,900 shares of Series A
Convertible Preferred Stock into 5,063,850 shares of Common Stock upon the
closing of the Offering and the reversal of accrued dividends payable
thereon. See Note 2 of notes to the consolidated financial statements,
"Capitalization," "Description of Capital Stock" and "Management--1995 Stock
Option Plan."
(3) Adjusted to reflect the sale by the Company of 1,800,000 shares of
Common Stock at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefor. See "Use of
Proceeds," "Capitalization" and "Selected Financial Data."
Except as otherwise specified, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." Except for the consolidated financial statements and as
otherwise noted, all information in this Prospectus has been adjusted to give
effect to (i) the conversion of all outstanding shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") into Common Stock and the reversal
of accrued dividends payable thereon and (ii) a three-for-two stock split of the
outstanding shares of Common Stock, each of which will occur prior to or upon
completion of the Offering. See "Capitalization" and "Description of Capital
Stock."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and
its business before purchasing the shares of Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus.
Customer Concentration
A small number of customers account for a substantial majority of the
Company's net sales. Although the Company is attempting to expand its
customer base, the Company expects that a limited number of customers will
continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company believes that its future success
depends upon its ability to broaden its customer base. The Company's four
largest customers include, in alphabetical order, Hyundai, In-Flight Phone
Corp. ("In-Flight"), LGIC and Samsung. For the nine months ended September
29, 1996, these customers, each of which accounted for more than 10% of the
Company's net sales, accounted for approximately 81% of the Company's net
sales in the aggregate. Hyundai, LGIC and Samsung currently purchase
products for implementation in the South Korean digital cellular telephone
network. The Company expects that sales to these customers of products for
use in the South Korean cellular network will decline as that network nears
completion, which is expected to occur in the next one to two years. See
"--Reliance upon South Korean Market and Growth of Wireless Services
Market." In-Flight purchases the Company's products for implementation in
an air-to-ground wireless network. As this network has been substantially
completed, the Company expects sales to In-Flight to decrease significantly
in future periods. Sales of power amplifiers to wireless infrastructure
equipment suppliers are expected to continue to account for a substantial
majority of the Company's product sales. A limited number of large OEMs
account for a majority of RF power amplifier purchasers in the wireless
infrastructure market, and the Company's success will be dependent upon its
ability to establish and maintain relationships with these types of
customers. There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company, which could have
a material adverse effect on the Company's business, results of operations
and financial condition. In addition, major customers also have
significant leverage and may attempt to change the terms, including
pricing, upon which the Company and such customers do business, thereby
adversely affecting the Company's business, results of operations and
financial condition. Further, one or more of these customers may determine
to manufacture amplifiers internally thus reducing or eliminating its
purchases from the Company and possibly becoming a direct competitor of the
Company. See "--Internal Amplifier Production Capabilities of OEMs." As a
result, the Company's success will depend on its ability to expand its
customer base and, in particular, to successfully market its products to
OEMs for wireless networks.
The Company currently sells to its major customers under purchase orders
which are usually placed with short delivery requirements, although the
Company is attempting to negotiate long-term supply agreements with these
customers. As such, while the Company receives periodic order forecasts
from its major customers, such customers have no obligation to purchase the
forecasted amounts. Nonetheless, the Company maintains significant work-
in-progress and raw materials inventory as well as maintaining increased
levels of technical production staff to meet order forecasts. To the
extent its major customers purchase less than the forecasted amounts, the
Company will have higher levels of inventory than otherwise needed,
increasing the risk of obsolescence, and the Company will have increased
levels of production staff to support such forecasted orders. Such higher
levels of inventory
6
<PAGE>
and increased employee levels would reduce the Company's liquidity and
could have a material adverse effect on the Company's results of operations
and financial condition. In addition, in the event the Company's major
customers desire to purchase products in excess of the forecasted amounts,
the Company may not have sufficient inventory or manufacturing capacity to
fill such increased orders, which could have a material adverse effect on
the Company's relationships and future business with its customers.
Reliance upon South Korean Market and Growth of Wireless Services Market
Three of the Company's customers, Hyundai, LGIC and Samsung, collectively
accounted for approximately 69% of the Company's net sales for the first
nine months of 1996 and are expected to account for a higher percentage of
sales during the remainder of 1996. These customers supply equipment for
implementation in the South Korean digital cellular telephone network. The
delay or termination of the South Korean digital cellular telephone network
could have a material adverse effect on the Company's business, results of
operation and financial condition. In addition, the Company believes that
the South Korean digital cellular network is more than 50% completed and
the buildout phase of this network will be completed over the next two
years. Accordingly, the Company's sales related to that network are
anticipated to decrease significantly over the same time period.
During fiscal 1995 and the first nine months of 1996, Hyundai, LGIC and
Samsung purchased multi-channel linear RF power amplifiers for installation
in the buildout of the South Korean digital cellular network. These
customers also have begun marketing wireless infrastructure equipment for
installation in networks outside of the South Korean market. There can be
no assurance that such customers will be successful in obtaining new
business outside of South Korea or that, if successful, they will continue
to purchase amplifiers from the Company. Any significant decrease in the
Company's sales of amplifiers to these customers, without an offsetting
increase in sales to other customers, would have a material adverse effect
on the Company's business, results of operations and financial
condition.
A substantial majority of the Company's revenues are derived from the
sale of RF power amplifiers for wireless communications networks, and the
future success of the Company depends to a considerable extent upon the
continued growth and increased availability of cellular and other wireless
communications services, including PCS, in the United States and
internationally. There can be no assurance that either subscriber use or
the implementation of wireless communications services will continue to
grow, or that such factors will create demand for the Company's products.
The Company believes that continued growth in the use of wireless
communications services depends on significant reductions in infrastructure
capital equipment cost per subscriber and corresponding reductions in
wireless service pricing. While the Federal Communications Commission
("FCC") has recently adopted regulations requiring local phone companies to
reduce the rates charged to cellular carriers for connection to their
wireline networks, it is anticipated that wireless service rates will
remain higher than rates charged by traditional wireline companies. In
addition, the growth of the wireless communications market is dependent
upon both developed countries, such as the United States, allowing
continued deployment of new networks and foreign countries deploying
wireless communications networks as opposed to constructing wireline
infrastructures. Such foreign countries or local government authorities
may decline to construct wireless communications systems, place moratoriums
on building base stations or terminate or delay construction of such
systems for a variety of reasons, including environmental issues, political
unrest, economic downturns, the availability of favorable pricing for other
communications services or the availability and cost of related equipment,
in which event demand for the Company's products will be similarly reduced
or delayed, which would materially adversely affect the Company's business,
results of operations and financial condition.
7
<PAGE>
Fluctuations in Quarterly Results
The Company experiences, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to
quarter. Quarterly results fluctuate due to a number of factors, any of
which could have a material adverse effect on the Company's business,
results of operations and financial condition. In particular, the
Company's quarterly results of operations can vary due to the timing,
cancellation, or rescheduling of customer orders and shipments; variations
in manufacturing capacities, efficiencies and costs; the availability and
cost of components; the timing, availability and sale of new products by
the Company; changes in the mix of products having differing gross margins;
warranty expenses; changes in average sales prices; long sales cycles
associated with the Company's products; and variations in product
development and other operating expenses. The Company's quarterly revenues
are also affected by volume discounts given to certain customers for large
volume purchases over a given period of time. In addition, the Company's
quarterly results of operations are influenced by competitive factors,
including pricing, availability and demand for the Company's and competing
amplification products. A large portion of the Company's expenses are
fixed and difficult to reduce in a short period of time. If net sales do
not meet the Company's expectations, the Company's fixed expenses would
exacerbate the effect of such net sales shortfall. Furthermore,
announcements by the Company or its competitors regarding new products and
technologies could cause customers to defer purchases of the Company's
products. In addition, while the Company receives periodic order forecasts
from its major customers, such customers have no binding obligation to
purchase the forecasted amounts. See "--Customer Concentration." Order
deferrals and cancellations by the Company's customers, declining average
sales prices, delays in the Company's introduction of new products and
longer than anticipated sales cycles for the Company's products have in the
past adversely affected the Company's quarterly results of operations.
There can be no assurance that the Company will not experience such effects
in the future.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future
performance. There can be no assurance that the Company will maintain its
current profitability in the future or that future revenues and operating
results will not be below the expectations of public market analysts and
investors. In either case, the price of the Company's Common Stock could
be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Competition
The wireless communications infrastructure equipment industry is
extremely competitive and is characterized by rapid technological change,
new product development and product obsolescence, evolving industry
standards and significant price erosion over the life of a product. The
principal elements of competition in the Company's market include
performance, functionality, reliability, pricing, quality, the ability to
design products which can be efficiently manufactured in volume production,
time-to-market delivery capabilities and standards compliance. While the
Company believes that overall it competes favorably with respect to the
foregoing elements, there can be no assurance that it will be able to
continue to do so.
Currently, the Company competes primarily with Avantek (a division of
Hewlett Packard), M/A-COM, Inc. (a subsidiary of AMP, Inc.), Microwave
Power Devices, Inc. and Spectrian Corporation, in addition to the amplifier
manufacturing operations captive within certain of the leading wireless
infrastructure OEMs. Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than the Company and
8
<PAGE>
have achieved greater name recognition for their existing products and
technologies than has the Company.
The Company's success depends in part upon the rate at which OEM
customers incorporate the Company's products into their systems. The
Company believes that a substantial portion of the present worldwide
production of amplifiers is captive within the internal manufacturing
operations of a small number of wireless infrastructure OEMs and that these
amplifiers are offered for sale as part of their wireless systems. These
OEMs include, among others, LM Ericsson Telephone Company ("Ericsson"),
Lucent Technologies Incorporated ("Lucent"), Motorola Corporation
("Motorola"), Nokia Corporation ("Nokia") and Northern Telecom Limited
("Nortel"). In addition, Samsung, a significant customer of the Company,
manufactures power amplifiers in addition to purchasing such components
from the Company. The Company believes that these OEMs, as well as other
customers of the Company, continuously evaluate whether to manufacture
their own RF power amplifiers rather than purchase them from third-party
vendors such as the Company. These and other large manufacturers of
wireless infrastructure equipment could also determine to offer and sell
their power amplifiers to other OEMs or customers of the Company and
compete directly with the Company. In addition, these or other OEMs may
enter into joint ventures or strategic relationships with the Company's
competitors, in which event the Company's ability to sell products to such
OEMs could be reduced or eliminated.
The Company has experienced significant price competition and expects
price competition in the sale of RF power amplifiers to increase. No
assurance can be given that the Company's competitors will not develop new
technologies or enhancements to existing products or introduce new products
that will offer superior price or performance features. The Company
expects its competitors to offer new and existing products at prices
necessary to gain or retain market share. Certain of the Company's
competitors have substantial financial resources, which may enable them to
withstand sustained price competition or a downturn in the market. There
can be no assurance that the Company will be able to compete successfully
in the pricing of its products, or otherwise, in the future. See "Business
-- Competition."
Rapid Technological Change; Dependence on New Products
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards
and communications protocols, and continuous improvements in products and
services. The Company's future success depends on its ability to enhance
its current products and to develop and introduce in a timely manner new
products that keep pace with technological developments, industry standards
and communications protocols, compete effectively on the basis of price and
performance, adequately address OEM customer and end-user customer
requirements and achieve market acceptance. The Company believes that to
remain competitive in the future it will need to continue to develop new
products, which will require the investment of significant financial
resources in new product development. In this regard, in anticipation of
the deployment of PCS, the Company has invested significant resources in
developing RF power amplifiers for PCS networks. There can be no assurance
that the development of PCS networks will not be delayed or that the
Company's PCS-based products will be fully developed in time to be accepted
for use in PCS networks. There also can be no assurance that the Company's
PCS-based products, if developed, will achieve market acceptance, or be
capable of being manufactured at competitive prices in sufficient volumes.
In the event the Company's PCS-based products are not timely deployed or do
not gain market acceptance, the Company's business, results of operations
and financial condition could be materially adversely affected.
9
<PAGE>
The Company introduced a second-generation multi-channel linear RF power
amplifier for cellular base stations in August 1996 and intends to
introduce a new amplifier for PCS networks in the fourth quarter of 1996.
Delays in commencement of commercial shipments of these products may result
in customer dissatisfaction and delay or loss of product revenues, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. No assurance can be given that the
Company's product development efforts will be successful, that its new
products will achieve customer acceptance or that its customers' products
and services will achieve market acceptance. If a significant number of
development projects do not result in manufacturable new products or
product enhancements within anticipated time-frames, the Company's
business, results of operations and financial condition could be materially
adversely affected. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development, introduction or deliveries,
could result in a loss of competitiveness and reduced net sales. While the
Company maintains an active development program to attempt to improve its
product offerings, there can be no assurance that such efforts will be
successful or that other companies or institutions will not develop and
commercialize products based on new technologies that are superior in
performance or cost-effectiveness to the Company's products. There also
can be no assurance that the Company's products will not be rendered
obsolete by the introduction and acceptance of new communications
protocols.
Proprietary Technology; Risk of Third-Party Claims of Infringement
The Company relies primarily upon trade secrets to protect its
intellectual property. The Company generally enters into confidentiality
and non-disclosure agreements with its employees and limits access to and
distribution of its proprietary information. In addition, the Company has
applied for a U.S. patent for its proprietary implementation of feedforward
technology and regularly examines various aspects of its technology for
possible patent applications. The Company believes that its success
depends upon the knowledge and experience of its management and technical
personnel and its ability to market its existing products and to develop
new products.
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. There
can be no assurance that these measures will successfully protect the
Company's intellectual property or that the Company's intellectual property
or proprietary technology will not otherwise become known or be
independently developed by competitors. In addition, the laws of certain
countries in which the Company's products are or may be sold may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. The inability of the Company to
protect its intellectual property and proprietary technology could have a
material adverse effect on its business, results of operations and
financial condition. As the number of patents, copyrights and other
intellectual property rights in the Company's industry increases, and as
the coverage of these rights and the functionability of the products in the
market further overlap, the Company believes that its products may
increasingly become the subject of infringement claims. The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others. Although the Company has not
received any such notification to date and there are no pending or
threatened intellectual property lawsuits against the Company, there can be
no assurance that such litigation or infringement claims will not occur in
the future. Such litigation or claims could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, results of operations and financial condition. A third
party claiming infringement may also be able to obtain an injunction or
other equitable relief, which could effectively block the ability of the
Company or its customers to distribute, sell or import into the United
States allegedly infringing products. If it appears necessary or
desirable, the Company may seek licenses under patents or other rights from
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third parties covering intellectual property that the Company is allegedly
infringing. No assurance can be given, however, that any such licenses
could be obtained on terms acceptable to the Company, if at all. The
failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations
and financial condition.
Risks of Doing Business in International Markets
For the fiscal years 1993, 1994 and 1995 and the nine months ended
September 29, 1996, international revenues accounted for approximately 8%,
9%, 67% and 73%, respectively, of the Company's net sales. The Company
expects that international revenues will continue to account for a
significant percentage of the Company's net sales for the foreseeable
future. As a result, the Company is subject to various risks, including a
greater difficulty of administering business globally, compliance with
multiple and potentially conflicting regulatory requirements such as export
requirements, tariffs and other barriers, differences in intellectual
property protections, health and safety requirements, difficulties in
staffing and managing foreign operations, longer accounts receivable
cycles, currency fluctuations, repatriation of earnings, export control
restrictions, overlapping or differing tax structures, political and
economic instability and general trade restrictions. If any of these risks
materializes, it could have a material adverse effect on the Company's
business, results of operations and financial condition. In particular, a
large portion of the Company's existing customers and potential new
customers are servicing new markets in developing countries that may deploy
wireless communication networks as an alternative to the construction of a
wireline infrastructure. Such countries may decline to construct wireless
communication systems, or construction of such systems may be delayed for a
variety of reasons, including business and economic conditions and changes
in economic stability due to factors such as increased inflation and
political turmoil. In recent years, a majority of the Company's net sales
resulted from the sale of products to a small number of companies in South
Korea, where future sales may be dependent upon continuing favorable trade
relations with the United States and a lack of political conflicts with
North Korea. Any significant change in United States trade relations or
the economic or political stability of foreign locations in which the
Company sells its products could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's foreign sales are generally invoiced in U.S. dollars and,
accordingly, the Company does not currently engage in foreign currency
hedging transactions. However, as the Company continues to expand its
international operations, the Company may be paid in foreign currencies and
exposure to losses in foreign currency transactions may increase. The
Company may choose to limit such exposure by the purchase of forward
foreign exchange contracts or similar hedging strategies. There can be no
assurance that any currency hedging strategy would be successful in
avoiding exchange-related losses. In addition, if the relative value of
the U.S. dollar in comparison to the currency of the Company's foreign
customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased
sales which could have a material adverse impact on the Company's business,
results of operations and financial condition.
Internal Amplifier Production Capabilities of OEMs
Many of the leading wireless telecommunications infrastructure equipment
manufacturers internally manufacture their own RF power amplifiers and the
Company believes that its existing customers continuously evaluate whether
to manufacture their own amplifiers. In the event that such customers
decide to increase or shift completely to the internal manufacture of
amplifiers, such customers could eliminate or reduce their purchases of the
Company's products. There can be no assurance that the Company's current
customers will continue to rely, or expand their reliance, on the Company
as an external source of supply for their RF power amplifiers, or that
other wireless telecommunications OEMs
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such as Lucent, Ericsson, Motorola, Nokia and Nortel will become and remain
customers of the Company. OEMs with internal manufacturing capabilities
could also sell amplifiers externally to other OEMs, thereby competing
directly with the Company. In addition, even if the Company were
successful in selling its products to these OEMs, it is anticipated that
such OEMs would demand price and other concessions based on their ability
to manufacture amplifiers internally. While the Company attempts to
negotiate long-term supply contracts with its customers, there can be no
assurance that it will be able to enter into such contracts on terms that
are acceptable to the Company, if at all, or that contracts will not be
terminated on short notice. Any significant loss of sales to current
customers, not offset by sales to other customers, would have a material
adverse effect on the Company's business, results of operations and
financial condition.
The Company's customers and other wireless telecommunications
infrastructure equipment manufacturers are protective of their intellectual
property, which may contribute to certain manufacturers deciding to not
seek RF power amplifiers from external sources. While the Company takes
measures to ensure the confidentiality of intellectual property disclosed
to the Company by its customers or developed by the Company for such
customers, the appearance of a close working relationship with a particular
customer may adversely affect the Company's ability to establish or
maintain a relationship with, or sell products to, competitors of the
particular customer. If, for any reason, the Company's major customers
decide to produce their RF power amplifiers internally, the Company's
business, results of operations and financial condition could be materially
adversely affected.
Declining Average Sales Prices
The Company has experienced, and expects to continue to experience,
declining average sales prices for its products. Wireless infrastructure
OEMs have come under increasing price pressure from cellular service
providers, which in turn has resulted in downward pricing pressure on the
Company's products. In addition, competition among third-party suppliers
has increased the downward pricing pressure on the Company's products.
Since wireless infrastructure OEMs frequently negotiate supply arrangements
far in advance of delivery dates, the Company must often commit to price
reductions for its products before it knows how, or if, cost reductions can
be obtained. In addition, average sales prices are affected by price
discounts negotiated for large volume purchases by certain customers over a
given period of time. To offset declining average sales prices, the
Company believes that in the near term it must achieve manufacturing cost
reductions, and in the longer term the Company must develop new products
that incorporate advanced features and can be manufactured at lower cost or
sold at higher average sales prices. If, however, the Company is unable to
achieve such cost reductions or product improvements, the Company's gross
margins could decline, and such decline could have a material adverse
effect on the Company's business, results of operations and financial
condition.
No Assurance of Product Manufacturability, Quality or Reliability
Manufacturing the Company's products is an extremely complex process and
requires significant time and expertise to tune the products to meet
customers' specifications. The ability of the Company to cost-effectively
manufacture its RF power amplifier products in volume is substantially
dependent upon the Company's ability to tune these products to meet
specifications in an efficient manner. In this regard, the Company is
dependent upon its staff of trained technicians. If the Company is unable
to design its products to minimize the manual tuning process or if the
Company were unable to attract additional trained technicians or were to
lose the services of a number of its trained technicians, the Company's
business, results of operations and financial condition would be materially
adversely affected. In addition, the Company has in the past and may from
time to time in the future experience quality problems with its products.
The Company has been required to replace certain components in certain of
its products
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in the past in accordance with warranty provisions under which the products
were sold. If such problems were to reoccur, the Company could experience
increased costs, delays in or cancellations or rescheduling of orders or
deliveries and product returns, any of which could damage relationships
with current customers and have a material adverse effect on the Company's
business, results of operations and financial condition. Such quality
problems could also damage relationships with prospective customers and, in
particular, could limit the Company's ability to market its products to
larger OEMs, many of which manufacture power amplifiers internally. See
"--Internal Amplifier Production Capabilities of OEMs."
Management of Growth; Dependence Upon Key Personnel
The growth in the Company's business has placed, and is expected to
continue to place, a significant strain on the Company's management and
operations. The Company's ability to compete effectively and to manage
future expansion of its operations, if any, will require the Company to
continue to improve its financial and management controls, reporting
systems and procedures on a timely basis and effectively expand, train and
manage its work force. In particular, the Company must carefully manage
production and inventory levels to meet increasing product demand and new
product introductions. Inaccuracies in demand forecasts in the environment
in which the Company operates can quickly result in either insufficient or
excessive inventories and disproportionate overhead expenses. The Company
plans to expand the geographic scope of its customer base and operations.
The Company also is in the process of implementing a number of new
financial and management controls, reporting systems and procedures. In
addition, many members of the Company's senior management have recently
joined the Company. The Company's President and Chief Executive Officer
joined the Company in February 1996, its Executive Vice President joined in
April 1996, its Vice President, Finance and Chief Financial Officer joined
in June 1996, and its Vice President, Engineering joined in July 1996. In
addition to its senior management, the Company has recently hired a
significant number of employees, including engineers, production
technicians and sales and marketing employees, and plans to further
increase its total employee base. In the event that the Company's new
personnel are unable to work effectively as a team or achieve desired
levels of production, the Company's business, results of operations and
financial condition could be materially adversely affected. There can be
no assurance that the Company will be able to continue to attract and
retain qualified personnel necessary for the development of its business.
The Company's failure to manage growth effectively would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management."
Due to the specialized nature of the Company's business, the Company is
highly dependent on the continued services of, and on its ability to
attract and retain, qualified technical, marketing and managerial
personnel. Competition for such personnel is intense, and the loss of any
of such persons, as well as the failure to recruit and train additional
technical personnel in a timely manner, could have a material adverse
effect on the Company's business, results of operation and financial
condition. In particular, the Company's success is dependent upon the
services of Alfonso G. Cordero, a founder of the Company and its Chairman
of the Board of Directors, and Ki Y. Nam, Vice President, New Business
Development. The loss of their services would materially adversely affect
the Company.
Dependence on Single Sources for Key Components
The Company currently procures certain components from single source
manufacturers due to unique component designs as well as certain quality
and performance requirements. In addition, in order to take advantage of
volume pricing discounts, the Company purchases certain customized
components for its power amplifiers from single sources. If such single-
sourced components were to become unavailable or were to become unavailable
on terms satisfactory to the Company, the Company would
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be required to purchase comparable components from other sources and
"retune" its products to function properly with the replacement components
or to redesign its products to use other components, either of which could
result in a disruption of the Company's production facility and delays in
production and delivery. If for any reason the Company could not obtain
comparable replacement components from other sources or could not
expeditiously retune its products to operate with the replacement
components, or redesign its products to use other components, the Company's
business, results of operation and financial condition could be adversely
affected. In addition, if the Company were unable to obtain sufficient
quantities of components used in the manufacture of its RF power
amplifiers, resulting delays or reductions in product shipments could occur
and could have a material adverse effect on the Company's business, results
of operations and financial condition, including a material adverse effect
on the Company's relationships with its customers.
Risks Associated with Developing Technologies; Product Liability
If wireless telecommunications systems or other systems or devices that
rely on or incorporate the Company's products are determined, perceived or
alleged to create a health risk, the Company could be named as a defendant,
and held liable, in product liability lawsuits commenced by individuals
alleging that the Company's products harmed them. The occurrence of any of
such events could have a material adverse effect on the Company's business,
results of operations and financial condition. Any alleged health or
environmental risk could also lead to a delay or prohibition against the
installation of wireless networks which could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, an inability to maintain insurance at an
acceptable cost or to otherwise protect against potential product liability
could inhibit the commercialization of the Company's products and have a
material adverse effect on the Company's business, results of operations
and financial condition. In addition, the installation of base stations
for wireless networks may be delayed or prohibited by various environmental
regulations. Any such delay or prohibition would have a material adverse
effect on the Company's business, results of operations and financial
condition.
Environmental Regulations
The Company is subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling,
emission, generation, manufacture and disposal of toxic or other hazardous
substances used to manufacture the Company's products. Certain of the
Company's products are also subject to regulation of emissions by the FCC
and similar government agencies. The Company believes that it is currently
in compliance in all material respects with such regulations and that it
has obtained all necessary environmental permits and licenses to conduct
its business. The failure to comply with current or future regulations
could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its manufacturing processes or
cessation of operations. Corrective action could require the Company to
acquire expensive remediation equipment or to incur substantial expenses.
Any failure by the Company to control the use, disposal, removal or storage
of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous or toxic substances, could subject the Company to significant
liabilities, including joint and several liability under certain statutes.
The imposition of such liabilities could materially adversely affect the
Company's business, results of operations and financial condition. In
addition, the installation of base stations by wireless service providers
may be delayed or restricted by various environmental regulations, land use
restrictions and zoning ordinances. Any such delay or restriction could
have a material adverse effect on the Company' business, results of
operations and financial condition.
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Government Regulation of Communications Industry
Radio frequency transmissions and emissions, and certain equipment used
in connection therewith, are regulated in the United States, Canada and
internationally. Regulatory approvals generally must be obtained by the
Company in connection with the manufacture and sale of its products, and by
the Company's customers to operate the Company's products. The FCC has
proposed new regulations that would impose more stringent radio frequency
emissions standards on the communications industry. There can be no
assurance that if such proposed regulations are adopted, the Company and
its customers will not be required to alter the manner in which radio
signals are transmitted or otherwise alter the equipment transmitting such
signals, which could materially adversely affect the Company's products and
markets. The Company is also subject to regulatory requirements in
international markets where the Company is less prominent than local
competitors and has less opportunity to influence regulatory and standards
policies. The enactment by federal, state, local or international
governments of new laws or regulations or a change in the interpretation of
existing regulations could adversely affect the market for the Company's
products. Although recent deregulation of international communications
industries along with recent radio frequency spectrum allocations made by
the FCC have increased the potential demand for the Company's products by
providing users of those products with opportunities to establish new PCS
networks, there can be no assurance that the trend toward deregulation and
current regulatory developments favorable to the promotion of new and
expanded wireless services will continue or that other future regulatory
changes will have a positive impact on the Company. The increasing demand
for wireless communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for such products, generally following
extensive investigation and deliberation over competing technologies. The
delays inherent in this governmental approval process have in the past
caused, and may in the future cause, the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers. These delays could have a material adverse effect on the
Company's business, results of operations and financial condition.
Legal Proceedings
On October 4, 1996, Mr. Ernest Johnson, a shareholder of the Company,
filed suit against the Company and certain of the other shareholders of the
Company in the Superior Court of Orange County, California. Mr. Johnson
claims that, in contravention of an alleged agreement, the Company and
certain other shareholders, including Alfonso Cordero, engaged in certain
transactions which improperly diluted his ownership interest in the Company
to below five percent. In particular, Mr. Johnson claims that in 1992 the
Company wrongfully failed to give him notice of a purported right to
purchase approximately 488,250 shares of the Company's Common Stock then
being sold by a third party at a purchase price of approximately $.005 per
share, as adjusted for stock splits, and, as a result, such shares were
then purchased by certain other shareholders of the Company. Mr. Johnson
also alleges that the Company wrongfully failed to allow him to participate
in various real property transactions involving the Company and certain of
its shareholders. Mr. Johnson seeks unspecified monetary damages and costs
as well as equitable remedies, including an order entitling him to the
488,250 shares and an accounting of the proceeds arising out of the real
property transactions. Mr. Johnson also seeks punitive damages. Although
the Company believes Mr. Johnson's claims are without merit and it is too
early to determine the ultimate outcome of such suit, the Company intends
to contest vigorously any action against the Company. There can be no
assurance as to the eventual outcome of such actions. Any issuance of
shares by the Company as a result of Mr. Johnson's claims would have a
dilutive effect on the per share net tangible book value of the Company.
See "Dilution." Any determination against the Company in the litigation or
the settlement of such claims could have a material adverse effect on the
Company's business, results of operation and financial condition. See
"Business--Legal Proceedings."
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<PAGE>
Possible Volatility of Stock Price
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies, and the market prices for securities of technology
companies have been especially volatile. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock.
Factors such as fluctuations in the Company's results of operations,
failure of such results of operations to meet the expectations of stock
market analysts and investors, change in stock market analyst
recommendations regarding the Company, timing and announcements of
technological innovations or new products by the Company or its
competitors, developments with respect to patents and proprietary rights,
timing and announcements of developments related to the Company's
customers, results of operations of certain of the Company's competitors,
government regulation, political instability in countries in which the
Company sells its products, changes in the wireless communications industry
generally and general market conditions may have a significant adverse
effect on the market price of the Common Stock.
Future Capital Requirements
The Company's future capital requirements will depend upon many factors,
including the development of new wireless communications networks, the
establishment and maintenance of adequate manufacturing facilities, the
success of the Company's research and development efforts, the expansion of
the Company's sales and marketing efforts and the status of competitive
products. The Company believes that the net proceeds from the Offering,
together with existing cash balances and funds expected to be generated
from operations, financings through equipment lease transactions and
available lines of credit will be adequate to fund its operations for at
least the 12 months following the Offering. There can be no assurance,
however, that the Company will not require additional financing during such
time. Further, there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, further dilution
to the existing shareholders could result. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate
its research and development or manufacturing programs or obtain funds
through arrangements with partners or others that may require the Company
to relinquish rights to certain of its technologies or potential products
or other assets. Accordingly, the inability to obtain or difficulty in
obtaining such financing could have a material adverse effect on the
Company's business, results of operation and financial condition.
Control by Directors, Officers and Affiliated Entities
The Company's directors, officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 77% of the Company's
outstanding Common Stock following the completion of the Offering. These
shareholders, if acting together, would be able to control substantially
all matters requiring approval by the shareholders of the Company,
including the election of directors and the approval of mergers or other
business combination transactions. Such concentration of ownership could
discourage or prevent a change in control of the Company. See "Principal
and Selling Shareholders."
No Prior Public Trading Market
Prior to the Offering there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or, if one does develop, that it will be maintained. The initial
public offering price, which will be established by negotiations between
the Company and the
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representatives of the Underwriters, may not be indicative of prices that
will prevail in the trading market. See "Underwriting."
Effect of Certain Charter and Bylaw Provisions
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from attempting to acquire, control of the Company. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock. The Company's Amended and
Restated Certificate of Incorporation allows the Company to issue up to
5,000,000 shares of currently undesignated Preferred Stock, to determine
the powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed on any unissued series of that Preferred
Stock, and to fix the number of shares constituting any such series and the
designation of such series, without any vote or future action by the
shareholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Common
Stock. The Amended and Restated Certificate of Incorporation also
eliminates the ability of shareholders to call special meetings. The
Company's Amended and Restated Bylaws require advance notice to nominate a
director or take certain other actions. Such provisions may make it more
difficult for shareholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company.
In addition, the Company has not elected to be excluded from the provisions
of Section 203 of the Delaware General Corporation Law, which imposes
certain limitations on transactions between a corporation and "interested"
shareholders, as defined in such provisions. See "Description of Capital
Stock."
Adverse Impact of Shares Eligible for Future Sale
Sales of Common Stock (including Common Stock issued upon the exercise of
outstanding options) in the public market after the Offering could
materially adversely affect the market price of the Common Stock. Such
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price
that the Company deems acceptable, or at all. Upon the completion of the
Offering, the Company will have 15,862,500 shares of Common Stock
outstanding. Of these outstanding shares of Common Stock, the 2,100,000
shares sold in the Offering will be freely tradable without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), unless
purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The remaining shares of Common Stock held by
existing shareholders are "restricted securities" as that term is defined
in Rule 144 under the Securities Act, and were issued and sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act. These restricted shares may be sold in the public market
only if registered or pursuant to an exemption from registration, such as
Rule 144, 144(k) or 701 under the Securities Act. All officers, directors
and existing shareholders have agreed, pursuant to certain lock-up
agreements, that they will not offer, sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock owned by them for a period of 180 days after the date of
this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated. Furthermore, all option holders are precluded from selling
any shares issuable to them through the exercise of options for a 180-day
lock period, under the terms of such options. As a result of the lock-up
agreements, no shares of Common Stock will become available for sale in the
public market under either Rule 144 or 144(k). Upon expiration of the
lock-up agreements, approximately 1,688,366 shares of Common Stock held by
existing shareholders will be eligible for sale without restriction
pursuant to Rule 144(k), and approximately 7,310,281 shares held by
existing shareholders will be eligible for sale subject to the volume and
other restrictions of Rule 144 and Rule 701. It is anticipated that
approximately 476,761 shares of Common Stock issuable upon
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<PAGE>
exercise of currently outstanding options will become eligible for sale in
the public market upon the expiration of the lock-up under the terms of
such options, which expiration shall occur 180 days after the closing of
the Offering. The Securities and Exchange Commission has recently proposed
reducing the initial Rule 144 holding period to one year and the Rule
144(k) holding period to two years. There can be no assurance as to when or
whether such rule changes will be enacted. If enacted, such modification
will have a material effect on the time when shares of the Company's Common
Stock become eligible for resale. Following completion of the Offering,
13,650,000 shares will be entitled to certain demand and piggyback
registration rights upon termination of lock-up agreements. Any exercise of
these registration rights may cause the Company to incur substantial
expense, could impair the Company's ability to raise capital through the
sale of its equity securities and, if sold, could have an adverse effect on
the market price of the Common Stock. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
Broad Discretion of Management to Allocate Offering Proceeds
The Company expects to utilize the net proceeds from the Offering to fund
capital expenditures, working capital, new product development and other
general corporate purposes. The Company may use a portion of the net
proceeds for acquisition businesses. There are currently no acquisitions
either planned or under consideration by the Company. The Company currently
is not able to estimate precisely the allocation of the proceeds among such
uses, and the timing and amount of expenditures will vary depending upon
numerous factors. The Company's management will have broad discretion to
allocate the proceeds of the Offering and to determine the timing of
expenditures, and there can be no assurance that the net proceeds can or
will be invested to yield a significant return. See "Use of Proceeds."
Dilution
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares
of Common Stock in the Offering will incur immediate and substantial net
tangible book value dilution of $9.76 per share. To the extent that
options to purchase the Company's Common Stock are exercised, there will be
further dilution. See "Dilution."
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The
Company's bank credit agreement currently restricts the Company from paying
cash dividends without the prior written consent of the bank. See
"Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,800,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$12.00 per share are estimated to be $19,138,000 ($22,653,400 if the
Underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Shareholder.
The net proceeds will be used for capital expenditures, working capital,
new product development and other general corporate purposes. While the
Company may use a portion of the net proceeds for acquisitions of
complementary products, technologies or businesses, no plans or agreements
with respect to any acquisitions currently exist. The Company has made no
commitments of the proceeds, and management will have broad discretion in
the application of the proceeds. Pending such uses, the Company intends to
invest the net proceeds from the Offering in short-term, investment grade
money-market instruments.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
finance future growth. The Company has not paid any dividends on its
Common Stock and does not anticipate paying any dividends on the Common
Stock in the foreseeable future. The Company's bank credit agreement
currently restricts the Company from paying cash dividends without the
prior written consent of the bank.
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CAPITALIZATION
The following table sets forth as of September 29, 1996 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company
after giving effect to the conversion of all outstanding shares of Series A
Preferred Stock into shares of Common Stock at or prior to the closing of the
Offering and the reversal of accrued dividends payable thereon; and (iii) the
capitalization of the Company as adjusted to reflect the receipt of net proceeds
from the sale of 1,800,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share and receipt of the net
proceeds therefrom. This table should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. See "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
September 29, 1996
-----------------------------------------------------
Actual Pro Forma(1)(2)(3) As Adjusted(3)(4)
------------ ------------------ -----------------
(in thousands)
<S> <C> <C> <C>
Long-term debt.......................... $ 41 $ 41 $ 41
Series A Convertible Preferred Stock,
$.0001 par value; 3,375,900 shares
authorized, 3,375,900 issued and
outstanding, actual; no shares
issued or outstanding, pro forma
or as adjusted......................... 14,498
Shareholders' equity:
Preferred Stock, $.0001 par value;
5,000,000 shares authorized and no
shares outstanding pro forma
and as adjusted........................
Common Stock, $.0001 par value;
20,000,000 shares authorized, 8,998,650
shares issued and outstanding, actual;
14,062,500 shares issued and
outstanding, pro forma; 40,000,000
shares authorized and 15,862,500 shares
outstanding, as adjusted (2)........... 771 15,269 34,407
Retained earnings....................... 11,963 13,313 13,313
Less Treasury Stock at cost.......... (12,231) (12,231) (12,231)
-------- -------- --------
Total shareholders' equity (deficit).... 503 16,351 35,489
-------- -------- --------
Total capitalization.................. $ 15,042 $ 16,392 $ 35,530
======== ======== ========
- -----------------
</TABLE>
(1) Excludes 1,823,179 shares of Common Stock issuable upon exercise of
outstanding stock options as of September 29, 1996 at a weighted average
exercise price of $3.31 per share. Under an agreement with the Company,
certain shareholders have agreed that, once the Company has issued an
initial 1,170,000 shares of Common Stock under the 1995 Stock Option Plan,
any additional shares issued under that Plan upon an option exercise will be
coupled with a pro rata redemption from those shareholders of an equal
number of shares at a redemption price equaling the option exercise price.
See "Management--1995 Stock Option Plan."
(2) Gives effect to the conversion of 3,375,900 shares of Series A
Preferred Stock into 5,063,850 shares of Common Stock upon the closing of
the Offering and the reversal of accrued dividends payable thereon. See Note
2 of notes to the consolidated financial statements, "Description of Capital
Stock" and "Management--1995 Stock Option Plan."
(3) Excludes any shares that the Company may be required to issue pursuant
to a claim made by the plaintiff in a pending action against the Company.
See "Risk Factors--Legal Proceedings" and "Business--Legal
Proceedings."
(4) Adjusted to reflect the sale by the Company of 1,800,000 shares of
Common Stock at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefor. See "Use of
Proceeds" and "Selected Financial Data."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 29,
1996 was approximately $16,351,000, or approximately $1.16 per share. Pro
forma net tangible book value per share represents the amount of the
Company's shareholders' equity, less intangible assets, divided by
14,062,500 shares of Common Stock outstanding after giving effect to the
conversion of all the outstanding shares of Series A Preferred Stock into
Common Stock. Outstanding Common Stock does not include any shares that may
be issued by the Company pursuant to a claim made by the plaintiff in a
pending action against the Company. See "Risk Factors--Legal Proceedings"
and "Business--Legal Proceedings."
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of
Common Stock in the Offering and the pro forma net tangible book value per
share of Common Stock immediately after completion of the Offering. After
giving effect to the sale of the 1,800,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $12.00
per share, and deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, the Company's pro forma
net tangible book value at September 29, 1996, would have been $35,489,000,
or $2.24 per share. This represents an immediate increase in pro forma net
tangible book value of $1.08 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $9.76 per share
to new investors purchasing Common Stock in the Offering, as illustrated in
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $12.00
Pro forma net tangible book value per share as of
September 29, 1996......................................... $1.16
Increase per share attributable to new investors........ 1.08
-----
Pro forma net tangible book value per share after the
Offering 2.24
------
Pro forma net tangible book value dilution per share to
new investors $ 9.76
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 29,
1996, the difference between the existing shareholders and the purchasers
of shares in the Offering (at an assumed price of $12.00 per share) with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders (1)(2)....... 14,062,500 88.7% $15,269,000 41.4% $ 1.09
New Investors...................... 1,800,000 11.3 21,600,000 58.6 $12.00
---------- ----- ----------- ------
Total.......................... 15,862,500 100.0% $36,869,000 100.0%
========== ===== =========== ======
</TABLE>
- ------------------------
(1) Sales by the Selling Shareholder in the Offering will cause the number
of shares held by existing shareholders to be reduced to 13,762,500
shares, or 86.8% of the total number of shares to be outstanding after
the Offering (85.1% if the Underwriters' over-allotment option is
exercised in full), and will increase the number of shares held by new
investors to 2,100,000, or 13.2% of the total shares of Common Stock
outstanding after the Offering (2,415,000 shares, or 14.9%, if the
Underwriters' over-allotment option is exercised in full). See
"Principal and Selling Shareholders."
(2) Excludes amounts attributable to Treasury Stock.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations data set forth below
for each of the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 29, 1996 and the balance sheet data as of December
31, 1994, 1995 and September 29, 1996 are derived from the financial
statements of the Company audited by Deloitte & Touche LLP, independent
auditors, which are included elsewhere in this Prospectus. The selected
balance sheet data as of December 31, 1993 are derived from the Company's
audited balance sheet which is not included herein. The selected financial
data with respect to the Company's consolidated statements of operations
for the years ended December 31, 1991 and 1992 and the consolidated balance
sheets as of December 31, 1991 and 1992 are derived from the Company's
unaudited consolidated financial statements, which are not included herein.
The selected consolidated financial data with respect to the Company's
consolidated statements of operations for the nine months ended September
30, 1995 and the consolidated balance sheet as of September 30, 1995, are
derived from the Company's unaudited consolidated financial statements.
The consolidated unaudited financial statements have been prepared by the
Company on a basis consistent with the audited consolidated financial
statements and include all normal recurring adjustments necessary for a
fair presentation of the information. The results of operations for the
fiscal nine months ended September 29, 1996 are not necessarily indicative
of the results to be expected for any subsequent period. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30, September 29,
----------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................ $2,802 $4,083 $8,717 $22,861 $36,044 $22,384 $43,594
Cost of sales........................ 1,912 2,928 6,567 14,466 22,713 14,554 25,371
------- -------- -------- -------- -------- ------- --------
Gross profit......................... 890 1,155 2,150 8,395 13,331 7,830 18,223
Operating expenses:
Sales and marketing................. 199 200 387 570 1,557 1,013 3,315
Research and development............ 125 380 581 1,433 2,252 1,401 4,033
General and administrative.......... 382 384 559 1,518 1,958 1,288 2,004
------- -------- -------- -------- -------- ------- --------
Total operating expenses............. 706 964 1,527 3,521 5,767 3,702 9,352
------- -------- -------- -------- -------- ------- --------
Operating income..................... 184 191 623 4,874 7,564 4,128 8,871
Other income (expense)............... (24) 6 (5) (20) 32 -- 333
------- -------- -------- -------- -------- ------- --------
Income before income taxes........... 160 197 618 4,854 7,596 4,128 9,204
Provision for income taxes........... 51 35 267 1,908 3,116 1,694 3,774
------- -------- -------- -------- -------- ------- --------
Net income........................... $ 109 $ 162 $ 351 $ 2,946 $ 4,480 $ 2,434 $ 5,430
======= ======== ======== ======== ======== ======= ========
Pro forma net income per share (1)... $ .30 $ .36
======== ========
Pro forma weighted average common
shares (1)........................... 14,910 14,910
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30, September 29,
----------------------------------------------------------- ------------- -------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 633 $ 396 $ 359 $ 3,030 $ 5,861 $ 615 $10,389
Working capital...................... 559 592 679 3,486 9,640 5,756 11,197
Total assets......................... 1,417 1,631 4,446 9,551 16,463 12,900 25,060
Long-term debt....................... 39 63 56 176 138 160 41
Total shareholders' equity (1)(2).. 683 845 1,196 4,142 10,620 6,577 15,001
</TABLE>
____________________________
(1) Gives effect to the conversion of 3,375,900 of Series A Preferred Stock
into 5,036,850 shares of Common Stock upon the closing of the Offering and
the reversal of accrued dividends payable thereon. See Note 2 of notes to
the consolidated financial statements for information regarding the
calculation of pro forma net income per share.
(2) Includes amounts attributable to Series A Preferred Stock and the reversal
of accrued dividends payable thereon.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Powerwave designs, manufactures and markets ultra-linear RF power
amplifiers for use in the wireless communications market. The Company's
amplifiers, which are key components in wireless communications networks,
increase the signal strength of wireless transmissions while reducing
interference. The Company's amplifiers are currently being utilized in
cellular base stations and support a broad range of analog and digital
transmission protocols, including CDMA, TDMA, GSM, FHMA, AMPS and TACS.
The Company also produces power amplifiers for the SMR market and air-to-
ground amplifiers used in both ground stations and commercial aircraft.
The Company's customer base consists primarily of OEMs of wireless
infrastructure equipment as well as specialized equipment manufacturers and
designers in various wireless communications markets.
Powerwave was formed in 1985 to develop a line of high-power RF
amplifiers suitable for use with VHF/UHF, AM/FM transceivers. In addition,
the Company offered products for use in the SMR industry. For the next
several years, the Company continued product development in the land mobile
radio industry, broadening its product offerings and selling to a
diversified customer base.
In late 1994, Powerwave developed a multi-channel linear RF amplifier
which could be utilized in the transmission of radio signals for cellular
base stations. In 1995, the Company began supplying multi-channel RF
linear amplifiers for use in the deployment of a digital cellular network
utilizing CDMA technology in South Korea. In 1996, the Company commenced
development of amplifier products for PCS networks.
A small number of customers account for a substantial majority of the
Company's net sales. Although the Company is attempting to expand its
customer base, the Company expects that a limited number of customers will
continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company believes that its future success
depends upon its ability to broaden its customer base. The Company's four
largest customers include, in alphabetical order, Hyundai, In-Flight, LGIC
and Samsung. For the nine months ended September 29, 1996, these
customers, each of which accounted for more than 10% of the Company's net
sales, accounted for approximately 81% of the Company's net sales in the
aggregate. In-Flight purchases the Company's products for implementation
in an air-to-ground wireless network. As this network has been
substantially completed, the Company expects sales to In-Flight to decrease
significantly in future periods. Sales of power amplifiers to wireless
infrastructure equipment suppliers are expected to continue to account for
a substantial majority of the Company's product sales. Hyundai, LGIC and
Samsung currently purchase products for implementation in the South Korean
digital cellular telephone network. The Company expects that sales to
these customers of products for use in the South Korean cellular network
will decline as that network nears completion, which is expected to occur
in the next one to two years. See "Risk Factors--Reliance upon South
Korean Market and Growth of Wireless Services Market." A limited number of
large OEMs account for a majority of RF power amplifier purchasers in this
market, and the Company's success will be dependent upon its ability to
establish and maintain relationships with these types of customers. There
can be no assurance that a major customer will not reduce, delay or
eliminate its purchases from the Company, which could have a material
adverse effect on the Company's business, results of operations and
financial condition.
In recent periods, Powerwave's revenues have continued to increase
significantly, primarily as a result of increasing sales to a limited
number of customers supplying the South Korean marketplace.
24
<PAGE>
The Company is attempting to expand its customer base as it pursues additional
opportunities within the wireless infrastructure equipment market. The Company
has experienced, and expects to continue to experience, declining average sales
prices for its multi-channel amplifier products. Wireless infrastructure
equipment manufacturers have come under increasing price pressure from cellular
service providers, which in turn has resulted in downward pricing pressure on
the Company's products. Consequently, the Company believes that in order to
maintain or improve existing gross margins in the near term, it must achieve
manufacturing cost reductions, and in the long term it must develop new products
that incorporate advanced features and that command higher gross margins. The
Company has initiated actions that it believes will reduce its materials and
manufacturing costs and intends to continue to invest significant internal
resources in the development of its amplification products.
Results of Operations
The following table summarizes the Company's results of operations as
a percentage of net sales for the fiscal years ended December 31, 1993, 1994 and
1995 and the nine-month periods ended September 30, 1995 and
September 29, 1996.
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------------------------------------------
Nine Months Ended
Year Ended December 31, September 30, September 29,
-------------------------------- ------------- -------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 75.3 63.3 63.0 65.0 58.2
-------- -------- -------- -------- --------
Gross profit................. 24.7 36.7 37.0 35.0 41.8
Operating expenses:
Sales and marketing......... 4.4 2.5 4.3 4.5 7.6
Research and development.... 6.7 6.3 6.3 6.3 9.3
General and administrative.. 6.4 6.6 5.4 5.7 4.6
-------- -------- -------- -------- --------
Total operating expenses..... 17.5 15.4 16.0 16.5 21.5
Operating income............. 7.2 21.3 21.0 18.5 20.3
Other income (expense)....... (0.1) (0.1) 0.1 -- 0.8
-------- -------- -------- -------- --------
Income before income taxes... 7.1 21.2 21.1 18.5 21.1
Provision for income taxes... 3.1 8.3 8.7 7.6 8.7
-------- -------- -------- -------- --------
Net income................... 4.0% 12.9% 12.4% 10.9% 12.4%
======== ======== ======== ======== ========
</TABLE>
Years Ended December 31, 1993, 1994 and 1995
Net Sales
The Company's net sales are primarily from the sale of RF power
amplifiers for use in wireless communications networks. The Company's revenues
increased 162.3% from $8.7 million in 1993 to $22.9 million in 1994 and
increased 57.7% to $36.0 million in 1995. The increase from 1993 to 1994 was
principally attributable to increased sales of a new generation SMR amplifier
product to a single customer. In 1994, three customers accounted for
approximately 65% of total revenues. For 1994, SMR and paging systems accounted
for approximately 56% of revenues, while air-to-ground amplifier sales accounted
for approximately 30% of revenues. The increase in revenues from 1994 to 1995
was principally attributable to the introduction of several new cellular
multi-channel linear RF power amplifier
25
<PAGE>
products. For 1995, multi-channel linear RF amplifiers accounted for
approximately 54% of revenues, while SMR and paging accounted for
approximately 29% of revenues. Air-to-ground amplifiers reduced to 15% of
revenues for the year. The increase in multi-channel amplifier sales was
largely attributable to supplying the Company's South Korean customers for
the implementation of the digital cellular network in South Korea. During
1995, four customers accounted for approximately 29%, 15%, 13% and 11%,
respectively, of revenues.
For the fiscal years 1993, 1994 and 1995 international revenues accounted
for 8.0%, 8.7% and 67.1%, respectively, of the Company's net sales. The
Company expects that international revenues will continue to account for a
significant percentage of the Company's net sales for the foreseeable
future. As a result, the Company is subject to various risks, including a
greater difficulty of administering business globally, compliance with
multiple and potentially conflicting regulatory requirements such as export
requirements, tariffs and other barriers, differences in intellectual
property protections, health and safety requirements, difficulties in
staffing and managing foreign operations, longer accounts receivable
cycles, currency fluctuations, repatriation of earnings, export control
restrictions, overlapping or differing tax structures, political and
economic instability and general trade restrictions.
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test
labor, overhead, warranty costs and royalties. Gross profit margins were
24.7%, 36.7% and 37.0% in 1993, 1994 and 1995, respectively. The gross
profit margins between 1993 and 1994 increased as manufacturing overhead
was further absorbed with increased sales of the same product line. The
gross margins between 1994 and 1995 remained relatively flat primarily due
to a decrease in average sales prices on existing SMR products which were
offset by a change in the sales mix to new cellular multi-channel RF
amplifier products, which have higher gross margins. For a discussion of
the effects of declining average sales prices on the Company's business,
see "Risk Factors--Declining Average Sales Prices." The wireless
communications infrastructure equipment industry is extremely competitive
and is characterized by rapid technological change, new product development
and product obsolescence, evolving industry standards and significant price
erosion over the life of a product. Due to these competitive pressures,
the Company expects that the average sales prices of its products will
continue to decrease. Future pricing actions by the Company and its
competitors may adversely impact the Company's gross margins and
profitability, which could also result in decreased liquidity and adversely
affect the Company's business, results of operations and financial
condition.
Operating Expenses
Sales and marketing expenses consist primarily of sales commissions,
salaries and other expenses for sales and marketing personnel, travel
expenses and trade shows. Sales and marketing expenses increased 47.4%
from $0.4 million in 1993 to $0.6 million in 1994 and increased by 173.1%
to $1.6 million in 1995. Sales and marketing expenses as a percentage of
revenues were 4.4%, 2.5% and 4.3% in 1993, 1994 and 1995, respectively.
The decrease in sales and marketing expenses as a percentage of sales
between 1993 and 1994 resulted from the Company's decision to hold sales
and marketing expenses relatively constant while revenues were growing.
The increase in sales and marketing expenses between 1994 and 1995 was
primarily attributable to increases in sales personnel and sales
commissions related to increased product sales.
Research and development expenses include ongoing amplifier design and
development expenses, as well as those design expenses associated with
reducing the cost and improving the manufacturability of existing
amplifiers. Research and development expenses increased by 146.6% from
$0.6 million in
26
<PAGE>
1993 to $1.4 million in 1994 and increased by 57.2% to $2.3 million in
1995. The increase in research and development expenses has been due to
the Company's continued commitment to new product development, which
includes development during 1994 and 1995 of multi-channel linear RF
amplifiers for the cellular marketplace. Research and development expenses
as a percentage of revenues were 6.7%, 6.3% and 6.2% in 1993, 1994 and
1995, respectively. The increase in expenses between 1993 and 1994 and
1994 and 1995 was primarily due to increased personnel costs, materials
costs related to design and development of product prototypes, consulting
costs and related overhead expenses.
General and administrative expenses consist primarily of salaries and
other expenses for management, finance, accounting and human resources.
General and administrative expenses increased by 171.4% from $0.6 million
in 1993 to $1.5 million in 1994 and increased by 29.0% to $2.0 million in
1995. General and administrative expenses as a percentage of revenues were
6.4%, 6.6% and 5.4% in 1993, 1994 and 1995, respectively. The increase in
general and administrative expenses between 1993 and 1994 was primarily due
to higher incentive payments in 1994 as opposed to 1993. General and
administrative expenses increased from 1994 to 1995 due to increases in
personnel and related labor costs.
Other Income (Expense)
The Company incurred net interest expense in 1993 and 1994 from the use
of capital lease financing to fund the Company's capital equipment
expenditures and working capital requirements. The Company generated net
interest income in 1995 as a result of excess working capital which was
invested in short-term money market instruments.
Provision for Income Taxes
The Company's effective tax rates were 43.1%, 39.3% and 41.0% for the
years ended December 31, 1993, 1994 and 1995, respectively.
Nine months ended September 30, 1995 and September 29, 1996
Net Sales
Sales increased by 94.8% from $22.4 million for the nine months ended
September 30, 1995 to $43.6 million in the nine months ended September 29,
1996. The growth in revenue was primarily attributable to increased demand
by the Company's South Korean customers for multi-channel linear
amplifiers, partially offset by a decrease in sales volumes of SMR and
paging amplifiers. For the first nine months of 1996, multi-channel linear
amplifiers accounted for approximately 76% of revenues, compared to
approximately 43% for the first nine months of 1995. SMR and paging
amplifiers accounted for approximately 11% of revenues for the first nine
months of 1996, compared to approximately 35% of revenues for the
comparable period in 1995. Air-to-ground amplifiers accounted for
approximately 12% of revenues in the first nine months of 1996, compared to
approximately 18% in 1995. International sales accounted for 62.1% of
revenues for the first nine months of 1995, compared with 72.5% for the
first nine months of 1996.
Gross Profit
The gross margin for the nine months ended September 30, 1995 and
September 29, 1996 as a percentage of sales was 35.0% and 41.8%,
respectively. The increase in gross margins during the first nine months
of 1996 was primarily attributable to reductions in manufacturing costs and
a shift in sales mix to multi-channel linear RF amplifiers which have
higher gross margins.
27
<PAGE>
Operating Expenses
Sales and marketing expenses increased by 227.1% from $1.0 million for
the nine months ended September 30, 1995 to $3.3 million for the nine
months ended September 29, 1996. Sales and marketing expenses as a
percentage of sales 4.5% and 7.6%, respectively. The increase in sales and
marketing expenses was primarily attributable to increases in the sales and
marketing staff and sales commissions related to increased product sales.
The Company intends to increase its investment in sales and marketing in
future periods.
Research and development expenses increased by 187.9% from $1.4 million
for the nine months ended September 30, 1995 to $4.0 million for the nine
months ended September 29, 1996. Research and development expenses as a
percentage of sales were 6.3% and 9.3%, respectively. The increase in
research and development expenses during the first nine months of 1996 was
primarily attributable to increased staffing and associated engineering
costs related to continued new product development, including the Company's
second generation multi-channel linear amplifier for cellular networks, and
ongoing product enhancements. During the second quarter of 1996, the
Company also began development work on amplifier products for PCS networks.
The Company intends to increase its investment in research and development
in future periods.
General and administrative expenses increased by 55.6% from $1.3 million
for the nine months ended September 30, 1995 to $2.0 million for the nine
months ended September 29, 1996. General and administrative expenses as a
percentage of sales were 5.7% and 4.6%, respectively. The increase in
general and administrative expenses during the first nine months of 1996
was primarily attributable to increased staffing costs associated with
supporting the Company's increased revenues.
Provision for Income Taxes
The Company's effective tax rate was 41.0% for both the nine month
periods ended September 30, 1995 and September 29, 1996.
28
<PAGE>
Quarterly Results of Operations
The following tables present unaudited quarterly financial information
for each quarter of fiscal 1994, 1995 and the first nine months of 1996.
The information has been prepared by the Company on a basis consistent with
the Company's audited consolidated financial statements appearing elsewhere
in this Prospectus and includes all necessary adjustments, consisting only
of normal recurring adjustments, that management considers necessary for a
fair presentation of the unaudited quarterly results when read in
conjunction with the audited consolidated financial statements of the
Company and the notes thereto appearing elsewhere in this Prospectus.
These operating results are not necessarily indicative of results that may
be expected for any subsequent periods.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 29
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.................. $4,791 $6,469 $7,394 $4,207 $4,593 $6,980 $10,811 $13,660 $13,807 $15,301 $14,486
Cost of sales.............. 3,095 4,101 4,510 2,760 3,337 4,616 6,601 8,159 8,229 9,000 8,144
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Gross profit............... 1,696 2,368 2,884 1,447 1,256 2,364 4,210 5,501 5,578 6,301 6,344
Operating expenses:
Sales and marketing...... 119 159 150 142 227 338 448 544 1,056 1,103 1,156
Research and development 268 347 389 429 298 461 642 851 1,075 1,375 1,583
General and
administrative.......... 298 320 412 488 397 441 450 670 612 671 721
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Total operating expenses.. 685 826 951 1,059 922 1,240 1,540 2,065 2,743 3,149 3,460
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Operating income.......... 1,011 1,542 1,933 388 334 1,124 2,670 3,436 2,835 3,152 2,884
Other income (expense).... (9) (29) (6) 24 18 (11) (7) 32 59 120 154
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Income before income
taxes.................... 1,002 1,513 1,927 412 352 1,113 2,663 3,468 2,894 3,272 3,038
Provision for income
taxes.................... 394 595 758 161 144 457 1,093 1,422 1,186 1,342 1,246
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Net income................ $ 608 $ 918 $ 1,169 $ 251 $ 208 $ 656 $ 1,570 $ 2,046 $ 1,708 $1,930 $1,792
======= ======= ======== ======= ======= ======= ======== ======= ======= ======= ========
As a Percentage of Net Sales
----------------------------------------------------------------------------------------------------
Statement of Operations
Data:
Net sales................ 100.0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of sales............ 64.6 63.4 61.0 65.6 72.7 66.1 61.1 59.7 59.6 58.8 56.2
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Gross profit............. 35.4 36.6 39.0 34.4 27.3 33.9 38.9 40.3 40.4 41.2 43.8
Operating expenses:
Sales and marketing.... 2.5 2.5 2.0 3.4 5.0 4.8 4.1 4.0 7.6 7.2 8.0
Research and
development........... 5.6 5.4 5.3 10.2 6.5 6.6 5.9 6.2 7.8 9.0 10.9
General and
administrative........ 6.2 4.9 5.6 11.6 8.6 6.3 4.2 4.9 4.4 4.4 5.0
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Total operating expenses. 14.3 12.8 12.9 25.2 20.1 17.7 14.2 15.1 19.8 20.6 23.9
Operating income......... 21.1 23.8 26.1 9.2 7.2 16.2 24.7 25.2 20.6 20.6 19.9
Other income (expense)... (0.2) (0.4) (0.1) 0.6 0.5 (0.3) (0.1) 0.2 0.4 0.8 1.1
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Income before income
taxes................... 20.9 23.4 26.0 9.8 7.7 15.9 24.6 25.4 21.0 21.4 21.0
Provision for income
taxes................... 8.2 9.2 10.3 3.8 3.2 6.5 10.1 10.4 8.6 8.8 8.6
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
Net income............... 12.7% 14.2% 15.7% 6.0% 4.5% 9.4% 14.5% 15.0% 12.4% 12.6% 12.4%
======= ======= ======== ======= ======= ======= ======== ======= ======= ======= ========
</TABLE>
29
<PAGE>
The Company experiences, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to
quarter. Quarterly results fluctuate due to a number of factors, any of
which could have a material adverse effect on the Company's business,
results of operations and financial condition. In particular, the
Company's quarterly results of operations can vary due to the timing,
cancellation, or rescheduling of customer orders and shipments; variations
in manufacturing capacities, efficiencies and costs; the availability and
cost of components; the timing, availability and sale of new products by
the Company; changes in the mix of products having differing gross margins;
warranty expenses; changes in average sales prices; long sales cycles
associated with the Company's products; and variations in product
development and other operating expenses. The Company's quarterly revenues
are also affected by volume discounts given to certain customers for large
volume purchases over a given period of time. In addition, the Company's
quarterly results of operations are influenced by competitive factors,
including pricing, availability and demand for the Company's and competing
amplification products. A large portion of the Company's expenses are
fixed and difficult to reduce in a short period of time. If net sales do
not meet the Company's expectations, the Company's fixed expenses would
exacerbate the effect of such net sales shortfall. Furthermore,
announcements by the Company or its competitors regarding new products and
technologies could cause customers to defer purchases of the Company's
products. In addition, while the Company receives periodic order forecasts
from its major customers, such customers have no binding obligation to
purchase the forecasted amounts. See "Risk Factors--Customer
Concentration." Order deferrals and cancellations by the Company's
customers, declining average sales prices, delays in the Company's
introduction of new products and longer than anticipated sales cycles for
the Company's products have in the past adversely affected the Company's
quarterly results of operations. There can be no assurance that the
Company will not experience such effects in the future.
Due to the foregoing factors, the Company believes that period-
to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that the Company will
maintain its current profitability in the future or that future revenues
and operating results will not be below the expectations of public market
analysts and investors. In either case, the price of the Company's Common
Stock could be materially adversely affected.
Net Sales
Sales grew substantially over the eleven-quarter period, with
significant quarter to quarter fluctuations. Fluctuations in revenues over
the four quarters of fiscal 1994 and the first two quarters of fiscal 1995
resulted primarily from fluctuations in demand for SMR and air-to-ground
amplifier products. The increase in revenues in the final two quarters of
fiscal 1995 and the first two quarters of fiscal 1996 resulted primarily
from increasing demand for cellular multi-channel linear RF amplifier
products. The increase in revenues in the first two quarters of fiscal
1996 was partially offset by a reduction in the average sales price of the
Company's multi-channel linear RF amplifier products.
Gross Profit
Gross profit margins ranged from 27.3% to 43.8% over the eleven-
quarter period, with significant quarter to quarter fluctuations. Gross
profit margins decreased in the fourth quarter of fiscal 1994 and in the
first two quarters of fiscal 1995 primarily as a result of a decrease in
revenue, as well as manufacturing inefficiencies experienced in the
introduction of a new amplifier. The increases in gross margins from the
second quarter of fiscal 1995 to the third quarter of fiscal 1996 were
primarily attributable to a shift in the sales mix to multi-channel linear
RF amplifiers, improved manufacturing efficiencies and lower materials
costs.
30
<PAGE>
Operating Expenses
Sales and marketing expenses grew over the eleven-quarter period,
generally, with consistent increases quarter to quarter. The increases in
sales and marketing expenses were primarily a result of increased headcount
and higher sales commissions associated with the overall growth in revenue.
Research and development expenses grew substantially over the
eleven-quarter period. The increases in research and development expenses
were primarily a result of increased headcount and associated development
costs as the Company staffed several cellular power amplifier development
projects. Research and development expenses decreased between the fourth
quarter of fiscal 1994 and the first quarter of fiscal 1995 primarily as a
result of a temporary reduction in headcount due to a reduction in business
activity and to lower incentive compensation payments paid in fiscal 1995
as opposed to fiscal 1994.
General and administrative expenses generally grew consistently
over the eleven-quarter period in support of increasing revenues. The
increases in general and administrative expenses were primarily a result of
increased headcount and associated labor costs. General and administrative
expenses decreased between the fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995 as a result of a temporary reduction in headcount
due to a reduction in business activity and to lower incentive compensation
payments paid in fiscal 1995 as opposed to fiscal 1994.
Liquidity and Capital Resources
The Company has historically financed its operations primarily
through a combination of cash on hand, cash provided from operations,
equipment lease financings, available borrowings under its bank line of
credit and a private equity offering. As of September 29, 1996, the
Company had working capital of $11.2 million, including $10.4 million in
cash and cash equivalents.
Cash provided by operations was approximately $.1 million, $3.7
million, $.9 million and $7.2 million in 1993, 1994, 1995, and in the nine
months ended September 29, 1996, respectively. Cash generated from
operations in 1994 was primarily due to improved profitability and
reductions in accounts receivable. Cash generated from operations in the
nine months ended September 29, 1996 was primarily as a result of increased
profitability, improved inventory and working capital management.
On October 10, 1995, the Company and certain shareholders entered
into a Stock Purchase Agreement with two venture capital fund investors in
which the Company sold a total of 3,375,900 shares of Series A Preferred
Stock at an aggregate price of $15 million. As part of these transactions,
the Company subsequently purchased 5,063,850 shares of its Common Stock
from certain shareholders for an aggregate price of $12.5 million. The
Company received net proceeds from this transaction of $2.0 million. The
Series A Preferred Stock has a dividend rate of twelve (12%) percent per
annum, commencing January 1, 1996, and payable upon the redemption or
repurchase of such Series A Preferred Stock or the conversion of such
Series A Preferred Stock into Common Stock of the Company after December
31, 1996. If the Company completes an underwritten public offering
pursuant to an effective registration statement under the Securities Act on
or before December 31, 1996, covering the offer and sale of Common Stock
for the account of the Company from which the aggregate net proceeds to the
Company exceed $15 million and in which the price per share is at least
$5.924346 per share, the dividend on the Series A Preferred Stock will not
be payable. The Series A Preferred Stock is convertible into shares of
Common Stock of the Company at a rate of one and one-half (1.5) shares of
Common Stock for each share of Series A Preferred Stock, adjusted for any
accrued and unpaid dividends.
31
<PAGE>
Capital expenditures were approximately $.4 million, $.2 million,
$.5 million and $2.9 million in 1993, 1994, 1995 and in the nine months
ended September 29, 1996, respectively, of which approximately $77,000, $.2
million, $0 and $0, respectively, were financed through capital leases.
The Company relocated its headquarters and manufacturing operations to a
new leased facility in July 1996. Leasehold improvements and capital
expenditures associated with this facility total approximately $2.0 million
and were substantially completed during the third quarter of 1996.
On May 30, 1996, the Company entered into a $5 million unsecured
committed revolving credit agreement with a maturity date of May 31, 1997.
The agreement allows the Company to borrow at the bank's reference rate.
The Company is required to pay a commitment fee equal to .125% per annum
based on the average daily unused portion of the facility. The fee is
payable quarterly in arrears. Under the terms of this credit facility, the
Company is required to maintain certain minimum working capital, net worth
and financial ratios. As of September 29, 1996, the full amount of the
facility was available to the Company and the Company has not utilized this
facility.
The Company had cash and cash equivalents of $10.4 million at
September 29, 1996, compared with $5.9 million at December 31, 1995. The
Company regularly reviews its cash funding requirements and attempts to
meet those requirements through a combination of cash on hand, cash
provided by operations, available borrowings under any credit facilities,
financing through equipment lease transactions, and possible future public
or private debt and/or equity offerings. The Company invests its excess
cash in investment grade short-term money market instruments.
The Company believes that the net proceeds from the Offering,
together with existing cash balances, funds expected to be generated from
operations and borrowings under its bank line of credit will provide the
Company with sufficient funds to finance its operations for at least the
next 12 months. The Company has utilized lease financing for the equipment
used in its manufacturing operations and expects to continue to do so in
the future. The Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise
such additional funds through public or private equity and/or debt
financings or from other sources. No assurance can be given that
additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to the Company or its
shareholders. See "Risk Factors--Future Capital Requirements."
32
<PAGE>
BUSINESS
Powerwave designs, manufactures and markets ultra-linear RF power
amplifiers for use in the wireless communications market. The Company's
amplifiers, which are key components in wireless communications networks,
increase the signal strength of wireless transmissions while reducing
interference, or "noise." The reduction of noise enables wireless service
providers to offer improved service to subscribers by offering clearer call
connections with less interference. Increasing the signal strength of
wireless transmissions also improves service by reducing the number of
interrupted or dropped calls. Powerwave's RF power amplifiers achieve
ultra-linearity at increased levels of amplification through the
application of "feedforward" technology which enables the Company's multi-
channel power amplifiers to significantly reduce RF interference thereby
increasing the efficiency of the wireless service provider's network.
Powerwave manufactures both single channel and multi-channel
amplifiers, with a focus on multi-channel products. Multi-channel
amplifiers integrate the functions of several power amplifiers and cavity
filters within a single unit, thereby reducing service providers' equipment
and maintenance costs and space requirements while providing increased call
capacity. The Company's products are currently being utilized in cellular
base stations in both digital and analog-based networks and the Company has
recently delivered initial prototype units for PCS networks. The Company's
products support a wide range of digital and analog transmission protocols
including CDMA, TDMA, GSM, FHMA, AMPS and TACS. See "-- Markets; Cellular
and PCS." The Company also produces power amplifiers for the SMR market,
which is characterized as a two-way radio market with devices commonly
utilized by police and emergency personnel and the business dispatch
marketplace. The Company also manufactures air-to-ground amplifiers used
both in ground stations and in commercial aircraft to amplify telephone
transmissions between airline passengers and ground based network systems.
The Company began selling RF power amplifiers for use in analog
wireless networks in 1985. In 1995, the Company began selling multi-
channel ultra-linear amplifiers for installation in digital cellular base
stations in South Korea, and the Company believes that it is the leading
supplier of amplifiers to the South Korean market. South Korea is
experiencing rapid economic development and is one of the first countries
worldwide to begin the process of installing a nationwide digital cellular
network. The Company's customers in the South Korean market include
Hyundai, LGIC and Samsung. The Company also sells amplifiers domestically
to numerous wireless equipment suppliers, including ADC Kentrox Industries,
Inc., AirNet Communications Corp., In-Flight Phone Corp., Metawave
Communications Corporation and Phoenix Wireless Group, Inc.
Industry Background
The worldwide wireless communications market, which consists of
cellular, PCS, SMR, paging, air to ground and other applications, has
experienced significant growth in recent years. According to the Cellular
Telephone Industry Association, the total number of worldwide subscribers
for cellular services, the leading sector of the wireless market, increased
59% from 54.5 million in 1994 to 86.8 million in 1995. The growth in
wireless communications is largely attributable to increased affordability
in consumer equipment, such as cellular phones and pagers, more
comprehensive service coverage at lower prices and technological
advancements which have resulted in improved transmission quality and
reliability. International growth has also been driven by the build-out of
cellular networks, including those designed to serve as primary telephone
systems in part due to inadequacies in existing wireline infrastructures.
33
<PAGE>
The continuing growth of the wireless communications market, and
of the cellular communications segment in particular, has resulted in the
crowding of transmissions within the available spectrum of radio
frequencies. In the United States, only 3% of the usable 4000 megahertz
(MHz) of RF spectrum have been allocated for cellular transmissions. As a
result of the limited allocation of frequencies and the related
overcrowding of available bandwidths, service providers are increasingly
deploying digital networks which, by comparison to analog networks, allow a
greater number of transmissions over the same range of frequencies.
Digital networks, by converting voice transmissions into bits of electronic
information, are able to utilize the existing radio spectrum allocated to
cellular transmissions more efficiently and thereby increase the call
capacity of a given network. The implementation of digital networks, in
conjunction with continued growth and upgrading of analog networks, has
resulted in an increased demand for network infrastructure equipment.
Consumer demand for additional services, combined with capacity
constraints and other limitations of cellular networks, has also led to the
development of PCS, another form of wireless communications which utilizes
a higher frequency range. It is anticipated that PCS applications will
include voice communication, personal messaging, mobile facsimile
transmission and wireless computer networking. The Personal Communications
Industry Association estimates that by the end of the decade there will be
approximately 100,000 PCS cell sites in the United States servicing more
than 15 million PCS users.
In 1995 and 1996, the United States government auctioned PCS
frequency licenses covering markets throughout the U.S. and its territories
for an aggregate purchase price of approximately $17.4 billion. This
indicates the scale of investment being made in the PCS market. The
successful bidders included AT&T Wireless PCS, Inc., PCS Primeco L.P., a
consortium of Bell Atlantic Corp., Nynex Corporation, Airtouch
Communications, Inc. and US West, Inc.; and Wireless Co., a consortium of
Sprint Corp., TCI International, Inc., Comcast Corp., Cox Enterprises, Inc.
and GTE Corporation.
Cellular and PCS Networks
Cellular networks use a number of base stations with high power
antennas to serve a geographical region. Each region is broken down into a
number of smaller geographical areas, or "cells." Each cell has its own
base station which uses wireless technology to receive subscribers calls
and transmit those calls through the wireline public switched telephone
network ("PSTN"). Cellular networks operate within the 800 and 900 MHz
bandwidths of the radio spectrum. PCS networks operate in a substantially
similar manner as cellular networks, except that PCS networks operate at a
higher range in the available RF spectrum, at 1800 and 1900 MHz bandwidths.
Transmissions at the higher frequencies utilized by PCS networks have
shorter transmission waves as compared to cellular frequency transmissions,
which limit the distances PCS transmissions can travel without significant
degradation. Signals travel farther at lower frequencies and also
penetrate into buildings and other obstacles better at the lower
frequencies. Therefore, PCS networks operating at the higher frequency
ranges will require smaller operating cells and more base stations than
existing cellular networks to cover the same total geographic region.
Additionally, due to the smaller geographical cell size utilized in PCS
networks, PCS base stations and telephones will operate at lower power
levels as compared to existing cellular networks.
Base stations contain a variety of sophisticated electronic
equipment, including RF power amplifiers, transceivers and oscillators.
RF power amplifiers, which are typically the most expensive base station
components, increase the signal strength of the incoming and outgoing
transmissions which, like all radio waves, weaken as transmission distances
increase. Traditionally, base station amplifiers were one of the primary
sources of background noise, as they amplified not only the main signal but
the noise inherent in the signal as well. Background noise, which is
measured in decibels (dBc), distorts the
34
<PAGE>
transmission signal and may cause the signal to transmit outside of its
designated frequency, thereby possibly interfering with other transmissions
and resulting in interrupted and dropped calls. Current amplifier
technology reduces the background noise in the transmitted signal through
the use of linearization technology.
Linearity is the degree to which amplified signals remain within
their prescribed band of radio frequency with low distortion or
interference with adjacent channels. An amplifier's capacity to limit or
reduce background noise is dependent on its ability to amplify signals with
high linearity. Ultra-linear power amplifiers amplify a signal while
significantly reducing the related background noise, thus enabling cellular
and PCS service providers to place more signals within a given bandwidth
and thereby accommodate a larger number of subscribers on a network.
Utilizing power amplifiers with high linearity is therefore critical to
service providers' ability to improve the efficiency and increase the
capacity of their systems.
In analog cellular networks, each base station is allocated a
certain number of frequency channels, each of which can carry only one call
at a time. As such, a base station can not transmit or receive more calls
than it has available channels at any given time. Originally, cellular
base stations in analog networks used single channel power amplifiers for
each frequency channel allocated to the cell. Many analog cellular
networks now utilize a process known as adaptive channel allocation in
order to increase network capacity. In adaptive channel allocation, which
requires multi-channel amplifiers, unused channels in cells are temporarily
reallocated to augment more heavily utilized adjacent cells. The signals
are amplified simultaneously through a multi-channel power amplifier which
allows for the simultaneous amplification of all channels within a base
station. Multi-channel amplifiers require significantly higher linearity
than do single channel designs, but do not require separate, high-
maintenance, tunable cavity filters. By eliminating the need for separate
cavity filters for each channel, multi-channel amplifiers reduce overall
deployment and maintenance costs associated with base stations. While
adaptive channel allocation using multi-channel linear amplifiers has
increased the capacity of analog networks, many service providers still
require additional capacity to serve the increased flow of transmissions
through their networks. This has led many service providers to begin to
move from analog networks to digital networks.
In digital networks, calls are segmented and transmitted across
the entire bandwidth of allocated spectrum, rather than in single channels
of that spectrum. The calls are then reassembled when received at the base
station or cellular phone. While using the entire bandwidth of allocated
spectrum results in greater system capacity, there is a greater likelihood
that even minimal background noise will result in interrupted or dropped
calls. Accordingly, ultra-linear amplification is even more critical in
digital networks than in their analog counterparts.
While the core technologies related to linear amplification of
wireless transmissions are fairly well established, manufacturing reliable
ultra-linear RF power amplifiers in a repeatable, cost-effective manner
remains a difficult process. Due to the nature of RF signals,
amplification can cause frequency and phase variations in the transmission
signal for a variety of reasons, including the electromagnetic make-up of
the amplifier's own components. As such, the manufacturing process
involves highly precise fine-tuning of the amplifier's electronic
components by skilled technicians.
The Company believes that the growth in demand for cellular
services and the deployment of PCS will result in increased demand for
network infrastructure equipment meeting more exacting specifications.
This has created a significant market opportunity for third-party RF power
amplifier manufacturers capable of producing highly reliable ultra-linear
multi-channel RF power amplifiers in a repeatable, cost-effective manner.
35
<PAGE>
The Powerwave Solution
Powerwave's focus on multi-channel power amplifiers and the
experience it has gained through the implementation of its products in
digital cellular networks have enabled the Company to develop substantial
expertise in ultra-linear multi-channel power amplifier technology. The
Company has developed the ability to manufacture ultra-linear multi-channel
RF power amplifiers in a standard, repeatable manner, thus allowing for
increased production and reliability. In addition, by obtaining components
from numerous leading technology companies, Powerwave is able to respond
quickly and cost-effectively to new transmission protocols and design
specifications. The manufacturability of the Company's existing multi-
channel RF power amplifier design has allowed it to increase its
manufacturing productivity while reducing its product costs. The Company
believes that its ability to cost-effectively manufacture commercial
quantities of multi-channel RF power amplifiers represents a competitive
advantage over other third-party manufacturers of RF power amplifiers.
Powerwave's ultra-linear multi-channel RF power amplifiers
utilize the Company's implementation of feedforward technology to increase
power and linearity for cellular and PCS service providers. The ultra-
linear, multi-channel approach utilized by the Company in its amplifiers
provides increased transmission capacity as well as quality, thereby
providing a highly reliable, low maintenance product that reduces the
providers' future operating costs. The Company's products support multiple
transmission protocols, including existing analog protocols such as AMPS
and TACS, as well as current digital protocols including CDMA, TDMA, FHMA
and GSM. The Company is committed to supporting all widely accepted
existing and future communication protocols.
Strategy
Powerwave's strategic objective is to be the leading third-party
supplier of high performance RF power amplifiers used in digital and analog
wireless networks worldwide. The Company's strategy includes the following
key elements:
Provide Leading Technology to the RF Amplifier Industry.
Powerwave intends to continue to dedicate significant resources to the
research and development of new methods to improve amplifier performance,
including methods to reduce noise and increase power in the RF
amplification process. The Company believes that further reductions in
noise may be attained through digital processing, regulating amplifiers
with software and other techniques, as well as through continued
improvements in traditional feedforward technology. The Company also
intends to focus its research and development resources on further
increasing amplifier reliability. The Company is currently investigating
several technologies, including "smart" amplifier technologies which
improve amplifier performance.
Leverage Position as Leading Multi-Channel Amplifier Supplier.
Powerwave intends to continue to leverage its experience in supplying
ultra-linear multi-channel RF power amplifiers, especially for the South
Korean marketplace, and to penetrate other existing and emerging wireless
markets. The Company currently supplies its products to Hyundai, LGIC and
Samsung and believes that it is the leading supplier of multi-channel RF
power amplifiers being installed in the South Korean nationwide digital
cellular network. The Company is incorporating its technological
expertise, manufacturing capability and product implementation experience
into its marketing and sales strategy which targets new domestic and
foreign customers. The Company's sales and marketing strategy focuses on
establishing relationships with customers through a network of sales
representatives selected on the basis of their contacts with the Company's
potential customers and knowledge of the wireless infrastructure market.
In addition, the Company intends to leverage its existing relationships
with its South Korean customers as they attempt to market their
infrastructure equipment throughout the world.
36
<PAGE>
Expand Relationships with Leading OEMs. Powerwave intends to
continue to develop new, and strengthen existing, relationships with the
leading OEMs of wireless base stations. Many leading OEMs, including
Ericsson, Lucent and Motorola, manufacture their own power amplifiers as
opposed to purchasing such equipment from third-party vendors such as the
Company. Powerwave believes that increased traffic flow on wireless
networks and capacity limitations have resulted in service providers making
greater demands on OEMs' resources. As a result, the Company believes that
OEMs may increasingly consider purchasing power amplifiers from third-party
suppliers rather than devoting resources to internal development and
manufacturing of such components. The Company seeks to provide cost
effective amplifier solutions which will allow OEMs to more efficiently
utilize their research and development resources in other areas.
Develop and Market Amplifier Products for PCS Networks.
Powerwave intends to develop PCS single and multi-channel RF power
amplifier products and utilize its network of sales representatives to
market its PCS amplifiers to customers domestically and worldwide. The
successful bidders for PCS frequency licenses are in the process of
implementing PCS networks and are required to have such networks
operational within designated time frames in order to avoid losing their
frequency licenses. A limited number of test markets are currently
operational in the United States and network operators in Asia and Europe
are also moving forward with PCS technology. In the U.S., the Company
believes that PCS network operators and infrastructure manufacturers are
currently conducting product trials in order to validate technology and
formulate future purchase decisions.
Maintain Commitment to Quality, Reliability and
Manufacturability. Powerwave designs its amplifiers to be manufactured in
commercial quantities in a cost-effective manner while being built for high
reliability and effectiveness. The Company believes that its ability to
design products for volume manufacturing has been a competitive advantage
in securing orders from its customers and positions the Company to attract
new customers. Historically, power amplifiers have been difficult to
manufacture in high volumes due to the complexities of RF power technology.
Powerwave believes that the manufacturability of its products is enhanced
by its strategy of purchasing standardized components for integration into
its power amplifiers from numerous suppliers. By purchasing key components
rather than internally manufacturing component parts, the Company believes
it can more readily respond to new transmission protocols and customer
specification demands. In addition, the Company believes that its third-
party sourcing strategy enables it to minimize its capital investment in
manufacturing facilities and focus its resources on developing new products
and improvements to existing products utilizing the best suppliers
available. The Company believes that its third-party sourcing strategy
allows it to bring the latest improvements in technology to market ahead of
its non-OEM competitors.
Increase Involvement in Customer Product Development Process.
Powerwave intends to utilize technically-oriented marketing personnel to
gain early access to the product development processes of existing and
potential customers. By participating in a customer's product development,
the Company seeks to have its standard product specifications designed into
the customer's system, thereby ensuring sales to such customer and
minimizing manufacturing costs associated with product customization.
Powerwave also intends to utilize its marketing personnel to help direct
its own product development. By interfacing with infrastructure
manufacturers and service providers, the Company's marketing personnel gain
substantial insight into user needs, cost sensitivity and quality
requirements. By introducing these concepts early in the product
development cycle, the Company believes it will be able to better serve
customer demand with quality products offered at competitive prices.
37
<PAGE>
Markets
Powerwave sells its RF power amplifier products primarily into the
following segments of the wireless communications market:
Cellular and PCS. The traditional cellular communications market
is experiencing substantial growth. As a result of the limited allocation of
frequencies and the related overcrowding of available bandwidths, service
providers are increasingly deploying digital networks which, by comparison to
analog networks, allow a greater number of transmissions over the same range of
frequencies. Digital networks, by converting voice transmissions into bits of
electronic information, are able to utilize the existing radio spectrum
allocated to cellular transmissions more efficiently and thereby increase the
call capacity of a given network. The implementation of digital networks, in
conjunction with continued growth and upgrading of analog networks, has resulted
in an increased demand for network infrastructure equipment. In addition, as a
result of the recent FCC auction of radio spectrum allocated to PCS, leading
telecommunications companies such as AT&T, Bell Atlantic and Sprint and cable
systems operators such as Cox Enterprises and TCI International are beginning to
install PCS networks, which the Company anticipates will substantially increase
demand for ultra-linear RF power amplifiers. The Company's primary focus is on
the cellular and PCS markets and the Company currently derives a substantial
portion of its revenues from the cellular market.
The table below describes the various cellular and PCS transmission
protocols in use today.
Major Cellular and PCS Transmission Protocols
<TABLE>
<CAPTION>
Description Region and Frequency
==========================================================================
<S> <C> <C>
AMPS = Advanced Mobile North America & Asia - 800MHz
Phone Services
Analog TACS = Total Access Europe & Asia - 900MHz
Cellular Communication System
NMT = Nordic Mobile Europe & Asia - 900MHz
Telephone
- --------------------------------------------------------------------------
CDMA = Code Division North America & Asia - 800/900MHz
Multiple Access
TDMA = Time Division North America & Asia - 800/450MHz
Digital Multiple Access
Cellular GSM = Global System for Europe & Asia - 900MHz
Mobile Communications
FHMA = Frequency Hopping North America & Europe - 900MHz
Multiple Access
PDC = Pacific Digital Japan - 800/1400MHz
Cellular
- --------------------------------------------------------------------------
PCS CDMA = Code Division North America & Asia - 1800/1900MHz
Multiple Access
DCS-1800 = Digital Europe & Asia - 1800MHz
Communications System
GSM = Global System for North America & Asia - 1900MHz
Mobile Communications
PHS = Personal Handyphone Japan - 1900MHz
System
==========================================================================
</TABLE>
Specialized Mobile Radio. Powerwave has been manufacturing power
amplifiers for the SMR market since 1985. SMR is commonly associated with
two-way communications devices used by police and emergency personnel and the
business dispatch marketplace. While the domestic market has remained relatively
static in the past few years, the Company believes there are opportunities in
certain parts of the international market, where the installation of more
expensive cellular systems is not cost-justified. In addition, Motorola recently
introduced a two-way radio designed to compete with cellular phones. However,
there can be no assurance that Motorola's system will achieve commercial success
or, even if Motorola is successful, whether the Company will be able to sell
amplifiers into this market.
38
<PAGE>
The Company has also manufactured complete paging systems, including
transmitters. The paging market is dominated by a few large suppliers, and
the Company is no longer actively pursuing this market.
Air-to-Ground Communications. Powerwave also provides amplifiers
that are used to amplify telephone transmissions between commercial
aircraft passengers and the PSTN. While the Company continues to service
this market, sales opportunities within this market are limited.
Products
Powerwave designs and manufactures both single channel and multi-
channel ultra-linear power amplifiers which are sold into the cellular and
air-to-ground markets. The single channel products sold into these markets
include the LP product series and the multi-channel products include the
MCA product series. The Company also designs and manufactures single
channel power amplifiers which are sold into the SMR and paging markets.
The products sold into these markets include the RF, LP, KW and LDA product
series.
Powerwave's ultra-linear multi-channel amplifiers utilize a
single feed forward loop, which allows greater operating efficiency and
requires approximately 25% less electrical current than competing multi-
loop designs. The Company's amplifiers employ a microprocessor based feed-
forward loop design which results in better tracking between the pilot tone
and the actual signal and reduces interference. Powerwave's multi-channel
design also utilizes an actively switched output combiner (3 or 4 way),
which allows any number of amplifiers to be "hot-swapped" without a
significant loss of power. This design allows for true cold standby
switching of a standby amplifier, thereby providing network operators with
a backup redundancy solution for even greater reliability. The Company is
also in the process of designing and testing both single channel and multi-
channel ultra-linear power amplifiers for the emerging PCS marketplace.
MCA Series. The MCA Series offers ultra-linear multi-channel
power amplifier technology for CDMA, TDMA and GSM digital cellular systems
positioned between 800-960 MHz, as well as analog systems utilizing AMPS,
TACS, ETACS and SETACS protocols. The amplifiers are designed to be
installed in racks of three or four amplifiers. Smart combiner paralleling
units allow both higher power as well as system redundancy, which is the
ability of the system to remain in operation in the event of the failure of
one or more of the paralleled amplifiers. When combined, the units have
"hot swap" capabilities whereby one unit can be removed from the rack while
all others remain in operation. All MCA series multi-channel amplifiers
provide remote status/fault monitoring capabilities.
The MCA8000-250, which the Company believes is the leading
amplifier in South Korea's nationwide digital cellular system, produces 25
Watts (W) average, 250W peak, power per channel with maximum distortion of
-60dBc. Up to 4 units can be combined in parallel utilizing the Company's
fully redundant smart combiner racks for effective average power ratings of
20W, 45W, 70W, and 90W.
In August 1996, the Company introduced its second generation
multi-channel amplifier, the MCA9000-400 which produces 40W average, 400W
peak, power per channel with maximum distortion of -65dBc, while retaining
its predecessor's hot swap, paralleling, and redundancy capabilities.
Generally, as compared to the MCA 8000-250, one less amplifier can be used
to achieve a similar power rating, thus decreasing the effective cost per
watt to the service operator. Combining up to 3 units in a rack yields
effective power ratings of 32W, 70W and 100W.
39
<PAGE>
Powerwave also offers within the MCA Series other standard linear
products including 40W Class A and 250W Class AB amplifiers which are used
in applications requiring reduced linearity or power.
PCS Series. The PCS Series will offer both single and multi-
channel amplifiers for use in PCS networks that operate in the
international DCS-1800 frequency of 1.8 gigahertz (GHz) and the new United
States PCS band at 1.9GHz. Typical system applications include CDMA, TDMA,
and GSM protocols with output power ranging from 5W to 36W. The PCS Series
of multi-channel amplifiers will offer similar power combining, system
redundancy, and remote status/fault monitoring capabilities as the
Company's MCA Series with output power ranging from 10W to 100W and
distortion of -60dBc.
RF Series. The RF Series is the Company's standard single
channel analog amplification product for SMR, paging, repeater and trunking
applications. These amplifiers operate in discreet bands within the 30 MHz
to 960 MHz frequency range with input powers ranging from 10mW to 70W and
produce output powers ranging from 50W to 160W. These amplifiers have been
designed for simple installation and maintenance and are fully modular for
quick and easy field service.
LP Series. The LP Series is a single channel analog amplifier
similar to the Company's RF Series amplifiers, but in a smaller 5 1/4"
format. The LP Series is used in SMR, paging, repeater and trunking
applications. These amplifiers also operate in the 35 MHz to 960 MHz
frequency range with input powers ranging from 200mW to 20W and produce
output power ranging from 30W to 60W.
KW Series. The KW Series provides single channel amplification
for analog and digital paging systems, SMR, repeaters and trunking.
Amplifiers in the KW Series operate in the frequency range of 35 to 960 MHz
and are compatible with most transmitters. These amplifiers operate with
input powers ranging from 150mW to 40W and produce 250W, 320W or 450W of
power output. Front panel metering allows users to easily monitor forward
and reflected RF power output and many other critical functions. These
units have hot swap capabilities and can be combined to produce 750W, 1000W
and 1500W of output.
LDA Series. The LDA Series provides broadband digital or analog
amplification as a "building block" in larger amplification systems or as a
stand-alone amplifier. The LDA Series products are used as a building
block for applications involving electronic counter measures ("ECM") and
radar systems. The products are also used as stand alone amplifiers for
applications in laboratory testing, medical research and multi-band
transceivers and are designed to operate in wide frequency ranges between
20MHz to 1GHz with output powers ranging from 5W to 150W.
The Company's multi-channel power amplifiers range in price from
$5,000 to $15,000 per amplifier, based upon the specification requirements.
The Company's single channel amplifiers range in price from $1,000 to over
$10,000 per amplifier depending upon product type and specifications. The
Company also sells racks to install and combine multiple amplifiers,
ranging in price from $1,000 to $5,000, depending upon specifications.
40
<PAGE>
The Company's primary products are summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Powerwave Multi-Channel Amplifier Configurations
- -------------------------------------------------------------------------
Avg.
Product Power
Series Protocol Frequency (MHz) (Watts) Linearity (dBc)
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular:
MCA CDMA 851-960 25-100 -65
MCA TDMA 851-960 25-100 -65
MCA GSM 851-960 30-90 -70
- -------------------------------------------------------------------------
PCS:***
PCS CDMA 1805-1880 10-100 -60
PCS DCS-1800 TDMA 1805-1880 10-100 -60
PCS CDMA 1930-1990 10-100 -60
PCS TDMA 1930-1990 10-100 -60
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Powerwave Single Channel Amplifier Configurations
----------------------------------------------------------------------
----------------------------------------------------------------------
Product
Series Protocol Frequency (MHz) Avg. Power (Watts)
----------------------------------------------------------------------
<S> <C> <C> <C>
Cellular:
LP CDMA 851-960 10-120
LP TDMA 851-960 10-120
LP GSM 851-960 10-120
----------------------------------------------------------------------
PCS:***
PCS CDMA 1805-1880 5-36
PCS TDMA 1805-1880
PCS CDMA 1930-1990 5-36
PCS TDMA 1930-1990
PCS GSM 1930-1990 25
----------------------------------------------------------------------
SMR/PAGING:
RF 30-960 50-160
LP 30-960 30-60
KW 30-960 250-450
LDA 20-1000 5-150
----------------------------------------------------------------------
</TABLE>
*** Products in development or prototype stage.
Customers
The Company sells its products to a wide variety of customers
worldwide. During the nine months ended September 29, 1996, sales to Hyundai,
LGIC and Samsung accounted for 69% of total sales and are expected to account
for a higher percentage of sales during the remainder of 1996. Each of these
customers accounted for more than 10% of the Company's net sales in the period.
The loss of any of these customers, or a significant loss, reduction or
rescheduling of orders from any of these customers, could have a material
adverse effect on the Company's business, results of operations and financial
condition. Sales to In-Flight also accounted for more than 10% of total sales
for the nine months ended September 29, 1996. See "Risk Factors--Customer
Concentration; and --Reliance upon South Korean Market and Growth of Wireless
Services Market."
41
<PAGE>
The Company also sells to a wide variety of wireless equipment
suppliers, including ADC Kentrox Industries, Inc., AirNet Communications Corp.,
In-Flight Phone Corp., GTE Airfone Corp., Metawave Communications Corporation,
Motorola Corporation, Phoenix Wireless Group, Inc. and Uniden Corporation.
Marketing and Distribution, International Sales
Powerwave sells its products through a highly-technical direct sales
force and through independent sales representatives. Direct sales personnel are
assigned to geographic territories and, in addition to sales responsibilities,
manage networks of independent sales representatives within the United States.
The Company recently implemented a network of independent sales representatives
selected for their familiarity with potential customers of the Company and
knowledge of the wireless infrastructure market. Both the direct sales personnel
and independent sales representatives generate product sales, provide product
and customer service, and provide customer feed back for product development. In
addition, the sales personnel and independent sales representatives receive
support from the Company's marketing, product support and customer service
departments. As the Company's potential customer base expands, the Company
intends to further expand its network of independent sales representatives.
The Company's marketing efforts are focused on establishing and
developing long-term relationships with potential customers. Sales cycles for
certain of the Company's products, particularly its base station power
amplifiers are lengthy, typically ranging from 6 to 18 months. As is customary
in the industry, sales are made through standard purchase orders which can be
subject to cancellation, postponement or other types of delays. While certain
customers provide the Company with forecasted needs, they are not bound by such
forecasts and the Company does not recognize orders until actual purchase orders
are received from the customer.
International sales of the Company's products amounted to 8.0%, 8.7%,
67.1% and 72.5% of net sales for the years ended December 31, 1993, 1994 and
1995 and for the nine-month period ended September 29, 1996, respectively.
Foreign sales of some of the Company's products are subject to national security
and export regulations and may require the Company to obtain a permit or
license. In recent years, the Company has not experienced any material
difficulty in obtaining required permits or licenses. Foreign sales also subject
the Company to risks related to political upheaval and economic downturns in
foreign nations. In addition, the Company's foreign customers typically pay for
the Company's products with U.S. dollars. As such, a strengthening of the U.S.
dollar as compared to a foreign customer's local currency would effectively
increase the price of the Company's products for that customer, thereby making
the Company's products less attractive to such customers. See "Risk Factors--
Risks of Doing Business in International Markets."
The Company's warranties vary by product type and range from one to three
years. Warranty obligations and other maintenance services for the Company's
products are performed by the Company in California and Seoul, South Korea.
While the Company currently has one service employee located in South Korea, it
is in the process of increasing its South Korean based service capabilities and
will be utilizing its South Korean location to provide service support for the
Asian region.
Product Development
Powerwave intends to continue to dedicate significant resources to the
research and development of new methods to improve amplifier performance,
including reduced noise and increased power in the RF amplification process. The
Company's development efforts also seek to reduce the cost and increase the
manufacturing efficiency of existing products. The Company's research and
development staff
42
<PAGE>
consisted of 43 people as of September 29, 1996. Expenditures for product
development amounted to approximately $.6 million in 1993, $1.4 million in 1994,
$2.3 million in 1995, and $4.0 million for the nine months ended September 29,
1996.
The Company believes that further reductions in noise may be attained
through digital processing, regulating amplifiers with software and other
techniques, as well as through continued improvements in traditional feedforward
technology. The Company intends to continue to dedicate significant resources to
research and develop new methods to improve the performance of its existing
amplifiers for use in cellular networks and to develop a full line of amplifiers
for PCS networks.
Competition
The wireless communications infrastructure equipment industry is
extremely competitive and is characterized by rapid technological change, new
product development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. The principal elements of
competition in the Company's market include performance, functionality,
reliability, pricing, quality, the ability to design products which can be
efficiently manufactured in volume production, time-to-market delivery
capabilities and standards compliance. While the Company believes that overall
it competes favorably with respect to the foregoing elements, there can be no
assurance that it will be able to continue to do so.
Currently, the Company competes primarily with Avantek (a division of
Hewlett Packard), M/A-COM, Inc. (a subsidiary of AMP, Inc.), Microwave Power
Devices, Inc. and Spectrian Corporation, in addition to the amplifier
manufacturing operations captive within certain of the leading wireless
infrastructure OEMs. Certain of the Company's current and potential competitors
have significantly greater financial, technical, manufacturing, sales, marketing
and other resources than the Company and have achieved greater name recognition
for their existing products and technologies than has the Company.
The Company's success depends in part upon the rate at which OEM
customers incorporate the Company's products into their systems. The Company
believes that a substantial portion of the present worldwide production of
amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that these amplifiers are offered for
sale as part of their wireless systems. These OEMs include, among others,
Ericsson, Lucent, Motorola, Nokia and Nortel. In addition, Samsung, a
significant customer of the Company, manufactures power amplifiers in addition
to purchasing such components from the Company. The Company believes that these
OEMs, as well as other customers of the Company, continuously evaluate whether
to manufacture their own RF power amplifiers rather than purchase them from
third-party vendors such as the Company. These and other large manufacturers of
wireless infrastructure equipment could also determine to offer and sell their
power amplifiers to other OEMs or customers of the Company and compete directly
with the Company. In addition, these or other OEMs may enter into joint ventures
or strategic relationships with the Company's competitors, in which event the
Company's ability to sell products to such OEMs could be reduced or eliminated.
The Company has experienced significant price competition and expects
price competition in the sale of RF power amplifiers to increase. No assurance
can be given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Certain of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price
43
<PAGE>
competition or a downturn in the market better than the Company. There can be no
assurance that the Company will be able to compete successfully in the pricing
of its products, or otherwise, in the future.
Backlog
The Company's backlog of orders was approximately $18.8 million on
September 29, 1996 compared to approximately $18.1 on December 31, 1995. A
substantial portion of the backlog at September 29, 1996 is due to orders from
customers for the South Korean market. The Company includes its backlog all
accepted product purchase orders with respect to which a delivery schedule has
been specified for product shipment within six months. Product orders in the
Company's backlog are subject to changes in delivery schedules or to
cancellation at the option of the purchaser without significant penalty. The
Company regularly reviews its backlog of orders to ensure that it adequately
reflects product orders expected to be shipped within a six month period. The
Company makes adjustments as customer delivery schedules change as well as in
response to changes in the Company's production schedule. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be a
reliable indicator of sales for any future period.
Manufacturing and Suppliers
In July 1996, the Company relocated to an expanded headquarters and
manufacturing facility in Irvine, California. The Company's manufacturing
process involves the assembly of numerous individual components, and precise
fine-tuning by technically oriented production personnel. The parts and
materials used by the Company consist primarily of printed circuit boards,
specialized subassemblies, fabricated housings, relays, and small electric
circuit components, such as integrated circuits, semiconductors, resistors and
capacitors. The Company manufactures products to fill firm orders and to meet
forecasts received from its major customers.
The Company continually attempts to reduce manufacturing costs while
retaining product quality. The Company purchases a significant quantity of its
materials and components from several suppliers through blanket purchase orders.
The Company acquires certain key components from single sources, but believes
alternative sources could be arranged if the Company were unable to continue to
procure such components from its current sources. If the Company were unable to
replace the supplier of these components in a timely fashion, its operating
results and financial condition could be materially adversely affected. In
recent years, the Company has experienced no significant difficulty in obtaining
necessary supplies.
The Company is currently in the process of attempting to qualify for ISO
9001 certification, a uniform worldwide quality-control standard. Numerous
customers and potential customers throughout the world, particularly in Europe,
require that their suppliers be ISO certified. In addition, many such customers
require that their suppliers purchase components only from subcontractors that
are ISO certified. If the Company is unable to obtain its ISO certification, it
may have difficulty selling to customers who require an ISO certification. The
inability to sell to such customers could have adverse effect upon the Company's
operating results and financial condition.
Intellectual Property
The Company relies primarily upon trade secrets to protect its
intellectual property. The Company generally enters into confidentiality and
non-disclosure agreements with its employees and limits access to and
distribution of its proprietary information. In addition, the Company has
applied for a U.S. patent for its proprietary implementation of feedforward
technology and regularly examines various
44
<PAGE>
aspects of its technology for possible patent applications. The Company believes
that its success depends upon the knowledge and experience of its management and
technical personnel and its ability to market its existing products and to
develop new products.
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. There can
be no assurance that these measures will successfully protect the Company's
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors. In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition. As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionability of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims. The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others. Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future. Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition. A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing. No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all. The failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Properties
The Company's Irvine, California, headquarters and manufacturing facility
occupy an aggregate of approximately 78,000 square feet under a lease expiring
in 2006. The Company believes that its current facilities provide adequate
expansion capabilities for its operations. The Company is currently subletting
to an unrelated party approximately 27,000 square feet of additional expansion
space connected to its new facility. This space can be made available to the
Company when the existing sub-lease expires in April 1997.
Employees
As of September 29, 1996, the Company had 265 full and part-time
employees, including 43 in research and development, 11 in sales and marketing
and 32 in corporate and administration. None of the Company's employees are
represented by a union. The Company believes that its relations with its
employees are good.
45
<PAGE>
Legal Proceedings
On October 4, 1996, Mr. Ernest Johnson, a shareholder of the Company,
filed suit against the Company and certain of the other shareholders of the
Company in the Superior Court of Orange County, California. Mr. Johnson claims
that, in contravention of an alleged agreement, the Company and certain other
shareholders, including Alfonso Cordero, engaged in certain transactions which
improperly diluted his ownership interest in the Company to below five percent.
In particular, Mr. Johnson claims that in 1992 the Company wrongfully failed to
give him notice of a purported right to purchase approximately 488,250 shares of
the Company's Common Stock then being sold by a third party at a purchase price
of approximately $.005 per share, as adjusted for stock splits, and, as a
result, such shares were then purchased by certain other shareholders of the
Company. Mr. Johnson also alleges that the Company wrongfully failed to allow
him to participate in various real property transactions involving the Company
and certain of its shareholders. Mr. Johnson seeks unspecified monetary damages
and costs as well as equitable remedies, including an order entitling him to the
488,250 shares and an accounting of the proceeds arising out of the real
property transactions. Mr. Johnson also seeks punitive damages. Although the
Company believes Mr. Johnson's claims are without merit and it is too early to
determine the ultimate outcome of such suit, the Company intends to contest
vigorously any action against the Company. There can be no assurance as to the
eventual outcome of such actions. Any issuance of shares by the Company as a
result of Mr. Johnson's claims would have a dilutive effect on the per share net
tangible book value of the Company. See "Dilution." Any determination against
the Company in the litigation or the settlement of such claims could have a
material adverse effect on the Company's business, results of operation and
financial condition. See "Risk Factors--Legal Proceedings." The Company is not a
party to any other material legal proceedings.
46
<PAGE>
MANAGEMENT
Directors and Officers
The following table sets forth certain information regarding the
Company's directors and officers:
Name Age Position
---- --- --------
Alfonso G. Cordero (2)... 55 Chairman of the Board
Bruce C. Edwards......... 42 President, Chief Executive Officer and
Director
Peter L. Manno........... 54 Executive Vice President
Mercy B. Cordero......... 47 Vice President, Administration
Kevin T. Michaels........ 38 Vice President, Finance, Chief Financial
Officer and Secretary
Ki Y. Nam................ 36 Vice President, New Business Development
Richard D. Posner........ 53 Vice President, Engineering
Eric A. Tanner........... 36 Vice President, Operations
Mark D. Winters.......... 35 Vice President, Quality
Gregory M. Avis (1)...... 37 Director
David L. George (1)...... 43 Director
Eugene L. Goda (2)....... 60 Director
Rich Shapero (2)......... 48 Director
Sam Yau (1).............. 47 Director
- ----------------------
(1) Member of Audit Committee of the Board of Directors.
(2) Member of Compensation Committee of the Board of Directors.
Alfonso G. Cordero, one of the founders of the Company, has served as a
director since the Company's inception. From June 1985 to January 1996, Mr.
Cordero served as Chief Executive Officer of the Company and currently serves as
Chairman of the Company. Mr. Cordero is married to Mercy B. Cordero, Vice
President, Administration.
Bruce C. Edwards joined the Company in February 1996 as President and
Chief Executive Officer and Director. Mr. Edwards was Executive Vice President,
Chief Financial Officer and Director of AST Research, Inc., a personal computer
company, from July 1994 to December 1995 and Senior Vice President, Finance and
Chief Financial Officer of AST Research, Inc. from March 1988 to July 1994. Mr.
Edwards currently serves on the Board of Directors of Diamond Multimedia
Systems, Inc. and HMT Technology, Inc.
Mercy B. Cordero has served as Vice President, Administration of the
Company since June 1985. From January 1985 to June 1985, Mrs. Cordero served as
President of the Company. Mrs. Cordero is married to Alfonso Cordero, Chairman
of the Company.
Peter L. Manno joined the Company in April 1996 as Executive Vice
President. Prior to joining the Company, Mr. Manno served as Corporate Vice
President, Sales and Marketing of M/A-Com Corporation, a wireless network
amplifier company, from February 1992 to April 1996. From August 1984 to
December 1991, Mr. Manno was Vice President of Sales and marketing for Avantek,
Inc., a wireless network amplifier company.
47
<PAGE>
Kevin T. Michaels joined the Company in June 1996 as Vice President,
Finance and Chief Financial Officer and was appointed Secretary in June 1996.
Prior to joining the Company, Mr. Michaels worked for AST Research, Inc. for
eight years, most recently as Vice President, Treasurer from October 1995. From
July 1991 to October 1995 Mr. Michaels was Treasurer of AST Research, Inc. and
from June 1986 to June 1991, he was Assistant Treasurer.
Ki Y. Nam has served as Vice President, New Business Development of the
Company since November 1995 Mr. Nam has held various positions with the Company,
including Senior Engineer and Vice President, Engineering, since joining the
Company in April 1989.
Richard D. Posner joined the Company in July 1996 as Vice President,
Engineering. Prior to joining the Company, Dr. Posner served as Vice President,
Engineering at Whittaker Electronic Systems, Inc., a telecommunications and
electronic equipment company, from February 1990 to June 1996. Prior to joining
Whittaker, Dr. Posner co-founded 3DBM Systems, Inc., where he served as Vice
President of Engineering.
Eric A. Tanner has served as Vice President, Operations since June 1995.
Prior to joining the Company, Mr. Tanner was employed, from January 1986 to May
1995, in various managerial roles at Spectrian Corporation, a wireless network
amplifier company, in Mountain View, California. Mr. Tanner served as Director
of Manufacturing at Spectrian Corporation from January 1992 to May 1995. Prior
to his employment at Spectrian, Mr. Tanner was employed at Motorola Inc.'s RF
Power Device Group.
Mark D. Winters has served as Vice President, Quality of the Company
since June 1996. From May 1995 to June 1996, Mr. Winters served as Vice
President, Engineering of the Company. From July 1992 to May 1995, Mr. Winters
was with E-Systems, Inc., and served as Division Manager, Electronics
Manufacturing. From December 1989 to July 1992, he was with DSC Communications,
Inc., a telecommunications equipment company, serving as Manager, Manufacturing
Engineering.
Gregory M. Avis has been a member of the Company's Board of Directors
since October, 1995. Mr. Avis has been a managing partner of Summit Partners, a
venture capital investment firm, since January 1990. Mr. Avis also serves on the
Board of Directors of CMG Information Services, Inc. and Digital Link Corp.
David L. George has been a member of the Company's Board of Directors
since November 1995. Mr. George has served as Executive Vice President of Unique
Technologies International, L.L.C., an SMR network company, since February 1994.
From November 1983 to February 1994, Mr. George served as Vice President,
Director of Operations, Commercial Division of Uniden America.
Eugene L. Goda has been a member of the Company's Board of Directors
since November 1995. For the past year, Mr. Goda has been a consultant and
private investor. From October 1991 to October 1995, Mr. Goda served as CEO of
Simulation Sciences, Inc., a software company. From July 1989 to September 1991,
he served as CEO of Meridian Software Systems.
Rich Shapero has been a member of the Company's Board of Directors since
October 1995. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, a venture capital investment firm, since April 1993. From January 1991
to June 1992, he served as Chief Operating Officer of Shiva Corporation, a
computer network company.
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<PAGE>
Sam Yau has been a member of the Company's Board of Directors since
November 1995. Mr. Yau has served as Chief Executive Officer of National
Education Corporation, an education training and supply company, since May 1995.
From May 1993 to November 1994, he served as Chief Operating Officer of
Advacare, Inc. and from May 1987 to May 1993 as Senior Vice President, Finance
and Administration of Archive Corporation (now part of Seagate Technologies,
Inc.). Mr. Yau currently serves on the Board of Directors of National Education
Corporation.
Election of Directors and Officers
Each member of the Company's Board of Directors was elected pursuant to a
Stockholders' Agreement dated October 10, 1995 (the "Stockholders' Agreement"),
by and among the Company and all shareholders of the Company on such date. The
Stockholders' Agreement contains a voting agreement for the election of
directors which expires on the closing of the Offering.
Board Committees and Compensation
The Audit Committee of the Board of Directors consists of Messrs. Avis,
George and Yau. The Audit Committee recommends to the Board of Directors the
independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee also reviews the planned scope of the annual
audit and the independent accountants' letter of comments and management's
response thereto, any major accounting changes made or contemplated and the
effectiveness and efficiency of the Company's internal accounting staff.
The Compensation Committee consists of Messrs. Cordero, Goda and Shapero.
The Compensation Committee establishes renumeration levels for executive
officers of the Company, reviews management organization and development and
reviews executive compensation and significant employee benefit programs.
The Company's directors receive $750 per meeting of Board of Directors.
Following consummation of the Offering, the Company's directors will receive
$1,500 per meeting of the Board of Directors. In addition, in connection with
their joining the Company's Board of Directors, Messrs. George, Goda and Yau
each were granted options to purchase 30,000 shares of Common Stock at an
exercise price of $2.47 per share under the 1995 Stock Option Plan.
1996 Director Stock Option Plan
On October 7, 1996, the Company adopted the 1996 Stock Option Plan for
Directors (the "Director Plan") to be effective upon the completion of the
Offering. The Director Plan provides for the grant by the Company of options to
purchase up to an aggregate of 200,000 shares of Common Stock of the Company.
The Director Plan provides that each member of the Company's Board of Directors
who is not an employee or paid consultant of the Company automatically will be
eligible to receive options to purchase stock under the Director Plan. Pursuant
to the terms of the Director Plan, each director elected after the closing of
the Offering will be granted an initial option under the plan covering 30,000
shares of Common Stock, which option shall vest as to 25% of the shares over
four (4) years on the anniversary of the date of grant. Furthermore, on the
closing of the Offering, and on each anniversary date thereof, each director who
shall have been an eligible participant under the Director Plan for at least six
(6) months shall be granted an annual option under the Director lan to purchase
5,000 shares of Common Stock, which option shall vest on the fourth anniversary
of the date of grant. The primary purposes of the Director Plan are to enhance
the Company's ability to attract and retain well-
49
<PAGE>
qualified persons for service as directors and to provide incentives to such
directors to continue their associations with the Company. There are no options
outstanding under the Director Plan.
In the event of a merger of the Company with or into another corporation,
or a consolidation, acquisition of stock or assets or other change in control
transaction involving the Company, each option becomes exercisable in full,
unless such option is assumed by the successor corporation. In the event the
transaction is not approved by a majority of the "Continuing Directors" (as
defined in the Director Plan), each option becomes fully vested and exercisable
in full immediately prior to the consummation of such transaction, whether or
not assumed by the successor corporation.
Executive Compensation
Summary Compensation. The following table sets forth summary information
concerning compensation paid by, or accrued for services rendered to, the
Company in all capacities during the fiscal year ended December 31, 1995 to the
Company's Chairman, and the Company's other executive officer whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Name and All Other
Principal Position (1) Salary Bonus Compensation
- --------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Alfonso G. Cordero........ $ 85,000 $ 268,000 None
Chairman
Ki Y. Nam................. 85,000 125,000 None
Vice President, New
Business Development
</TABLE>
- ----------------
(1) Bruce C. Edwards joined the Company as President and Chief Executive Officer
on February 19, 1996 at an annual base salary of $135,000. Peter Manno joined
the Company as Executive Vice President on April 4, 1996 at a base salary of
$125,000 and an annual commission of $75,000. Although not Named Executive
Officers for the fiscal year ending December 31, 1995, the Company anticipates
that Mr. Edwards and Mr. Manno will each so qualify in future years.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1995, the Company's Board of
Directors, prior to the formation of the Compensation Committee, established the
levels of compensation for the Company's executive officers. The following
executive officers, one of which is also a director of the Company, participated
in the deliberations of the Board regarding executive compensation that occurred
during the fiscal year ended December 31, 1995: Alfonso G. Cordero, Chairman and
Ki Y. Nam, Vice President, New Business Development.
In October 1995, the Company entered into a Stock Purchase Agreement with
investors affiliated with Summit Partners and Crosspoint Venture Partners,
pursuant to which the Company issued to such investors 3,375,900 shares of
Series A Preferred Stock for an aggregate purchase price of $15 million. Gregory
M. Avis and Rich Shapero, both members of the Board of Directors of the Company,
are affiliated with Summit Partners and Crosspoint Venture Partners,
respectively. As part of these transactions, the Company subsequently purchased
5,063,850 shares of its Common Stock from certain
50
<PAGE>
shareholders, including Alfonso G. Cordero and Ki Nam, for an aggregate purchase
price of $12.5 million. Alfonso G. Cordero, Ki Y. Nam and the holders of Common
Stock issued upon conversion of Series A Preferred Stock, are entitled to
certain registration rights. See "Description of Capital Stock--Registration
Rights."
Pursuant to the Stockholders' Agreement, the Company and its then
existing shareholders (the "Founders") agreed that the Company would redeem from
the Founders, on a pro rata basis, one share of Common Stock for each share of
Common Stock in excess of 1,170,000 issued by the Company upon the exercise of a
Company stock option granted under the 1995 Plan at the exercise price for such
option. Effective immediately prior to the consummation of the Offering,
Stockholders and the Company agreed that this share redemption agreement applies
only to the exercise of options to purchase a total of 768,615 shares of the
Company's Common Stock. In connection with entering into the Stockholders'
Agreement, the Company amended the 1995 Stock Option Plan to provide that all
option grants in excess of 1,170,000 are subject to the approval of Alfonso G.
Cordero and to give Mr. Cordero the right to terminate the Plan. See "--1995
Stock Option Plan."
In August 1995, the Company entered into a Technology License Agreement
with Unique Wireless Developments, L.L.C., a Delaware limited liability company.
Under the agreement, the Company obtained exclusive rights to use certain
amplifier technology for the SMR market in exchange for certain royalties,
including a non-refundable (with certain exceptions) up front royalty totaling
$300,000 of which $250,000 has been paid. David L. George, a member of the Board
of Directors of the Company, is Executive Vice President of Unique Technologies
International, L.L.C., an affiliate of Unique Wireless Developments, L.L.C.
From November 1993 to June 1996, the Company leased its operating
facility from 17500 Gillette Avenue Associates, a California general partnership
(the "Partnership") owned by the holders of 98.5% of the Company's Common Stock
prior to the Offering (and the conversion of Series A Preferred Stock),
including Alfonso G. Cordero, an officer and director of the Company, and Ki Y.
Nam, an officer of the Company. The Company also guaranteed a loan to the
Partnership, the proceeds of which were used to purchase the real property and
facility. In July 1996, the Company relocated its operating facility and entered
into a lease with CNH, LLC, a California limited liability company (the "LLC")
owned by the holders of 82% of the Company's Common Stock prior to the Offering
(and the conversion of Series A Preferred Stock), including Messrs. Cordero and
Nam. The lease expires on July 15, 2006. In connection with entering into this
lease, the Company paid the LLC $1,000,000 in exchange for various improvements
made to the new facility. In addition, the Company has incurred approximately
$1,000,000 in leasehold improvements to the new facility.
The Company has entered into indemnification agreements with its
directors, certain officers and certain affiliated entities. Such agreements
require the Company to indemnify such individuals to the fullest extent
permitted by Delaware law. See "Limitations on Liability and Indemnification."
On December 4, 1995, the Company granted to each of David George, Eugene
Goda and Sam Yau options to purchase 30,000 shares of Common Stock at $2.47 per
share. On January 19, 1996, the Company granted to Bruce Edwards options to
purchase 450,000 shares of Common Stock at $2.67 per share. On March 4, 1996,
the Company granted to Peter Manno options to purchase 300,000 shares of Common
Stock at $2.67 per share. On June 10, 1996, the Company granted to Kevin
Michaels options to purchase 90,000 shares of Common Stock at $4.67 per share.
Upon completion of the Offering, the Company will grant to Peter Manno options
to purchase 25,000 shares of Common Stock at the initial offering price per
share.
51
<PAGE>
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could otherwise be obtained
from unaffiliated third parties.
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Company's shareholders and Board of Directors effective as of December 4,
1995 and provides for the granting of nonqualified stock options to purchase up
to 1,938,615 shares of the Company's Common Stock. Under the 1995 Option Plan,
shares of the Company's Common Stock may be granted to directors, officers and
employees of the Company. As of September 29, 1996, 112,500 options have been
exercised under the plan and there were 1,823,179 options outstanding under the
1995 Option Plan at a weighted average exercise price of $3.31.
The 1995 Option Plan provides that the 1995 Option Plan itself and all
outstanding options shall terminate upon the occurrence of a consolidation or
merger in which the Company is not the surviving corporation, the sale of
substantially of all the Company's assets and certain other similar events, in
each case unless the 1995 Plan is assumed by the successor corporation.
Pursuant to the Stockholders' Agreement, certain shareholders of the
Company have agreed to have an equivalent number of their shares redeemed by the
Company if options to purchase in excess of 1,170,000 and up to an aggregate of
1,938,615 shares of the Company's Common Stock are exercised by any of the
option holders who acquire options under the Company's 1995 Stock Option Plan.
The Stockholders' Agreement provides that the redemption price shall equal the
exercise price for each applicable option. See "Compensation Committee
Interlocks and Insider Participation."
The 1995 Stock Option Plan provides that all option grants under the Plan
in excess of 1,050,000 are subject to the approval of Alfonso G. Cordero. In
addition, the Plan may be terminated at the discretion of Mr. Cordero.
1996 Stock Incentive Plan
On October 7, 1996, the Company adopted the 1996 Stock Incentive Plan
(the "1996 Plan"), to be effective upon the completion of the Offering. The 1996
Plan covers an aggregate of 1,500,000 shares of Common Stock plus any shares
which are or become available for grant under the 1995 Plan. The 1996 Plan
provides for the granting of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock options
may not be granted to non-employee directors or consultants. The purpose of the
1996 Plan is to provide participants with incentives which will encourage them
to acquire a proprietary interest in, and continue to provide services to, the
Company. The 1996 Plan is administered by the Board of Directors, which has sole
discretion and authority, consistent with the provisions of the 1996 Plan, to
determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the 1996 Plan. There are no
options outstanding under the 1996 Plan.
In the event of a merger of the Company with or into another corporation,
or a consolidation, acquisition of stock or assets or other change in control
transaction involving the Company, each option becomes exercisable in full,
unless such option is assumed by the successor corporation. In the event the
transaction is not approved by a majority of the "Continuing Directors" (as
defined in the 1996 Plan),
52
<PAGE>
each option becomes fully vested and exercisable in full immediately prior to
the consummation of such transaction, whether or not assumed by the successor
corporation.
Employee Stock Purchase Plan
On October 7, 1996, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan"), to be effective upon the completion of the Offering,
covering an aggregate of 500,000 shares of Common Stock. The Purchase Plan,
which is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code, will be implemented by six-month offerings
with purchases occurring at six month intervals commencing on the date of this
Prospectus. The Purchase Plan will be administered by the Board of Directors.
Employees will be eligible to participate if they are employed by the Company
for at least 30 hours per week and if they have been employed by the Company for
at least 180 days. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of an
employee's compensation. The price of stock purchased under the Purchase Plan
will be 85% of the lower of the fair market value of the Common Stock at the
beginning of each six-month offering period or on the applicable purchase date.
Employees may end their participation in any offering period at any time during
such period, and participation ends automatically on termination of employment.
The Board may at any time amend or terminate the Purchase Plan, except that no
such amendment or termination may adversely affect options previously granted
under the Purchase Plan. There are no rights to purchase outstanding under the
Purchase Plan.
401(k) Plan
The Company has adopted a Future Income Program Plan and Trust (the
"401(k) Plan") covering the Company's full-time employees located in the United
States. The 401(k) Plan is intended to qualify under Section 401(k) of the Code,
so that contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by up to 15% of their base salary,
subject to Internal Revenue Service limitations, and to have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not
require, additional matching contributions to the 401(k) Plan by the Company on
behalf of all participants in the 401(k) Plan. The Company may match up to 10%
of employee contributions. For fiscal 1995, the Company contributed $12,324 to
the plan.
Limitations on Directors' Liability and Indemnification
The Company's Amended and Restated Certificate of Incorporation limits
the liability of directors to the maximum extent permitted by Delaware law and
the Company's Amended and Restated Bylaws provide that the Company must
indemnify its directors and officers and may indemnify its other employees and
agents to the fullest extent permitted by law. The Company has entered into
agreements to indemnify its directors and executive officers. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and executive officers. At present, there is no
pending litigation or proceeding involving any director, officer, employee or
agent of the Company where indemnification will be required or permitted. The
Company is not aware of any threatened litigation or proceeding that might
result in a claim for such indemnification.
53
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as September 29, 1996, as
adjusted to give effect to the sale by the Company and the Selling Shareholder
of the shares of Common Stock offered hereby by (i) each person (or group of
affiliated persons) who is known by the Company to own beneficially 5% or more
of the Company's Common Stock, (ii) the Selling Shareholder, (iii) each of the
Company's directors, (iv) each of the Named Executive Officers, and (v) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the persons named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficiary Shares Beneficially
Owned Prior to Owned After
Offering (1) Number of Offering (1)(2)
Directors, Named Executive Officers --------------------- Shares Being -----------------------
and 5% and Selling Shareholders Owned Percent Offered Number Percent
- -------------------------------------- ------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Alfonso G. Cordero (3).................. 5,520,663 39.3% 5,520,663 34.8%
2026 McGaw Avenue
Irvine, California 92614
Summit Partners (4)..................... 4,304,272 30.6 300,000 4,004,272 25.2
499 Hamilton Avenue,
Suite 200
Palo Alto, California 94301
Gregory M. Avis (5)..................... 4,304,272 30.6 300,000 4,004,272 25.2
Ki Y. Nam (6)........................... 1,688,368 12.0 1,688,368 10.6
2026 McGaw Avenue
Irvine, California 92614
Crosspoint Ventures (7)................. 759,577 5.4 759,577 4.8
One First Street
Palo Alto, California 94022
Rich Shapero (8)........................ 759,577 5.4 759,577 4.8
Bruce C. Edwards........................ 112,500 * 112,500 *
Charles Florman (9)..................... 755,322 5.4 755,322 4.8
David L. George (10).................... 7,500 * 7,500 *
Eugene L. Goda (11)..................... 7,500 * 7,500 *
Sam Yau (12)............................ 7,500 * 7,500 *
All Executive Officers and
Directors as a Group
(8 persons)(13).................. 12,407,880 88.2 300,000 12,107,880 76.3
</TABLE>
___________________
*Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable, or exercisable within 60 days
of September 29, 1996, are deemed outstanding for computing the percentage
of the person holding such options or warrants but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote and subject to
54
<PAGE>
community property laws where applicable, to the knowledge of the Company
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Includes 11,250 shares, consisting of options exercisable within 60 days of
September 30, 1996, owned by Mr. Cordero's spouse, an officer of the
Company. Mr. Cordero disclaims beneficial ownership of such shares. Also
includes 550,942 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 pursuant to the
exercise of stock options under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan."
(4) Includes 2,076,855 shares held by Summit Ventures IV, L.P., 2,076,855
shares held by Summit Ventures III, L.P., and 150,562 shares held by Summit
Investors II, L.P. Voting power with respect to shares held by Summit
Ventures IV, L.P., Summit Ventures III, L.P. and Summit Investors II, L.P.
is held solely by Gregory M. Avis.
(5) Consists of shares held by Summit entities, of which Mr. Avis is a
designated representative and general partner. Mr. Avis disclaims
beneficial ownership of all shares held by Summit entities except to the
extent of his pecuniary interest therein.
(6) Includes 168,837 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 shares of Common
Stock pursuant to the exercise of stock options under the 1995 Stock Option
Plan. See "Management--1995 Stock Option Plan."
(7) Includes 736,606 shares held by Crosspoint Ventures Partners 1993 and
22,971 shares held by Crosspoint Ventures Partners Entrepreneurs 1993.
Voting power with respect to shares held by Crosspoint Venture Partners
1993 and Crosspoint Ventures Partners Entrepreneurs 1993 is held solely
by Rich Shapero.
(8) Consists of shares held by Crosspoint entities, of which Mr. Shapero is a
designated representative. Mr. Shapero disclaims beneficial ownership of
all shares held by Crosspoint entities except to the extent of his
pecuniary interest therein.
(9) Includes 75,532 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 pursuant to the
exercise of stock options under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan."
(10) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(11) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(12) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(13) Includes 11,250 shares owned by Mr. Cordero's spouse (see note 3), 719,779
shares subject to redemption by the Company (see notes 3, 6 and 9) and
options exercisable for 22,500 shares within 60 days of September 29, 1996
(see notes 10, 11 and 12).
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering the authorized capital stock of the
Company will consist of 40,000,000 shares of common stock, $.0001 par value
("Common Stock"), and 5,000,000 shares of preferred stock, $.0001 par value
("Preferred Stock").
Common Stock
As of September 29, 1996, there were 8,998,650 shares of Common Stock
outstanding held of record by eight shareholders. There will be 15,862,500
shares of Common Stock outstanding after the sale of the shares of Common Stock
offered by the Company hereby, 300,000 shares of which will be sold in the
Offering by the Selling Shareholder. See "Principal and Selling Shareholders."
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its shareholders. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and nonassessable, and shares of Common
Stock to be issued pursuant to the Offering shall be fully paid and
nonassessable.
Preferred Stock
Effective upon the closing of the Offering, each issued and outstanding
share of Series A Preferred Stock will be converted into one and one-half (1.5)
shares of Common Stock. After the Series A Preferred Stock is converted and
retired, no shares of Preferred Stock will be outstanding.
Upon the closing of the Offering, the Board of Directors will have the
authority, without further action by the shareholders, to issue the authorized
shares of Preferred Stock in one or more series and to fix the rights,
preferences and privileges thereof, including voting rights, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders. Although it presently has no intention to do so,
the Board of Directors, without shareholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company. See
"Risk Factors--Effect of Certain Charter and Bylaw Provisions."
Registration Rights
Under the terms of that certain Registration Rights Agreement, dated as
of October 10, 1995, among the Company and certain holders of its securities,
after the Offering and upon the expiration of the 180-day lock-up agreement with
the Underwriters, the holders of approximately 13,650,000 shares of Common Stock
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act. Under the agreement, certain holders of
specified threshold amounts of "Registrable Securities" may demand that the
Company register their securities for resale under the Securities Act, in which
case all holders of their Registrable Securities may join in such demand
registration. In addition,
56
<PAGE>
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or the action of other shareholders (other than
the holders of Registrable Securities), the holders of Registrable Securities
are entitled to notice of such registration and are entitled to include their
Registrable Securities therein. In either case, among other conditions and
limitations, the underwriters have the right to limit the number of Registrable
Securities included in any such registration. Certain holders of Registrable
Securities also may require the Company to register, at the expense of the
Company, all or a portion of their Registrable Securities on Form S-3 when such
form becomes available to the Company, subject to certain conditions and
limitations.
Delaware Law and Certain Charter Provisions
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested" shareholder for a period of three years after the date of the
transaction in which the person became an interested shareholder, unless either
(i) prior to the date at which the person becomes an interested shareholder, the
board of directors approves such transaction or business combination, (ii) the
shareholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested shareholder) at a meeting of shareholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to such interested shareholder. For
purposes of Section 203, an "interested" shareholder is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
Upon the closing of the Offering, the Company's Amended and Restated
Certificate of Incorporation will include a provision that allows the Board of
Directors to issue Preferred Stock in one or more series with such voting rights
and other provisions as the board of Directors may determine. The Amended and
Restated Certificate of Incorporation also will eliminate the ability of
shareholders to call special meetings and require advance notice to nominate a
director or take certain other actions. These provisions may be deemed to have a
potential anti-takeover effect and may delay or prevent a change of control of
the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and adversely affect the
Company's ability to raise additional capital in the capital markets at a time
and price favorable to the Company. As described below, no shares currently
outstanding will be available for sale immediately after the Offering due to
certain legal restrictions on resale.
Upon completion of the Offering, the Company will have 15,862,500 shares
of Common Stock outstanding. Of these shares, the 2,100,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless they
are purchased by "affiliates" of the Company as that term is used under the
Securities Act. The remaining 13,762,500 shares held by existing shareholders
will be "restricted securities" as defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below. Sales of Restricted Shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the Common
Stock.
All officers, directors, existing shareholders and certain option
holders have agreed with the Underwriters that they will not sell any of the
13,762,500 shares of Common Stock owned by them for a period of 180 days after
the effective date of the Offering without the prior written consent of Alex.
Brown & Sons Incorporated (the "180-day lock-up"). Furthermore, all option
holders are precluded from selling any shares issuable to them through the
exercise of options for a 180-day lock period, under the terms of such options.
As a result of the 180-day lock-up, no shares of Common Stock will become
available for sale in the public market under either Rule 144 or 144(k). Upon
the expiration of the 180-day lock-up (or earlier upon the consent of Alex.
Brown & Sons, Incorporated), 1,688,366 Restricted Shares (plus shares issuable
upon exercise of then vested outstanding options) will be eligible for immediate
sale in the public market in reliance on Rule 144(k) and 7,310,281 Restricted
Shares will become eligible for sale subject to the volume and other
restrictions of Rule 144 and, in some cases, Rule 701.
In general, under Rule 144 as currently in effect, beginning 90 days
after the effective date of the Offering, any person (or persons whose shares
are aggregated) who has beneficially owned Restricted Shares for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock (approximately 158,625 shares immediately after the
Offering) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company. A person who is not an affiliate, has not been an
affiliate within three months prior to the sale and has beneficially owned the
Restricted Shares for a least three years is entitled to sell such shares under
Rule 144(k) as currently in effect without regard to any of the limitations
described above.
In general, under Rule 701 as currently in effect, beginning 90 days
after the effective date of the Offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market, subject to expiration of the 180-day
lock-up period under the terms of such options. Any employee, officer or
director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701
58
<PAGE>
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
The Company intends to file a registration statement on Form S-8 under
the Act to register shares of Common Stock reserved for issuance under its stock
option plans, thus permitting the resale of shares issued under the plan by non-
affiliates in the public market without restriction under the Securities Act.
Such registration statement will become effective immediately upon filing which
is expected on or shortly after the closing of the Offering. It is anticipated
that approximately 476,761 shares of Common Stock issuable upon exercise of
currently outstanding options will become eligible for sale in the public market
upon the expiration of the lock-up under the terms of such options, which
expiration shall occur 180 days after the closing of the Offering.
The Securities and Exchange Commission has recently proposed reducing
the Rule 144 holding period to one year and the Rule 144(k) holding period to
two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modification will have a material effect on
the time when shares of the Company's Common Stock become eligible for resale.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC and Wessels, Arnold &
Henderson, L.L.C. have severally agreed to purchase from the Company and the
Selling Shareholder the following respective numbers of shares of Common Stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------- ------------
<S> <C>
Alex. Brown & Sons Incorporated ........
UBS Securities LLC. ....................
Wessels, Arnold & Henderson, L.L.C. ....
------------
Total................................... 2,100,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the shares of Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Shareholder have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 315,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 2,100,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,100,000 shares are being offered.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Selling Shareholder, all of the officers and directors and all other
shareholders of the Company have agreed not to offer, sell, contract to sell, or
otherwise dispose of any Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of the Representatives of the
Underwriters. See "Shares Eligible for Future Sale."
60
<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiation between the Company, the Selling
Shareholder and the Representatives of the Underwriters. The factors to be
considered in such negotiations include prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholder by Stradling, Yocca, Carlson &
Rauth, a Professional Corporation, Newport Beach, California. Certain legal
matters will be passed upon for the Underwriters by Morrison & Foerster LLP,
Irvine, California.
EXPERTS
The consolidated financial statements and schedule of the Company as
of December 31, 1994 and 1995, and September 29, 1996 and for each of the three
years in the period ended December 31, 1995 and the nine months ended September
29, 1996, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part of the Registration Statement may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and its public reference facilities in New York, New York
and Chicago, Illinois, upon the
61
<PAGE>
payment of the fees prescribed by the Commission. The Registration Statement is
also available through the Commission's Website on the World Wide Web at the
following address: http://www.sec.gov.
62
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
--------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ........................................ F-2
Consolidated Balance Sheets as of December 31, 1994, 1995 and
September 29, 1996 ............................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1994 and 1995 and the Nine Months Ended
September 30, 1995 (Unaudited) and September 29, 1996 ............ F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the Nine Months Ended
September 29, 1996 ............................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and the Nine Months Ended
September 30, 1995 (Unaudited) and September 29, 1996 ............ F-6
Notes to Consolidated Financial Statements .......................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Powerwave Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Powerwave
Technologies, Inc. (formerly Milcom International, Inc.) (the "Company") as of
December 31, 1994, 1995 and September 29, 1996, and the related consolidated
statements of income, shareholders' equity and of cash flows for each of the
three years in the period ended December 31, 1995, and the nine months ended
September 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1994, 1995 and September 29, 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995,
and the nine months ended September 29, 1996, in conformity with generally
accepted accounting principles.
Costa Mesa, California
October 24, 1996
F-2
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 29, 1996
----------------------------- -----------------------------
1994 1995
-------------- -------------- -------------- --------------
Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 3,030,211 $ 5,860,785 $ 10,389,407
Short-term investments............................. 494,795
Accounts receivable, net of allowance
for doubtful accounts of $10,000,
$122,532 and $402,368 at
December 31, 1994, 1995 and
September 29, 1996, respectively.................. 1,428,224 3,103,990 5,168,070
Inventories........................................ 3,276,026 4,724,261 4,495,220
Income tax refund receivable....................... 609,550 --
Prepaid expenses and other current assets.......... 18,732 15,163 129,989
Deferred tax assets................................ 421,555 1,031,482 1,031,482
----------- ------------ ------------
Total current assets.............................. 8,669,543 15,345,231 21,214,168
Property and equipment.............................. 1,262,168 1,800,078 4,672,439
Accumulated depreciation and amortization........... (380,355) (734,285) (980,596)
----------- ------------ ------------
Net property and equipment......................... 881,813 1,065,793 3,691,843
Other assets........................................ 52,299 153,517
----------- ------------ ------------
TOTAL ASSETS........................................ $ 9,551,356 $ 16,463,323 $ 25,059,529
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................... $ 756,671 $ 3,508,098 $ 3,911,018 $ 3,911,018
Accrued expenses and other liabilities............. 1,937,821 2,080,446 4,382,157 4,382,157
Dividends payable.................................. 1,350,000 --
Due to shareholders................................ 90,000 50,000 -- --
Current portion of long-term debt.................. 93,765 66,824 108,681 108,681
Income taxes payable............................... 2,304,855 265,363 265,363
----------- ------------ ------------ ------------
Total current liabilities......................... 5,183,112 5,705,368 10,017,219 8,667,219
Other non-current liabilities...................... 50,000
Long-term debt..................................... 176,044 137,526 41,395 41,395
----------- ------------ ------------ ------------
Total liabilities.................................. 5,409,156 5,842,894 10,058,614 8,708,614
Commitments and contingency (Note 11):
Series A Convertible Preferred Stock (Note 6),
$.0001 par value; 3,375,900 and 3,375,900
shares authorized, issued and outstanding
at December 31, 1995 and September 29, 1996,
(Note 6) no pro forma shares at
September 29, 1996................................. 14,498,193 14,498,193
Shareholders' Equity (Deficit) (Notes 2, 6 and 9):
Preferred Stock, $.0001 par value;
5,000,000 shares authorized and no
shares outstanding.................................
Common Stock, $.0001 par value; 20,000,000
shares authorized; 13,950,000, 8,886,150
and 8,998,650 shares issued and
outstanding at December 31, 1994 and
1995 and September 29, 1996, 40,000,000
shares authorized and 14,062,500 shares
issued pro forma at September 29, 1996............. 740,000 471,380 771,380 15,269,573
Retained earnings................................... 3,402,200 7,882,236 11,962,720 13,312,720
Less treasury stock at cost......................... (12,231,380) (12,231,380) (12,231,380)
----------- ------------ ------------ ------------
Total shareholders' equity (deficit)............. 4,142,200 (3,877,764) 502,720 $ 16,350,915
=========== ============ ============ ============
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................................. $ 9,551,356 $ 16,463,323 $ 25,059,529
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30, September 29,
-------------------------------------- ------------- -------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales....................... $8,717,021 $22,860,634 $36,044,438 $22,384,064 $ 43,594,547
Cost of sales................... 6,566,681 14,465,477 22,713,227 14,554,172 25,371,134
---------- ----------- ----------- ----------- -----------
Gross profit.................... 2,150,340 8,395,157 13,331,211 7,829,892 18,223,413
Operating expenses (Note 10):
Sales and marketing.......... 386,981 570,276 1,557,282 1,012,637 3,314,715
Research and development..... 581,126 1,432,544 2,252,254 1,401,390 4,034,140
General and administrative... 559,291 1,517,704 1,958,228 1,287,884 2,003,390
---------- ----------- ----------- ----------- -----------
Total operating expenses........ 1,527,398 3,520,524 5,767,764 3,701,911 9,352,245
---------- ----------- ----------- ----------- -----------
Operating income................ 622,942 4,874,633 7,563,447 4,127,981 8,871,168
Other income (expense).......... (5,298) (19,892) 32,237 (236) 333,041
---------- ----------- ----------- ----------- -----------
Income before income taxes...... 617,644 4,854,741 7,595,684 4,128,217 9,204,209
Provision for income taxes...... 266,419 1,908,406 3,115,648 1,693,339 3,773,725
---------- ----------- ----------- ----------- -----------
Net income...................... $ 351,225 $ 2,946,335 $ 4,480,036 $ 2,434,878 $ 5,430,484
========== =========== =========== =========== ===========
Pro forma net income per share.. $ .30 $ .36
=========== ===========
Pro forma weighted average
common shares................... 14,910,067 14,910,067
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Treasury Stock Shareholders'
---------------------- ------------------------ Retained Equity
Shares Amount Shares Amount Earnings (Deficit)
---------- --------- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993......... 13,950,000 $ 740,000 $ 104,640 $ 844,640
Net income......................... 351,225 351,225
----------- --------- ----------- ------------
Balance at December 31, 1993....... 13,950,000 740,000 455,865 1,195,865
Net income......................... 2,946,335 2,946,335
----------- --------- ----------- ------------
Balance at December 31, 1994....... 13,950,000 740,000 3,402,200 4,142,200
Repurchase of common stock
(Note 6):....... (5,063,850) (268,620) 5,063,850 $(12,231,380) (12,500,000)
Net income......................... 4,480,036 4,480,036
----------- --------- --------- ------------ ----------- ------------
Balance at December 31, 1995.. 8,886,150 471,380 5,063,850 (12,231,380) 7,882,236 (3,877,764)
Issuance of Common Stock
related to the exercise
of stock options (Note 9)......... 112,500 300,000 300,000
Preferred Stock dividends
(Notes 2 and 6).................. (1,350,000) (1,350,000)
Net Income........................ 5,430,484 5,430,484
----------- --------- --------- ------------ ----------- ------------
Balance at September 29, 1996...... 8,998,650 $ 771,380 5,063,850 $(12,231,380) $11,962,720 $ 502,720
=========== ========= ========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30, September 29,
---------------------------------------------- ---------------- ---------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income........................... $ 351,225 $ 2,946,335 $ 4,480,036 $ 2,434,878 $ 5,430,484
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 108,758 166,597 353,929 76,792 246,311
Deferred income taxes................ 7,072 (399,127) (609,927)
Changes in assets and liabilities:
Accounts receivable.............. (1,974,571) 1,127,618 (1,675,766) (4,029,587) (2,064,080)
Inventories....................... (563,609) (2,350,424) (1,448,235) (2,074,537) 229,042
Income tax refund receivable...... (609,550) 609,550
Prepaid expenses and other
current assets.................... (4,786) (5,694) (48,730) (55,254) (114,826)
Accounts payable.................. 1,847,761 (1,277,867) 2,066,914 2,711,375 402,920
Accrued expenses and
other liabilities............... 106,237 1,379,052 737,138 57,457 2,301,711
Other assets...................... (101,218)
Income taxes payable.............. 232,471 2,072,384 (2,304,855) (1,806,662) 265,363
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
operating activities.............. 110,558 3,658,874 940,954 (2,685,538) 7,205,257
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment. (415,818) (207,502) (537,909) (129,657) (2,872,361)
Sale (purchase) of short-term
investments...................... (494,795) 494,795 448,111
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
investing activities............... (415,818) (702,297) (43,114) 318,454 (2,872,361)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term debt........................ (4,272) (10,996) (65,459) (48,467) (54,274)
(Principal payments) borrowings
on debt.......................... 271,522 (273,884)
Increase (decrease) in amounts due
to shareholders.................. (50,000)
Issuance of Preferred Stock......... 14,498,193
Issuance of Common Stock............ 300,000
Preferred Stock dividend payable.... 1,350,000
Repurchase of Common Stock.......... (12,500,000)
Preferred Stock dividends........... (1,350,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities............ 267,250 (284,880) 1,932,734 (48,467) 195,726
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................. (38,010) 2,671,697 2,830,574 (2,415,551) 4,528,622
CASH AND CASH EQUIVALENTS,
beginning........................... 396,524 358,514 3,030,211 3,030,211 5,860,785
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end........ $ 358,514 $ 3,030,211 $ 5,860,785 $ 614,660 $10,389,407
----------- ----------- ------------ ----------- -----------
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for:
Interest........................... $ 58,942 $ 56,783 $ 55,620 $ 13,751
Income taxes......................... $ 20,314 $ 235,149 $ 6,665,000 $ 3,525,000 $ 2,730,000
=========== =========== ============ =========== ===========
NONCASH ITEMS:
Acquisition of property
through capital lease.............. $ 77,318 $ 248,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Powerwave Technologies, Inc. (formerly Milcom International, Inc.)
(the "Company") is a Delaware corporation engaged in the design,
manufacture and sale of RF power amplifiers and related electronic
equipment for use in the wireless communications market. The Company
manufactures both single channel and multi-channel amplifiers, with a focus
on multi-channel products. The Company's products are currently being
utilized on cellular base stations in both digital and analog-based
networks. The Company's products support a wide range of digital and
analog transmission protocols. The Company also produces power amplifiers
for the SMR market, which is characterized as a two-way radio market with
devices commonly utilized by police and emergency personnel and the
business dispatch marketplace. The Company also manufactures air-to-ground
amplifiers.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its foreign sales corporation. All intercompany balances and
transactions have been eliminated in consolidation.
Unaudited Information
The information set forth in these consolidated financial statements
for the nine months ended September 30, 1995 is unaudited. This
information reflects all adjustments, consisting only of normal recurring
adjustments, that, in the opinion of management, are necessary to present
fairly the financial position and results of operations of the Company for
these periods, results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal
year.
Fiscal Year
The Company operated on a calendar fiscal year basis through fiscal
1995. Commencing with fiscal year 1996, the Company has adopted a
conventional 52/53 week accounting fiscal year. The Company's fiscal year
ends on the Sunday closest to December 31st. Fiscal Year 1996 will end on
December 29, 1996.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, time deposits,
commercial paper, money market preferred stocks, money market funds and
other money market instruments. The Company invests its excess cash in
only investment grade money market instruments from a variety of industries
and, therefore, bears minimal risk. These securities all have original
maturity dates of three months or less. Such investments are stated at
cost, which approximates fair value, and are considered cash equivalents
for purposes of reporting cash flows.
Short-Term Investments
Short-term investments are valued at the lower of cost or market and
consist of certificates of deposit and marketable securities. The Company
adopted Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as of
January 1, 1994. This statement specifies the accounting treatment of the
Company's investments in equity securities based
F-7
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on the investment classifications defined in the statement. The Company
has classified the equity securities as available for sale and, in
accordance with SFAS No. 115, they have been recorded at market value as of
December 31, 1994. The market value approximated the carrying amount at
December 31, 1994. The Company did not have short-term investments at
December 31, 1995 or September 29, 1996.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Inventories
Inventories are stated at the lower of cost, determined on a first-in
first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates
these assets using the straight-line method over the estimated useful lives
of the various classes of assets, as follows:
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
Leasehold improvements 7 to 10 years
Property under capital leases 3 to 5 years
Other Assets
Included in other assets is $11,061 of deferred offering costs
incurred since July 1996 in connection with the proposed public offering.
Such costs will be offset against the proceeds from such offering if
successful. If the offering is unsuccessful, such costs will be expensed.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires management to disclose the estimated fair value of certain assets
and liabilities defined by SFAS No. 107 as financial instruments.
Financial instruments are generally defined by SFAS No. 107 as cash or a
contractual obligation that both conveys to one entity a right to receive
cash or other financial instruments from another entity and imposes on the
other entity the obligation to deliver cash or other financial instruments
to the first entity. At December 31, 1995 and September 29, 1996,
management believes that the carrying amounts of cash, receivables and
trade payables approximate fair value because of the short maturity of
these financial instruments.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-based Compensation, which requires adoption
of the disclosure provisions no later than years beginning after December
15, 1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995. The new
standard defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method,
F-8
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation cost is measured at the grant date based on the fair value of
the award and is recognized over the service period which is usually the
vesting period.
Pursuant to the new accounting standard, companies are encouraged, but
are not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, but would be required to
disclose in a note to the financial statements pro forma net income and, if
presented, earnings per share as if the company had applied the new method
of accounting. The Company has determined that it will not change to the
fair value method and will continue to use Accounting Principle Board
Opinion No. 25 for measurement and recognition of employee stock-based
transactions (Note 9).
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that the Company recognize
deferred tax liabilities and assets based on the differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences
are expected to reverse. Deferred income tax benefits result from the
recognition of temporary differences between financial statement and income
tax reporting of income and expenses.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment. The Company also offers its customers, on a limited basis, a
right of return on sales and records an estimate of such returns at the
time of product delivery based on historical experience.
Stock Split
In October 1995, the Company's shareholders approved a 9,300 for one
stock split of the Company's Common Stock. The Company also changed the
number of common shares authorized from 1,000 shares to 20,000,000 shares
and the par value per share from $1 per share to $.0001 per share. All
Common Stock information included in the accompanying consolidated
financial statements has been restated to reflect such stock split.
In October 1996, the Company's Board of Directors approved a 3-for-2
stock split of the Company's Common Stock effective at or prior to the
closing of the Company's initial public offering ("IPO") and increased the
number of shares authorized Common Stock to 40,000,000. All share and per
share information relating to Common Stock and conversion amounts relating
to Series A Convertible Preferred Stock ("Series A Preferred Stock") and
stock options included in the accompanying consolidated financial
statements and footnotes have been restated to reflect the stock split for
all periods presented.
Pro Forma Net Income Per Share
Pro forma net income per share is computed by dividing net income by
the weighted average number of common and common equivalent shares
outstanding. Weighted average common and common equivalent shares include
Common Stock, stock options using the treasury stock method and the assumed
conversion of all outstanding shares of Series A Preferred Stock into
shares of Common Stock.
F-9
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin Topic 4D, stock options granted during the twelve months prior to
the date of the initial filing of the Company's Form S-1 Registration
Statement have been included in the calculation of common equivalent shares
using the treasury stock method.
Pro Forma Information
The Company is preparing for an IPO of its Common Stock which, upon
completion, will result in the conversion of all outstanding shares of
Series A Preferred Stock into shares of Common Stock (Note 6). The
accompanying pro forma information, which is unaudited, gives effect to the
conversion of all outstanding shares of Series A Preferred Stock into
Common Stock upon the closing of the IPO and the reversal of accrued
dividends payable of $1,350,000 at September 29, 1996 (Note 6).
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting years. Actual
results could differ from those estimates.
Customer Concentrations and International Sales
The Company's product sales have historically been concentrated in a
small number of customers. During the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1995 and September 29,
1996, sales to three customers (four customers for nine months ended
September 29, 1996) totaled $4,675,900, $14,861,190, $20,741,883,
$10,780,340 and $35,477,332 or 54%, 65%, 58%, 48% and 81% of net sales,
respectively. The loss of, or reduction in, sales to any such customers
would have a material adverse effect on the Company's business, operating
results and financial condition.
During the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and September 29, 1996, international
sales, primarily to the Asian market, were $696,400, $1,980,214,
$24,202,747, $13,910,321 and $31,614,742, respectively.
Supplier Concentrations
Certain of the Company's products utilize components that are
available in the short-term only from a single or a limited number of
sources. In addition, in order to take advantage of volume pricing
discounts, the Company purchases certain customized components for its
power amplifiers from single sources. Any inability to obtain single
sourced components in the amounts needed on a timely basis or at
commercially reasonable prices could result in delays in product
introductions or interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company's
business, operating results and financial condition until alternative
sources could be developed.
F-10
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Inventories
Inventories consist of the following at December 31, 1994 and 1995 and
September 29, 1996:
<TABLE>
<CAPTION>
1994 1995 September 29, 1996
---------- ---------- ------------------
<S> <C> <C> <C>
Parts and components.. $1,898,484 $2,646,063 $3,209,726
Work-in-process....... 1,338,525 1,695,172 1,052,571
Finished goods........ 39,017 383,026 232,923
---------- ---------- ----------
Total................. $3,276,026 $4,724,261 $4,495,220
========== ========== ==========
</TABLE>
4. Property and Equipment
Property and equipment consist of the following at December 31, 1994 and
1995 and September 29, 1996:
<TABLE>
<CAPTION>
1994 1995 September 29, 1996
----------- ----------- -------------------
<S> <C> <C> <C>
Machinery and equipment..... $ 835,117 $1,062,094 $2,075,330
Office furniture and
equipment.................. 239,835 538,398 1,322,102
Leasehold improvements...... 187,216 199,586 1,242,122
Construction in progress.... 32,885
----------
1,262,168 1,800,078 4,672,439
---------- ---------- ----------
Less accumulated depreciation
and amortization (380,355) (734,285) (980,596)
---------- ---------- ----------
Net property and equipment.. $ 881,813 $1,065,793 $3,691,843
========== ========== ==========
</TABLE>
Included in property and equipment are assets under capital lease of
$351,801, $351,801 and $351,801 at December 31, 1994 and 1995 and September
29, 1996, respectively. Accumulated amortization of assets under capital
lease was $70,515, $140,875 and $193,642 at December 31, 1994 and 1995 and
the nine months ended September 29, 1996, respectively. The $32,885
construction in progress at September 29, 1996 relates to additional tenant
improvements at the Company's new headquarters facility.
5. Financing Arrangements
The Company had a revolving line of credit of $3,000,000 secured by
substantially all of the Company's assets. The line of credit was
collateralized by machinery and equipment, inventory and accounts
receivable. Borrowings under the line bear interest at the bank's
reference rate plus .25% (8.5% at December 31, 1995). The line of credit
agreement contained covenants regarding certain financial statement
amounts, ratios and activities of the Company. At December 31, 1995, one
of the covenants was not met. The Company received a waiver related to
this covenant. The line of credit expired in May 1996.
On May 30, 1996, the Company entered into a new $5 million unsecured
revolving credit agreement. This agreement allows the Company to borrow at
the bank's reference rate (8.25% at September 29, 1996). The Company is
required to pay a commitment fee equal to .125% per annum based on the
average daily unused portion of the facility. The fee is payable quarterly
in arrears. The line of credit will expire on May 31, 1997. The credit
agreement contains covenants regarding certain financial statement amounts,
F-11
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ratios and activities of the Company. At September 29, 1996, the Company
was in compliance with all covenants.
6. Shareholders' Equity
Preferred Stock
Series A Preferred Stock shares are convertible, at the holder's
option, into shares of Common Stock on a 1 to 1.5 share basis. The
conversion ratio may be adjusted from time to time in the event of certain
diluting events. Conversion is automatic in the event of an initial public
offering of the Company's Common Stock meeting certain specified criteria
("Qualifying IPO"). Unless a Qualifying IPO has occurred, the holders of
the Series A Preferred Stock and any Common Stock issued upon conversion of
the Series A Preferred Stock can require that the Company repurchase such
securities upon a sale of substantially all the Company's assets, certain
mergers and corporate reorganizations, or in October 2001 (with a twelve-
month payout, if needed). Such repurchase would occur at the higher of
fair market value or the initial purchase price. Dividends on Series A
Preferred Stock are cumulative beginning in January 1996 and may be
declared at the discretion of the Board of Directors; however, such
dividends will not become payable if the Company completes a Qualifying
IPO on or before December 31, 1996. The dividend rate is 12% per annum.
Series A Preferred Stock shareholders have voting rights equal to the
number of shares into which the Series A Preferred Stock is convertible
into Common Stock. In the event of liquidation, dissolution or merger of
the Company, each Series A Preferred Stock shareholder has a liquidation
preference equal to approximately $4.44 per share of Series A Preferred
Stock plus any declared but unpaid dividends or cumulative dividends
beginning in January 1996. As of September 29, 1996, $1,350,000 of
dividends payable had been accrued. Such dividends will not be paid if the
Company completes a Qualifying IPO on or before December 31, 1996.
Each share of Series A Preferred Stock shall automatically be
converted into shares of Common Stock on a 1 to 1.5 basis on December 16,
2001 at a conversion price of approximately $2.96 per share subject to
certain adjustments. Because there is no mandatory redemption of the
Series A Preferred Stock, no accretion of additional amounts to the
carrying values of such Series A Preferred Stock was recorded.
Capital Transactions
During October 1995, the Company sold 3,375,900 shares of Series A
Preferred Stock at $4.44 per share and raised net proceeds of $14,498,193.
The Company then used a portion of the proceeds to repurchase 5,063,850
shares of the Company's Common Stock at $2.47 per share from the
shareholders. These shares are being held as treasury stock by the Company
as of September 29, 1996.
F-12
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal...................... $201,909 $1,800,618 $2,900,929
State........................ 52,118 506,915 824,646
-------- ---------- ----------
Total current provision...... 254,027 2,307,533 3,725,575
Deferred - federal and state.. 12,392 (399,127) (609,927
-------- ---------- ----------
Provision for income taxes.... $266,419 $1,908,406 $3,115,648
======== ========== ==========
</TABLE>
The difference between income taxes provided in the financial statements
and as required by the federal statutory rate of 35% for the years ended
December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- -----------
<S> <C> <C> <C>
Taxes at federal statutory..... $216,175 $1,699,159 $2,658,489
State taxes, net of federal
benefit....................... 37,583 286,608 460,427
Accruals without tax effect.... 204,000
Foreign sales corporation tax
benefits...................... (159,205)
Other.......................... 12,661 (77,361) (48,063)
-------- ---------- ----------
Provision for income taxes..... $266,419 $1,908,406 $3,115,648
======== ========== ==========
</TABLE>
At December 31, 1994 and 1995, the Company's net deferred tax asset was
comprised of the following major components:
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Depreciation of property............ $(19,271) $ 2,434
Accruals and reserves............... 131,854 437,574
Costs capitalized into inventories.. 148,356 362,452
State taxes......................... 160,616 229,022
-------- ----------
Net deferred tax asset.............. $421,555 $1,031,482
======== ==========
</TABLE>
The Company did not adjust its deferred tax asset during the nine months
ended September 29, 1996 due to the immaterial effect on the financial
statements.
F-13
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Profit-Sharing and Pension Plans
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. For the years ended December 31, 1993, 1994 and 1995, the Board
authorized $127,000, $270,000 and $340,000 in contributions to the profit-
sharing plan, respectively.
The 401(k) pension plan provides for Company matching participant
contributions up to a maximum of 10% of each participant's annual
contribution. Employee contributions are limited to 15% of base salary.
Contributions for the years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1995 and September 29, 1996 were $3,647,
$9,594, $15,669, $12,326 and $15,683, respectively.
9. Stock Option Plans
1995 Stock Option Plan - Effective December 4, 1995, the Company adopted
the 1995 Stock Option Plan (the "1995 Plan"), as amended, to permit
executive personnel, key employees and nonemployee members of the Board of
Directors of the Company to participate in ownership of the Company. The
1995 Plan is administered by a committee consisting of two or more
nonemployee directors and one employee of the Company. Each option
agreement includes a provision requiring the optionee to consent to the
terms of the agreement. The 1995 Plan provides for the grant of
nonstatutory stock options under the applicable provisions of the Internal
Revenue Code. The option price per share may not be less than 85% of the
fair market value of a share of Common Stock on the grant date as
determined by the Company's Board of Directors. In addition, the exercise
price may not be less than 110% of the fair market value of a share of
Common Stock on the grant date, as determined by the Company's Board of
Directors, for any individual possessing 10% or more of the voting power of
all classes of stock of the Company. Options generally vest at the rate of
25% on the first anniversary date and 2% per month thereafter and expire no
later than ten years after the grant date. Up to 1,938,615 shares of the
Company's Common Stock were reserved for issuance under the 1995 Plan.
Under an agreement with the Company, certain shareholders have agreed that,
once the Company has issued an initial 1,170,000 shares of Common Stock
under the 1995 Stock Option Plan, any additional shares issued under that
Plan upon an option exercise will be coupled with a pro rata redemption
from those shareholders of an equal number of shares at a redemption price
equaling the option exercise price.
The following table summarizes activity under the Option Plan:
<TABLE>
<CAPTION>
Number of
options
Number of Price per exercisable as of
shares share September 29, 1996
--------- --------- ------------------
<S> <C> <C> <C>
Balance at January 1, 1995.....
Granted...................... 562,500 $2.47 - 2.71 150,151
--------- ------------ ----------
Balance at December 31, 1995... 562,500 2.47 - 2.71 150,151
Granted...................... 1,436,400 2.67 - 4.67 54,877
Exercised.................... (112,500) 2.67
Cancelled.................... (63,221) 2.47 - 4.67
--------- ------------ ----------
Balance at September 29, 1996.. 1,823,179 $2.47 -$4.66 205,028
========= ============ ==========
</TABLE>
F-14
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 29, 1996, 2,936 options were available for grant under the
Option Plan.
The price at which options were granted at during 1995 and 1996 were based
upon an independent appraisal of the value of the Company. The Company
will record compensation expense of approximately $123,175 relating to the
difference between estimated fair market value and the actual value of
28,425 options granted in September 1996 over the vesting term of such
options. The first vesting of these options occurs during the third
quarter of fiscal 1997.
1996 Stock Incentive Plan - On October 7, 1996 the Company adopted the 1996
Stock Incentive Plan (the "1996 Plan"), to be effective upon the completion
of the Company's planned initial public offering. The 1996 Plan covers an
aggregate of 1,500,000 shares of Common Stock plus any shares which are or
become available for grant under the 1995 Plan. The 1996 Plan provides for
the granting of "incentive stock options," within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock
options may not be granted to non-employee directors or consultants. The
purpose of the 1996 Plan is to provide participants with incentives which
will encourage them to acquire a proprietary interest in, and continue to
provide services to, the Company. The 1996 Plan is administered by the
Board of Directors, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine which eligible
participants will receive options, the time when options will be granted,
the terms of options granted and the number of shares which will be subject
to options granted under the 1996 Plan. There are no options outstanding
under the 1996 Plan.
1996 Director Stock Option Plan - On October 7, 1996 the Company adopted
the 1996 Stock Option Plan for Directors (the "Director Plan"), to be
effective upon the completion of the Company's planned initial public
offering. The Director Plan provides for the grant by the Company of
options to purchase up to an aggregate of 200,000 shares of Common Stock of
the Company. The Director Plan provides that each member of the Company's
Board of Directors who is not an employee or paid consultant of the Company
automatically will be eligible to receive options to purchase stock under
the Director Plan. Pursuant to the terms of the Director Plan, each
director elected after the Company's initial public offering under the
Securities Act of 1933 (the "Offering Date") will be granted an initial
option under the plan covering 30,000 shares of Common Stock. Furthermore,
on the Offering Date, and on each anniversary date thereof, each director
who shall have been an eligible participant under the Director Plan for at
least six (6) months shall be granted an annual option under the Director
Plan to purchase 5,000 shares of Common Stock. There are no options
outstanding under the Director Plan.
Employee Stock Purchase Plan - On October 7, 1996 the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan"), to be effective upon
completion of the Company's planned initial public offering. The Purchase
Plan covers an aggregate of 500,000 shares of Common Stock. The Purchase
Plan, which is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code, will be implemented by six-
month offerings with purchases occurring at six month intervals commencing
on the date of this Prospectus. The Purchase Plan will be administered by
the Compensation Committee. Employees will be eligible to participate if
they are employed by the Company for at least 30 hours per week and if they
have been employed by the Company for at least 180 days. The Purchase Plan
permits eligible employees to purchase Common Stock through payroll
deductions, which may not exceed 15% of an employee's compensation. The
price of stock purchased under the Purchase Plan will be 85% of the lower
of the fair market value of the Common Stock at the beginning of each six-
month offering period or on the applicable purchase date. Employees may
end their participation in any offering at any time during the offering
period, and participation ends automatically on termination of employment.
The Board may at any time amend or terminate the Purchase Plan, except that
no such amendment or
F-15
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
termination may adversely affect options previously granted under the
Purchase Plan. There are no rights to purchase outstanding under the
Purchase Plan.
10. Related Party Transactions
As of December 31, 1994 and 1995 and the nine months ended September 30,
1995, the Company had an outstanding unsecured note payable in the amount
of $50,000 to a relative of the majority stockholder. The note bore
interest at 8%, matured in February 1996 and was repaid. As of September
29, 1996, the Company had no significant amounts payable to shareholders
other than that described below.
As disclosed in Note 11, the Company leases its manufacturing and office
facility from certain of the Company's shareholders. Rent paid to the
shareholders was $160,320, $160,320, $166,728, $125,046 and $219,780 for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and September 29, 1996, respectively.
In August 1995, the Company entered into a Technology License Agreement
with Unique Wireless Developments, L.L.C., a Delaware limited liability
company. Under the agreement, the Company obtained exclusive rights to use
certain amplifier technology for the SMR market in exchange for certain
royalties, including a non-refundable (with certain exceptions) up front
royalty totaling $300,000, of which $250,000 has been paid. A member of
the Board of Directors of the Company, is Executive Vice President of
Unique Technologies International, L.L.C., an affiliate of Unique Wireless
Developments, L.L.C. During the year ended December 31, 1995, the Company
expensed such royalty payment.
11. Commitments and Contingencies
The Company leased its former manufacturing and headquarters facility from
its shareholders. During July 1995, the Company moved from its previous
facility and into a new facility in Irvine, California. The Company leases
its new manufacturing and headquarters facility from a limited liability
company owned by three of the Company's shareholders. The lease term
commenced on July 15, 1996 and will continue for ten years. The Company
paid $1,000,000 to the limited liability company as payment for additional
tenant improvements made to the facility at the request of the Company.
The Company has an option to purchase the facility at fair market value
during the lease term. The Company also leases equipment from unrelated
parties. Future minimum lease payments required under operating leases and
the present value of future minimum lease payments for capital leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Commitment to Operating Capitalized
shareholders leases leases
------------- ---------- ------------
<S> <C> <C> <C>
Year ending December 31:
1996........................... $ 168,592 $1,229,336 $ 88,200
1997........................... 170,064 1,201,731 82,463
1998........................... 170,064 1,199,936 48,402
1999........................... 170,064 1,197,683 11,969
2000........................... 170,064 1,195,461
Thereafter..................... 496,020
---------- ---------- --------
Total future minimum lease
payments........................ $1,344,868 $6,024,147 231,034
========== ========== ========
Less amount representing interest (26,684)
--------
Present value of future minimum
lease payments.................. 204,350
Less current portion............. (66,824)
--------
$137,526
========
</TABLE>
F-16
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total rent expense was $78,725, $168,721, $173,142, $129,207 and $231,680
for the years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 and September 29, 1996, respectively.
On October 4, 1996, Mr. Ernest Johnson, a shareholder of the Company,
filed suit against the Company and certain of the other shareholders of the
Company in the Superior Court of Orange County, California. Mr. Johnson
claims that, in contravention of alleged agreement, the Company and certain
other shareholders, including Alfonso Cordero, engaged in certain
transactions which improperly diluted his ownership interest in the Company
to below five percent. In particular, Mr. Johnson claims that in 1992 the
Company wrongfully failed to give him notice of a purported right to
purchase approximately 488,250 shares of the Company's Common Stock then
being sold by a third party at a purchase price of approximately $.005 per
share, as adjusted for stock splits, and, as a result, such shares were
then purchased by certain other shareholders of the Company. Mr. Johnson
also alleges that the Company wrongfully failed to allow him to participate
in various real property transactions involving the Company and certain of
its shareholders. Mr. Johnson seeks unspecified monetary damages and costs
as well as equitable remedies, including an order entitling him to the
488,250 shares and an accounting of the proceeds arising out of the real
property transactions. Mr. Johnson also seeks punitive damages. Although
the Company believes Mr. Johnson's claims are without merit and it is too
early to determine the ultimate outcome of such suit, the Company intends
to contest vigorously any action against the Company. There can be no
assurance as to the eventual outcome of such actions. Any issuance of
shares by the Company as result of Mr. Johnson's claims would have a
dilutive effect on the per share net tangible book value of the Company.
Any determination against the Company in the litigation or the settlement
of such claims could have a material adverse effect on the Company's
business, results of operation and financial condition.
12. Royalty Agreement
The Company has a royalty agreement related to the sale of air-to-ground
amplifiers which requires payment of a 10% commission on certain licensed
products. Total royalty expense was $387,061, $499,141, $393,197 and
$280,500 for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1995 and September 29, 1996, respectively. For the
years ended December 31, 1994 and 1995 and the nine months ended September
30, 1995 and September 29, 1996, sales of the related product represented
17%, 14%, 18% and 6% of net sales, respectively. The Company does not
currently have any royalty commitments beyond October 1996.
F-17
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Other Information
Accrued expenses and other liabilities consist of the following at
December 31, 1994, 1995 and September 29, 1996:
<TABLE>
<CAPTION>
Nine
Months
Ended
September 29,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accrued expenses and other liabilities:
Accrued warranty costs................. $ 186,756 $ 320,594 $ 871,330
Accrued sales returns.................. 295,276 480,000 324,586
Accrued royalties...................... 280,559 149,021 38,521
Accrued payroll and employee benefits.. 1,166,578 755,828 2,208,756
Other accrued expenses................. 8,652 375,003 938,964
---------- ---------- ----------
$1,937,821 $2,080,446 $4,382,157
========== ========== ==========
</TABLE>
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations not contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters or the Selling Shareholder. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person or by anyone in any jurisdiction in which it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..........................................................
Risk Factors................................................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Capitalization..............................................................
Dilution....................................................................
Selected Consolidated Financial Data........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................
Business....................................................................
Management..................................................................
Certain Transactions........................................................
Principal and Selling Shareholders..........................................
Description of Capital Stock................................................
Shares Eligible for Future Sale.............................................
Underwriting................................................................
Legal Matters...............................................................
Experts.....................................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
</TABLE>
--------------------
Until __________, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,100,000 SHARES
[LOGO]
POWERWAVE TECHNOLOGIES,
INC.
Common Stock
----------
PROSPECTUS
----------
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
WESSELS, ARNOLD & HENDERSON
________, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in
connection with the sale of the Common Stock being registered hereunder.
All of the amounts shown are estimates except for the SEC registration fee
and the NASD filing fee.
<TABLE>
<CAPTION>
To be paid by
the Company
-------------
<S> <C>
SEC registration fee....................... $ 9,514
NASD filing fee............................ 3,250
Nasdaq National Market application fee..... 57,270
Printing expenses.......................... 125,000
Legal fees and expenses.................... 200,000
Accounting fees and expenses............... 130,000
Blue sky fees and expenses................. 15,000
Transfer agent and registrar fees.......... 5,000
Directors and officers insurance premiums.. 250,000
Miscellaneous.............................. 154,966
--------
Total................................... $950,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
(a) As permitted by the Delaware General Corporation Law, the Amended
and Restated Certificate of Incorporation of the Company (Exhibit 3.2
hereto) eliminates the liability of directors to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a
directors, except to the extent otherwise required by the Delaware General
Corporation Law.
(b) The Amended and Restated Certificate of Incorporation provides
that the Company will indemnify each person who was or is made a party to
any proceeding by reason of the fact that such person is or was a director
or officer of the Company against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith to
the fullest extent authorized by the Delaware General Corporation Law. The
Company's Amended and Restated Bylaws (Exhibit 3.4 hereto) provide for a
similar indemnity to directors and officers of the Company to the fullest
extent authorized by the Delaware General Corporation Law.
(c) The Amended and Restated Certificate of Incorporation also gives
the Company the ability to enter into indemnification agreements with each
of its directors and officers. The Company has entered into
indemnification agreements with each of its directors and officers and with
Summit Partners and Crosspoint Venture Partners (Exhibit 10.13 hereto),
which provide for the indemnification of such persons against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to
the fullest extent permitted by law.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
The following is a summary of transactions by the Company during the
last three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act of 1933, as
amended (the "Act"):
(1) From time to time during the three years preceding the date
hereof, the Registrant issued nonqualified stock options to purchase
Common Stock pursuant to the Registrant's 1995 Stock Option (the "1995
Plan") to officers, directors and employees of the Registrant. From
inception through June 30, 1996, 112,500 options to purchase Common
Stock pursuant to the 1995 Plan were exercised for an aggregate
exercise price of $300,000. Exemption from the registration
provisions of the Act is claimed, among other exemptions, with respect
to the grant of options referred to above, on the basis that the grant
of options did not involve a "sale" of securities and, therefore,
registration thereof was not required and, with respect to the
exercise of options referred to above, on the basis that such
transactions met the requirements of Rule 701 as promulgated under
Section 3(b) of the Act.
(2) On October 10, 1995, the Registrant issued 3,375,900 shares
of Series A Convertible Preferred Stock for an aggregate purchase
price of $15,000,000 pursuant to a Stock Purchase Agreement entered
into as of October 10, 1995 among the Company, Alfonso G. Cordero, Ki
Y. Nam, Sussanne Torretta, Charles Florman, Bill Doi, Arthur Cook,
Thomas Ha, Ernest Johnson, Summit Ventures IV, L.P., Summit Ventures
III, L.P., Summit Investors II, L.P., Crosspoint Venture Partners 1993
and Crosspoint Venture Partners Entrepreneurs 1993. The foregoing
transaction was completed without registration under the Act in
reliance upon Section 4(2) of the Act for transactions not involving a
public offering, among others, on the basis that such transaction did
not involve any public offering and the purchasers were sophisticated
with access to the kind of information registration would provide.
Broker commissions in the amount of $300,000 were paid in connection
with the foregoing transaction.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.+
3.1.1 Certificate of Amendment of Certificate of Incorporation.
3.2 Amended and Restated Certificate of Incorporation of the
Company.*
3.3 Bylaws of the Company.+
3.4 Amended and Restated Bylaws of the Company.*
4.1 Stockholders' Agreement, dated October 10, 1995, among the
Company and certain shareholders.+
4.2 Amendment No. 1 to Stockholders' Agreement,
dated _________, 1996, among the Company and certain
shareholders.*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation.*
10.1 Milcom International, Inc. 1995 Stock Option Plan (the "1995
Plan").+
10.2 Form of Stock Option Agreement for 1995 Plan.+
10.3 Amendment No. 1 to 1995 Stock Option Plan.*
10.4 Powerwave Technologies, Inc. 1996 Stock Incentive Plan (the "1996
Plan").+
10.5 Form of Stock Option Agreement for 1996 Plan.+
10.6 Form of Restricted Stock Purchase Agreement for 1996 Plan.+
10.7 Powerwave Technologies, Inc. 1996 Director Stock Option Plan (the
"Director Plan").+
10.8 Form of Stock Option Agreement for Director Plan.+
10.9 Powerwave Technologies, Inc. Employee Stock Purchase Plan.+
10.10 Series A Convertible Preferred Stock Purchase Agreement, dated
October 10, 1995, among the Company and certain shareholders.+
10.11 Redemption Agreement, dated October 10, 1995, amount the Company
and certain shareholders.+
10.12 Registration Rights Agreement, dated October 10, 1995, among the
Company, and certain shareholders.+
10.13 Indemnification Agreement, dated October 10, 1995, between the
Company and certain shareholders.+
10.14 Form of Indemnification Agreement.+
10.15 Standard Industrial/Commercial Single-Tenant Lease, dated
November 8, 1993, between the Company and 17500 Gillette
Partnership.+
10.16 Standard Industrial/Commercial Single-Tenant Lease-Net, dated
July 1, 1996, between the Company and CNH, LLC, a California
limited liability company.+
10.17 Business Loan Agreement, dated May 30, 1996 between the Company
and Bank of America.+
10.18 Agreement, dated February 16, 1996, between the Company and LG
Information & Communications, Ltd (portions omitted pursuant to
Rule 406).+
10.19 Agreement, dated July 20, 1995, between the Company and Samsung
Electronics (portions omitted pursuant to Rule 406).+
10.20 Technology License Agreement, dated August 30, 1995, between the
Company and Unique Wireless Developments, L.L.C., a Delaware
limited liability company.+
11.1 Statement regarding computation of pro forma net income
per share.+
21.1 Subsidiaries of the Registrant.+
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).*
23.2 Consent of Deloitte & Touche, LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------
<C> <S>
24.1 Power of Attorney (see page II-5).+
27.1 Financial Data Schedule.
</TABLE>
------
* To be filed by amendment.
+ Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
Item 17. Undertakings
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irvine, State of California, on the 28th day of October, 1996.
POWERWAVE TECHNOLOGIES, INC.
By: /s/ Bruce C. Edwards
-------------------------------------
Bruce C. Edwards
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce C. Edwards President, Chief Executive October 28, 1996
- ------------------------------- Officer and Director
Bruce C. Edwards (Principal Executive Officer)
/s/ Kevin T. Michaels Vice President, Finance and October 28, 1996
- ------------------------------- Chief Financial Officer
Kevin T. Michaels (Principal Financial
and Principal Accounting
Officer)
* Director October 28, 1996
- -------------------------------
Alfonso G. Cordero
* Director October 28, 1996
- -------------------------------
Gregory M. Avis
* Director October 28, 1996
- -------------------------------
Eugene L. Goda
* Director October 28, 1996
- -------------------------------
David L. George
* Director October 28, 1996
- -------------------------------
Rich Shapero
* Director October 28, 1996
- -------------------------------
Sam Yau
*By:/s/ Bruce C. Edwards
- -------------------------------
Bruce C. Edwards
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charges to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
September 29, 1996:
Allowance for doubtful
accounts.............. $ 122,532 293,592 (14,031) 402,093
Inventory reserves....... $ 791,942 865,000 (398,746) 1,258,196
Year ended
December 31, 1995:
Allowance for doubtful
accounts.............. $ 10,000 120,946 (8,414) $ 122,532
Inventory reserves....... $ 301,358 490,584 $ 791,942
Year ended
December 31, 1994:
Allowance for doubtful
accounts.............. $ 10,000 $ 10,000
Inventory reserves....... $ 88,935 212,423 $ 301,358
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.+
3.1.1 Certificate of Amendment of Certificate of Incorporation.
3.2 Amended and Restated Certificate of Incorporation of the
Company.*
3.3 Bylaws of the Company.+
3.4 Amended and Restated Bylaws of the Company.*
4.1 Stockholders' Agreement, dated October 10, 1995, among
the Company and certain shareholders.+
4.2 Amendment No. 1 to Stockholders' Agreement,
dated _________, 1996, among the Company and certain
shareholders.*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth,
a Professional Corporation.*
10.1 Milcom International, Inc. 1995 Stock Option Plan
(the "1995 Plan").+
10.2 Form of Stock Option Agreement for 1995 Plan.+
10.3 Amendment No. 1 to 1995 Stock Option Plan.*
10.4 Powerwave Technologies, Inc. 1996 Stock Incentive Plan
(the "1996 Plan").+
10.5 Form of Stock Option Agreement for 1996 Plan.+
10.6 Form of Restricted Stock Purchase Agreement for
1996 Plan.+
10.7 Powerwave Technologies, Inc. 1996 Director Stock.+
Option Plan (the "Director Plan").+
10.8 Form of Stock Option Agreement for Director Plan.+
10.9 Powerwave Technologies, Inc. Employee Stock
Purchase Plan.+
10.10 Series A Convertible Preferred Stock Purchase Agreement,
dated October 10, 1995, among the Company and certain
shareholders.+
10.11 Redemption Agreement, dated October 10, 1995, amount
the Company and certain shareholders.+
10.12 Registration Rights Agreement, dated October 10, 1995,
among the Company, and certain shareholders.+
10.13 Indemnification Agreement, dated October 10, 1995,
between the Company and certain shareholders.+
10.14 Form of Indemnification Agreement.+
10.15 Standard Industrial/Commercial Single-Tenant Lease,
dated November 8, 1993, between the Company and
17500 Gillette Partnership.+
10.16 Standard Industrial/Commercial Single-Tenant Lease-Net,
dated July 1, 1996, between the Company and CNH, LLC,
a California limited liability company.+
10.17 Business Loan Agreement, dated May 30, 1996 between
the Company and Bank of America.+
10.18 Agreement, dated February 16, 1996, between the Company
and LG Information & Communications, Ltd (portions
omitted pursuant to Rule 406).+
10.19 Agreement, dated July 20, 1995, between the Company
and Samsung Electronics (portions omitted pursuant
to Rule 406).+
10.20 Technology License Agreement, dated August 30, 1995,
between the Company and Unique Wireless Developments,
L.L.C., a Delaware limited liability company.+
11.1 Statement regarding computation of pro forma net
income per share.+
21.1 Subsidiaries of the Registrant.+
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a
Professional Corporation (see Exhibit 5.1).*
23.2 Consent of Deloitte & Touche, LLP.
24.1 Power of Attorney (see page II-5).+
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
* To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF INCORPORATION
OF
MILCOM INTERNATIONAL, INC.
----------
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
MILCOM INTERNATIONAL, INC.
SECOND: Its registered office is to be located at 306 South State
Street, in the City of Dover, in the County of Kent, in the State of Delaware.
The name of its registered agent at that address is the United States
Corporation Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is One Thousand (1,000) all of which are classified as
Common Stock with a par value of One Dollar ($1.00).
FIFTH: The name and address of the single incorporator are
John S. Hoenigmann 70 Pine Street, New York, N.Y. 10270
<PAGE>
SIXTH: The By-Laws of the corporation may be made, altered, amended,
changed, added to or repealed by the Board of Directors without the assent or
vote of the stockholders. Elections of directors need not be by ballot unless
the By-Laws so provide.
SEVENTH: The corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, the 2nd day
of January , 1985.
/s/ John S. Hoenigmann (L.S.)
-------------------------------
John S. Hoenigmann
<PAGE>
CERTIFICATE OF AMENDMENT
OF
MILCOM INTERNATIONAL, INC.,
a Delaware corporation
MILCOM INTERNATIONAL, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
(1) The Board of Directors of the Corporation, at a meeting duly held,
adopted resolutions proposing and declaring advisable the following amendments
to the Certificate of Incorporation of the Corporation:
RESOLVED, that ARTICLE FOURTH of the Certificate of Incorporation of
the corporation is hereby amended to read in full as follows:
"FOURTH:
------
A. CLASSES OF STOCK.
----------------
1. The Corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock". The number of
shares of Common Stock is 20,000,000, $.0001 par value, and the number of
shares of Preferred Stock is 3,375,900, $.0001 par value. The Preferred
Stock shall be issued in series. The first such series shall be designated
Series A Preferred Stock and shall consist of 3,375,900 shares, $.0001 par
value. The Series A Preferred Stock is referred to hereinafter as the
"Preferred Stock."
2. Upon the filing of this Certificate of Amendment in the
office of the Secretary of State of the State of Delaware, all shares of
the Common Stock theretofore issued and outstanding or reserved for
issuance by the Corporation shall be cancelled, and nine thousand three
hundred shares of Common Stock will be issued or reserved for issuance, as
the case may be, for every share of Common Stock theretofore issued and
outstanding or reserved for issuance, as the case may be. The Common Stock
theretofore issued and outstanding or reserved for issuance by the
Corporation as of the date of such filing (the "Filing Date") will not be
recognized thereafter except for the purpose of causing such shares to be
exchanged, each for nine thousand three hundred shares of Common Stock.
Upon surrender of a holder's certificate or certificates evidencing shares
of the Common Stock outstanding on the Filing Date, the Corporation shall
issue to such holder a certificate or certificates evidencing the number of
whole shares of Common Stock issued in exchange therefor.
The Board of Directors is hereby authorized, except as to
matters fixed as to preferred shares as hereinafter stated in this ARTICLE
FOURTH, to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limitations and restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the
number of shares
<PAGE>
constituting any series, to increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of such
series subsequent to the issue of shares of that series, and to determine
the designation of any series and to fix the number of shares of any
series.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
-------------------------------------------------------
The following is a statement of the designations, powers,
privileges, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
relating to the Preferred Stock:
1. Dividends. When, as and if declared by the Board of
---------
Directors, the holders of the outstanding shares of the Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
cumulative dividends, commencing on January 1, 1996, at the rate of twelve
percent per annum, and payable upon (i) redemption or other repurchase of
such Preferred Stock, (ii) liquidation, dissolution or winding up pursuant
to Section 2 hereof, (iii) upon the closing of the Corporation's first
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended ("Securities Act"),
covering the offer and sale of Common Stock for the account of the
Corporation which offering is not a Qualified Public Offering, as defined
hereinafter ("Other Public Offering") or upon a Qualified Public Offering
as provided in Section 4(a)(ii) which is closed after December 31, 1996, or
(iv) upon conversion of the Preferred Stock as expressly provided in
Section 4(a), other than conversion pursuant to Section 4(a)(i) prior to
January 1, 1997 (in which case no dividend shall be payable) and other than
upon a Qualified Public Offering as provided in Section 4(a)(ii) which is
closed prior to January 1, 1997 (in which case no dividend shall be
payable. If and to the extent the Preferred Stock continues outstanding
after December 31, 1999, then the rate of the dividend thereafter shall be
at the rate of eight percent per annum. Upon the closing of a Qualified
Public Offering which is closed after December 31, 1996 or an Other Public
Offering closing at any time, the Corporation shall pay the accrued
dividends to the holders of the Preferred Stock, which accrued dividends
shall be paid, at the election of the holders of the Preferred Stock, in
either cash or by issuing a number of shares of Common Stock to the holders
of the Preferred Stock equal to the amount of the accrued dividends divided
by the per share price at which the Common Stock is offered to the public
in the Other Public Offering. No dividends may be declared or paid upon the
Common Stock of the Corporation so long as any shares of the Preferred
Stock remain outstanding.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Preference - Preferred Stock. In the event of any
----------------------------
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary holders of each share of Preferred Stock shall be
entitled to be paid out of the assets of the Corporation, whether such
assets are capital, surplus, or earnings, before any sums shall be paid or
any asset distributed among the holders of shares of Common Stock, an
amount equal to $4.44325958 per share of Preferred Stock, plus any accrued
but unpaid dividends. If the assets of the Corporation shall be
insufficient to permit the payment in full to the holders of the Preferred
Stock of the amount thus distributable, then the entire assets of the
Corporation
2
<PAGE>
available for such distribution shall be distributed ratably among the
holders of the Preferred Stock. After such payment shall have been made in
full to the holders of the Preferred Stock or funds necessary for such
payment shall have been set aside by the Corporation in trust for the
account of holders of the Preferred Stock so as to be available for such
payment, holders of the Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Corporation and
shall have no further rights of conversion, and the remaining assets
available for distribution shall be distributed ratably among the holders
of the Common Stock.
(b) A consolidation or merger (other than a consolidation or
merger in which the holders of voting securities of the Corporation
immediately before the consolidation or merger own (immediately after the
consolidation or merger) voting securities of the surviving or acquiring
corporation, or of a parent party of such surviving or acquiring
corporation, possessing more than 50% of the voting power of such surviving
or acquiring corporation or parent party) of the Corporation or a sale of
all or substantially all of the assets of the Corporation shall be regarded
as a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 2.
(c) Each holder of Preferred Stock shall have the right to
elect the benefits of the provisions of Section 4(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section 2. The election procedures shall be as
provided in Section 4(g) hereof.
(d) Whenever the distribution provided for herein shall be
paid in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Board of Directors of the Corporation.
3. Voting Power. Except as otherwise expressly provided in
------------
Section 6 hereof, or as required by law, each holder of Preferred Stock
shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock
into which such holder's shares of Preferred Stock could be converted,
pursuant to the provisions of Section 4 hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited. Except as otherwise expressly
provided herein or as required by law, the holders of shares of Preferred
Stock and Common Stock shall vote together as a class on all matters.
4. Conversion Rights. The holders of the Preferred Stock shall
-----------------
have the following conversion rights:
(a) General.
-------
(i) Subject to and in compliance with the provisions of
this Section 4, any shares of the Preferred Stock may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a
holder of Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined
as
3
<PAGE>
provided in Section 4(b)) by the number of shares of Preferred Stock being
converted together with payment of accrued but unpaid dividends either (i)
in cash or (ii) in shares of Common Stock by converting the accrued and
unpaid dividends at the then fair market value of such Common Stock as
determined in Section B.1. herein. The method of payment of the dividends
as provided in (i) and (ii) above shall be (a) in the case of conversion in
concurrence with an Other Public Offering, at the election of the holder of
the Preferred Stock, and (b) otherwise at the election of the Corporation,
with the fair market value determined as follows: (i) if the Common Stock
is publicly traded, the average over the preceding twenty (20) trading days
of the mean of the closing bid and asked prices on the over-the-counter
market as reported by NASDAQ, or, if then traded on a national securities
exchange or the National Market System, the average over the preceding
twenty (20) trading days of the mean of the high and low prices on the
principal national securities exchange the National Market System on which
it is so traded over the preceding twenty (20) trading days, and (ii) if
the Common Stock is not publicly traded, then as agreed upon by the
Corporation and a majority in interest of the holders of the Preferred
Stock. If no such agreement is reached within thirty (30) days, the fair
market value shall be determined by appraisal;
(ii) each share of Preferred Stock shall automatically
be converted into a number of shares of Common Stock equal to the product
obtained by multiplying the Applicable Conversion Rate determined as
provided in Section 4(b) by the number of shares of Preferred Stock being
converted concurrently upon the closing of a firm commitment underwritten
public offering of the Corporation's Common Stock pursuant to an effective
registration statement under the Securities Act, as amended, in which the
gross proceeds to the Corporation are $15,000,000, or more, and the price
per share is at least equal to the product of the then Applicable
Conversion Value multiplied by two ("Qualified Public Offering"), and then
payment of accrued but unpaid dividends are to be paid either (i) in cash
or (ii) in shares of Common Stock by converting the accrued and unpaid
dividends at the then fair market value of such Common Stock as determined
in Section 4.a.1. above.
(iii) each share of Preferred Stock shall automatically
be converted into a number of shares of Common Stock equal to the product
obtained by multiplying the Applicable Conversion Rate determined as
provided in Section 4(b) by the number of shares of Preferred Stock being
converted on December 16, 2001, if such Preferred Stock remains outstanding
on December 16, 2001.
(b) Applicable Conversion Rate. The conversion rate in
--------------------------
effect at any time (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing $4.44325958, by the Applicable Conversion Value,
calculated as provided in Section 4(c).
(c) Applicable Conversion Value. The Applicable Conversion
---------------------------
Value in effect from time to time, except as adjusted in accordance with
Section 4(d) hereof, shall be $4.44325958.
4
<PAGE>
(d) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sale of Common Stock. If the Corporation shall
-------------------------
while there are any shares of Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share
less than the Applicable Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable Conversion
Value upon each such issuance or sale, except as hereinafter provided,
shall be adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (b) the number of shares of
Common Stock which the net aggregate consideration received by the
Corporation for the total number of such additional shares of Common Stock
so issued would purchase at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (b) the number of such
additional shares of Common Stock so issued.
The numerator and the denominator in Sections 4(d)(i)(A) and
(B) above, shall include the number of shares subject to issuance pursuant
to any convertible securities, including the Preferred Stock, as well as
any warrants, options, subscription rights or purchase rights then
outstanding.
To the extent that a portion of the Preferred Stock is
redeemed or otherwise repurchased, then the Applicable Conversion Value
shall be adjusted by excluding the number of shares which relate to
Preferred Stock redeemed from the numerator and denominator in Sections
4(d)(i)(A) and (B) so that the Applicable Conversion Value effective
immediately upon such redemption shall be equal to the Applicable
Conversion Value in effect at the time of issuance of the redeemed shares,
with such additional adjustments as would have been made to that Applicable
Conversion Value had the redeemed shares not been issued.
No adjustment shall be made under this subsection (d) until such
adjustment would cause the Applicable Conversion Value to be decreased (or
increased pursuant to the foregoing paragraph) by more than two percent
(2%), provided that any such adjustments shall be added to subsequent
adjustments.
The Corporation's issuance of up to an aggregate of
1,292,410 shares of Common Stock, or options exercisable therefor, net of
repurchase or expiration of such options, pursuant to any stock purchase or
stock option plan or other employee incentive program approved by the Board
of Directors to the Corporation's employees, directors, officers or
consultants shall not be deemed an issuance of additional shares of Common
Stock and shall have no effect on the calculations contemplated by this
Section 4(d) except as specifically otherwise set forth herein.
5
<PAGE>
The completion of a consolidation or merger in which the
holders of voting securities of the Corporation immediately before the
consolidation or merger own (immediately after the consolidation or merger)
voting securities of the surviving or acquiring corporation, or of a parent
party of such surviving or acquiring corporation, possessing more than 50%
of the voting power of such surviving or acquiring corporation or parent
party of the Corporation shall not be deemed an issuance of additional
shares of Common Stock and shall have no effect on the calculations
contemplated by this Section 4(d), except as specifically otherwise set
forth herein.
Except as discussed in the preceding paragraph, for the
purposes of this Section 4(d), the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock and
the issuance of any securities convertible into or exchangeable for shares
of Common Stock (or the issuance of any warrants, options or any rights
with respect to such convertible or exchangeable securities) shall be
deemed an issuance at such time of such Common Stock if the Net
Consideration Per Share (as hereinafter determined) which may be received
by the Corporation for such Common Stock shall be less than the Applicable
Conversion Value at the time of such issuance. Any obligation, agreement or
undertaking to issue warrants, options, subscriptions or purchase rights at
any time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of
the Applicable Conversion Value shall be made under this Section 4(d) upon
the issuance of any shares of Common Stock which are issued pursuant to the
exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made
upon the issuance of any such warrants, options or subscriptions or
purchase rights or upon the issuance of any convertible securities (or upon
the issuance of any warrants, options or any rights therefor) as above
provided. Any adjustment of the Applicable Conversion Value with respect to
this paragraph which relates to warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock shall be disregarded
if and when any of such warrants, options, subscriptions or purchase
rights expire or are cancelled without being exercised, so that the
Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value in effect at
the time of the issuance of the expired or cancelled warrants, options,
subscriptions or purchase rights, with such additional adjustments as would
have been made to that Applicable Conversion Value had the expired or
cancelled warrants, options, subscriptions or purchase rights not been
issued. For purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Corporation shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions or
other purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise or conversion thereof, divided by the aggregate number of shares
of Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
6
<PAGE>
(B) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities without giving effect to
any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities.
For purposes of this Section 4(d), if a part or all of the
consideration received by the Corporation in connection with the issuance
of shares of Common Stock or the issuance of any of the securities
described in this Section 4(d) consists of property other than cash, the
value of such contribution shall be the fair market value of such property
as determined in good faith by the Board of Directors of the Corporation,
whereupon such value shall be given to such consideration and shall be
recorded on the books of the Corporation with respect to receipt of such
property.
This Section 4(d) shall not apply under any of the
circumstances which would constitute an Extraordinary Common Stock Event
(as hereinafter defined in Section 4(d)(ii)).
(ii) Upon the happening of an Extraordinary Common Stock
Event (as hereinafter defined), the Applicable Conversion Value (and all
other conversion values set forth in Section (d)(i) above) shall,
simultaneously with the happening of such Extraordinary Common Stock Event,
be adjusted by multiplying the then effective Applicable Conversion Value
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common
Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable
Conversion Value. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of outstanding
shares of Common Stock into a greater number of shares of the Common Stock,
or (iii) combination of outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock.
(e) Dividends. In the event the Corporation shall make or
---------
issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock or in
assets (excluding cash dividends or distributions), then and in each such
event provision shall be made so that the holders of the Preferred Stock
shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their
Preferred Stock been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to
and including the Conversion Date (as that term is hereafter defined in
Section 4(i)), retained such securities or such other assets receivable by
them as aforesaid during such period,
7
<PAGE>
giving application to all adjustments called for during such period under
this Section 4 with respect to the rights of the holders of the Preferred
Stock.
(f) Recapitalization or Reclassification. If the Common
------------------------------------
Stock issuable upon the conversion of the Preferred Stock shall be changed
into the same or different number of shares of any class or classes of
stock of the Corporation, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for elsewhere in this Section 4, or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 4), then and in each such event the holder of each share of
Preferred Stock shall have the right thereafter to convert such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change by
holders of the number of shares of Common Stock into which such share of
Preferred Stock might have been converted (taking into account all accrued
and unpaid dividends and interest with respect to such Preferred Stock)
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(g) Capital Reorganization, Merger or Sale of Assets. If
------------------------------------------------
at any time or from time to time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 4) or a merger
or consolidation of the Corporation with or into another corporation, or
the sale of all or substantially all of the Corporation's properties and
assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Preferred Stock, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from
such merger, consolidation or sale, to which a holder of Common Stock
issuable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale or an amount of cash
receivable as if the Preferred Stock had converted into shares of Common
Stock. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights
of the holders of the Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 4
(including adjustment of the Applicable Conversion Value then in effect and
the number of shares purchasable upon conversion of the Preferred Stock)
shall be applicable after that event in as nearly equivalent a manner as
may be practicable.
Each holder of Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation, or the
sale of all or substantially all its assets and properties as such events
are more fully set forth in the first paragraph of this Section 4(g), shall
have the option of electing treatment of his shares of Preferred Stock
under either this Section 4(g) or Section 2 hereof by giving the
Corporation written notice of such election at least ten days prior to the
close of such transaction unless such holders received notice of
transaction less than 20 days prior to the close of such transaction, then
the notice of election shall be 10 days after such notice.
(h) Accountant's Certificate as to Adjustments. In each
------------------------------------------
case of an adjustment or readjustment of the Applicable Conversion Rate,
the Corporation will furnish each holder of Preferred Stock with a
certificate, prepared by its chief financial
8
<PAGE>
officer showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based. Upon the request
of the holders of a majority of either series of the Preferred Stock, the
Corporation will cause its independent public accountants to confirm the
accuracy of such adjustment or readjustment.
(i) Exercise of Conversion Privilege. To exercise its
--------------------------------
conversion privilege, a holder of Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares.
Such notice shall also state the name or names (with address or addresses)
in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued and shall reconfirm the
representations contained in Section 1.3(a) of the Stock Purchase Agreement
by and among the Corporation, the Investors named therein and the
Stockholders named therein dated as of October 10, 1995. The certificate or
certificates for shares of Preferred Stock surrendered for conversion shall
be accompanied by proper assignment thereof to the Corporation or in blank.
If the conversion occurs in connection with a Qualified Public Offering or
is automatically converted on December 16, 2001, the Corporation shall give
holders of Preferred Stock 15 days written notice of such conversion.
Except for the automatic conversions when the Conversion Date shall be
either (i) the closing date of the Qualified Public Offering or (ii)
December 16, 2001, as the case may be, the date when such written notice is
received by the Corporation, together with the certificate or certificates
representing the shares of Preferred Stock being converted, shall be the
"Conversion Date." As promptly as practicable, but in any event within 15
days after the Conversion Date, the Corporation shall issue and shall
deliver to the holder of the shares of Preferred Stock being converted such
certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of
Preferred Stock in accordance with the provisions of this Section 4, and
cash in the amount of all accrued and unpaid dividends on such shares of
Preferred Stock up to and including the Conversion Date, provided such
conversion does not occur in connection with a Qualified Public Offering
closing on or before December 31, 1996 (in which case no dividends shall be
due and payable), and cash, as provided in Section 4(j), in respect of any
fraction of a share of Common Stock issuable upon such conversion. If the
conversion occurs in connection with a Qualified Public Offering which
closes on or before December 31, 1996, then the Corporation will not pay
accrued dividends nor convert such accrued dividends into Common Stock.
Such conversion shall be deemed to have been effected immediately prior to
the close of business on the Conversion Date, and at such time the rights
of the holder as holder of the converted shares of Preferred Stock shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock issuable upon such conversion shall
be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(j) Cash in Lieu of Fractional Shares. No fractional shares
---------------------------------
of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Preferred Stock, the Corporation shall pay to the holder of the shares of
Preferred Stock which were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board
9
<PAGE>
of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall
be based upon the total number of shares of Preferred Stock being converted
at any one time by any holder thereof, not upon each share of Preferred
Stock being converted.
(k) Partial Conversion. In the event some but not all of
------------------
the shares of Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and
deliver to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares of
Preferred Stock which were not converted.
(l) Reservation of Common Stock. The Corporation shall at
---------------------------
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of the Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion or all then outstanding shares of the
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
5. No Reissuance of the Preferred Stock. No share or shares of
------------------------------------
the Preferred Stock acquired by the Corporation by reason of purchase,
conversion or otherwise shall be reissued. The Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce
the authorized number of shares of the Preferred Stock accordingly.
6. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by
law, so long as 400,000 shares of the Preferred Stock remain outstanding,
the Corporation shall not, and shall not permit any subsidiary (which shall
mean any corporation or trust of which the Corporation directly or
indirectly owns at the time more than 50% of the voting power of such
corporation or trust) to, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of each
series of Preferred Stock, each share of Preferred Stock to be entitled to
one vote in each instance:
(i) Redeem, purchase or otherwise acquire for value (or
pay in to or set aside for a sinking fund for such purpose), any share or shares
of capital stock (except for those shares repurchased from officers, directors,
employees or consultants (i) under agreements requiring such persons to sell
such shares to the Corporation, at cost, on termination of their relationship
with the Corporation or its subsidiaries, and (ii) under that certain
Stockholders' Agreement dated October 10, 1995 between the Stockholders and the
Investors named therein and the Corporation);
(ii) Authorize or issue, or obligate itself to authorize
or issue, any other equity security senior to or on a parity with the existing
Preferred Stock as to liquidation preferences, conversion rights, voting rights
or otherwise; or
10
<PAGE>
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Corporation or any materially active subsidiary thereof, or any
consolidation or merger involving the Corporation or any materially active
subsidiary thereof, or any reclassification or other change of stock, or
any recapitalization or any dissolution, liquidation or winding up of the
Corporation.
(b) The Corporation shall not amend its Certificate of
Incorporation without the approval by vote or written consent by the
holders of at least a majority of the then outstanding shares of the
Preferred Stock, each share of the Preferred Stock to be entitled to one
vote in each instance, if such amendment would change any of the rights,
preferences, privileges or limitations provided for herein for the benefit
of any shares of the Preferred Stock. Without limiting the generality of
the next preceding sentence, the Corporation will not amend its Certificate
of Incorporation without the approval by the holders of at least a majority
of the then outstanding shares of each series of Preferred Stock if such
amendment would:
(i) Change the relative seniority rights of the holders
of Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation; or
(ii) Reduce the amount payable to the holders of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, or change the relative seniority of the
liquidation preferences of the holders of Preferred Stock to the rights
upon liquidation of the holders of any other capital stock of the
Corporation or change the dividend rights of the holders of the Preferred
Stock; or
(iii) Cancel or modify the conversion rights of the
holders of the Preferred Stock provided for in Section 4 herein.
7. No Dilution or Impairment. Except as expressly provided
-------------------------
herein, the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Preferred Stock set forth herein,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Preferred
Stock against dilution or other impairment. Without limiting the generality
of the foregoing, the Corporation (a) will not increase the par value of
any shares of stock receivable on the conversion of the Preferred Stock
above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and non-assessable
shares of stock on the conversion of all Preferred Stock from time to time
outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, unless the rights of the holders thereof shall be limited to a
fixed sum or percentage of par value in respect of participation in
dividends and in any such distribution of assets, and (d) will not transfer
all or substantially all of its properties and assets to any other person
(corporate or otherwise), or consolidate with or merge into any other
person or permit any
11
<PAGE>
such person to consolidate with or merge into the Corporation (if the
Corporation is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of the
Preferred Stock set forth herein.
8. Notices of Record Date. In the event of (a) any taking by
----------------------
the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(a) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to
any other corporation, or any other entity or person. or
(b) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation
shall mail or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, (iii) the time, if any, that is to be fixed, as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at
least 30 days prior to the date specified in such notice on which such
action is to be taken.
(2) The foregoing amendments have been approved by written consent in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware, and written notice of the adoption of the foregoing
amendments to the Certificate of Incorporation has been given as provided in
Section 228 of the General Corporation Law of the State of Delaware to every
stockholder entitled to such notice.
(3) The foregoing amendments have been duly adopted in accordance with the
applicable provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
12
<PAGE>
IN WITNESS WHEREOF, Milcom International, Inc. has caused this Certificate
of Amendment to be signed by Alfonso G. Cordero, its President, and attested to
by Ki Nam, its Secretary, this 9th day of October, 1995.
MILCOM INTERNATIONAL, INC.
By: /s/ Alfonso G. Cordero
----------------------------
Alfonso G. Cordero, President
ATTEST:
BY: /s/ Ki Nam
-----------------------------
Ki Nam, Secretary
13
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MILCOM INTERNATIONAL, INC.
Milcom International, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. At a meeting of the Board of Directors of the Corporation held on
June 20, 1996 and by written consent of the stockholders of the Corporation
dated as of June 20, 1996, resolutions were duly adopted setting forth a
proposed amendment to Article FIRST of the Certificate of Incorporation of the
Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article FIRST of the Certificate of Incorporation is hereby
amended in its entirety to read as follows:
"The name of the corporation is Powerwave Technologies, Inc."
2. The necessary number of issued and outstanding shares required by
statute were voted in favor of the amendment.
3. Such amendment was duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Milcom International, Inc. has caused this certificate
to be signed by Alfonso G. Cordero, its Chairman of the Board, this 24th day of
June, 1996.
MILCOM INTERNATIONAL, INC.
By: /s/ Alfonso G. Cordero
-------------------------------
Alfonso G. Cordero,
Chairman of the Board
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
POWERWAVE TECHNOLOGIES, INC.,
a Delaware Corporation
(Pursuant to Sections 228 and 242 of the
General Corporation Law of the State of Delaware)
POWERWAVE TECHNOLOGIES, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
(a) That the Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on January 2,
1985 and was amended on October 10, 1995 and June 25, 1996, respectively.
(b) That at a meeting of the Board of Directors of the
Corporation and by written consent of the stockholders of the Corporation,
resolutions were duly adopted setting forth a proposed amendment to Article
FOURTH of the Certificate of Incorporation of the Corporation, as amended. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the
corporation be amended by changing paragraph (A)(1) of Article FOURTH so
that, as amended, paragraph (A)(1) of Article FOURTH shall read as
follows:
"1. The Corporation is authorized to issue two classes of
shares designated respectively "Common Stock" and "Preferred
Stock". The number of shares of Common Stock is 40,000,000,
$.0001 par value, and the number of shares of Preferred Stock is
3,375,900, $.0001 par value. The Preferred Stock shall be issued
in series. The first such series shall be designated Series A
Preferred Stock and shall consist of 3,375,900 shares, $.0001
par value. The Series A Preferred Stock is referred to
hereinafter as the "Preferred Stock."
RESOLVED FURTHER, that the Certificate of Incorporation of the
corporation be amended by adding new paragraph (A)(3) to Article FOURTH
to read as follows:
"3. Upon the filing of this Certificate of Amendment in
the office of the Secretary of State of the State of
Delaware, all shares of the Common Stock theretofore issued and
outstanding or reserved for issuance by the Corporation shall be
cancelled, and one and one-half (1.5) shares of Common Stock
will be issued or reserved for issuance, as the case may be, for
every share of Common Stock theretofore issued and outstanding
or reserved for issuance, as the case may be. The Common Stock
<PAGE>
theretofore issued and outstanding or reserved for
issuance by the Corporation as of the date of such filing (the "Filing Date")
will not be recognized thereafter except for the purpose of causing such shares
of be exchanged, each for one and one-half (1.5) shares of Common Stock. Upon
surrender of a holder's certificate or certificates evidencing shares of the
Common Stock outstanding on the Filing Date, the Corporation shall issue to such
holder a certificate or certificates evidencing the number of whole shares of
Common Stock issued in exchange therefor."
(c) The foregoing amendment to the Certificate of
Incorporation was duly adopted by the stockholders of the Corporation by written
consent given in accordance with the applicable provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware and written notice
of such action has been given as provided in Section 228 of the General
Corporation Law the State of Delaware.
(d) This amendment to the Certificate of Incorporation shall
be effective on and as of the date of filing of this Certificate of Amendment
with the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be executed by Bruce C. Edwards, its President, and attested to
by Kevin T. Michaels, its Secretary, the 7th day of October, 1996.
---
POWERWAVE TECHNOLOGIES, INC.
[SEAL]
By: /s/ Bruce C. Edwards
-----------------------------
Bruce C. Edwards, President, Chief
Executive Officer
ATTEST:
By: /s/ Kevin T. Michaels
--------------------------------
Kevin T. Michaels, Secretary
2
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of
Powerwave Technologies, Inc.
We consent to the use in Amendment No. 1 to Registration Statement No. 333-13679
of Powerwave Technologies, Inc. on Form S-1 of our report dated October 24,
1996, appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the heading "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Powerwave Technologies, Inc.,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEPTEMBER 29, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-29-1996 DEC-31-1995
<CASH> 10,389,407 5,860,785
<SECURITIES> 0 0
<RECEIVABLES> 5,168,070 3,103,990
<ALLOWANCES> 402,368 122,532
<INVENTORY> 4,495,220 4,724,261
<CURRENT-ASSETS> 21,214,168 15,345,231
<PP&E> 4,672,439 1,800,078
<DEPRECIATION> 980,596 734,285
<TOTAL-ASSETS> 25,059,529 16,463,323
<CURRENT-LIABILITIES> 10,017,219 5,705,368
<BONDS> 0 0
0 0
14,498,193 14,498,193
<COMMON> 771,380 471,380
<OTHER-SE> (288,660) (4,349,144)
<TOTAL-LIABILITY-AND-EQUITY> 25,059,529 16,463,323
<SALES> 43,594,547 36,044,438
<TOTAL-REVENUES> 43,594,547 36,044,438
<CGS> 25,371,134 22,713,227
<TOTAL-COSTS> 9,352,246 5,767,764
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,204,208 7,595,684
<INCOME-TAX> 3,773,725 3,115,648
<INCOME-CONTINUING> 5,430,484 4,480,036
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,430,484 4,480,036
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
