<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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POWERWAVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------
<TABLE>
<S> <C> <C>
DELAWARE 3663 11-2723423
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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:
<TABLE>
<S> <C>
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
PHONE: (714) 725-4000
FACSIMILE: (714) 725-4100
</TABLE>
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
<TABLE>
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<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE PROPOSED OFFERING AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par value....... 3,450,000 $18.5625 $64,040,625 $19,406
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</TABLE>
(1) Includes 450,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee based upon the average of the high and low prices of
the Registrant's Common Stock on the Nasdaq National Market on June 2,
1997.
--------------
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.
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<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JUNE 4, 1997
3,000,000 Shares
LOGO
OF POWERWAVE TECHNOLOGIES, INC.
Common Stock
--------
Of the 3,000,000 shares of Common Stock offered hereby, 750,000 shares are
being sold by Powerwave Technologies, Inc., a Delaware corporation ("Powerwave"
or the "Company") and 2,250,000 shares are being sold by certain shareholders
(the "Selling Shareholders"). The Company will not receive any of the proceeds
from the sale of shares by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "PWAV." On June 2, 1997, the last reported sale price
for the Common Stock on the Nasdaq National Market was $18.625 per share. See
"Price Range of Common Stock."
--------
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.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total (3)........................ $ $ $ $
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</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting offering expenses estimated at $500,000 payable by the
Company.
(3) The Company and certain of the Selling Shareholders have granted the
Underwriters a 30-day option to purchase up to 450,000 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, Proceeds to
Company and Proceeds to Selling Shareholders 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
, 1997.
Alex. Brown & Sons
INCORPORATED
UBS Securities
Wessels, Arnold & Henderson
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[Graphic displaying difference between single carrier power amplifier using
separate cavity filters and Company's multi-carrier power amplifier]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<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-carrier power amplifiers to
significantly reduce RF interference thereby increasing the efficiency of the
wireless service provider's network.
Powerwave manufactures both single carrier and multi-carrier amplifiers, with
a primary focus on multi-carrier products. Multi-carrier 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 and personal communications
services ("PCS") base stations in both digital and analog-based networks. The
Company's products support a wide range of digital and analog transmission
protocols including CDMA, TDMA, GSM, 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 began selling RF power amplifiers for use in analog wireless
networks in 1985. In 1995, the Company began selling multi-carrier 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 install a nationwide digital cellular network.
In the first quarter of 1997, the Company began initial volume shipments of PCS
amplifiers to customers in South Korea which, in addition to installing a
digital cellular network, is implementing a new nationwide digital PCS network.
The Company's customers in the South Korean market include Hyundai Electronics
Industries Co., Ltd. ("Hyundai"), LG Information & Communications Co., Ltd.
("LGIC") and Samsung Electronics Co. Ltd. ("Samsung"). The Company also sells
amplifiers domestically to numerous wireless infrastructure equipment
suppliers, including ADC Wireless Systems, Inc., AirNet Communications Corp.,
AT&T Wireless Services, BellSouth Cellular 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 improved 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 which utilizes a higher frequency range and lower power than traditional
cellular networks. 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 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-carrier amplifier supplier; (iii)
expand relationships with leading original equipment manufacturers ("OEMs");
(iv) increase penetration in the PCS market; (v) maintain its commitment to
quality, reliability and manufacturability; and (vi) increase Powerwave's
involvement in its customers' 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 are
located at 2026 McGaw Avenue, Irvine, California 92614, and its telephone
number is (714) 757-0530.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company.............. 750,000 shares
Common Stock offered by the Selling Shareholders. 2,250,000 shares
Common Stock to be outstanding after the Offering 17,031,324 shares(1)
Use of proceeds.................................. The net proceeds of the
Offering will be used for
capital expenditures, new
product development, working
capital and other general
corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol.................... PWAV
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $22,861 $36,044 $60,331 $13,807 $20,243
Cost of sales.......... 14,466 22,713 34,770 8,229 11,528
Gross profit........... 8,395 13,331 25,561 5,578 8,715
Operating expenses:
Sales and marketing.. 570 1,557 4,365 1,056 1,581
Research and
development......... 1,433 2,252 5,770 1,075 2,211
General and
administrative...... 1,518 1,958 2,991 612 943
Total operating
expenses.............. 3,521 5,767 13,126 2,743 4,735
Operating income....... 4,874 7,564 12,435 2,835 3,980
Other income
(expense)............. (20) 32 484 59 473
Income before income
taxes................. 4,854 7,596 12,919 2,894 4,453
Provision for income
taxes................. 1,908 3,116 5,297 1,186 1,692
Net income ............ $ 2,946 $ 4,480 $ 7,622 $ 1,708 $ 2,761
Pro forma net income
and net income per
share(2).............. $ .31 $ .52 $ .12 $ .17
Pro forma weighted
average and weighted
average common
shares................ 14,475 14,606 14,475 16,728
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $37,341 $50,221
Total assets........................................... 58,381 71,261
Long-term debt......................................... 631 631
Total shareholders' equity............................. 43,702 56,582
</TABLE>
- --------
(1) Excludes 1,949,375 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 30, 1997 at a weighted average
exercise price of $4.36 per share, other than options to acquire 40,000
shares that will be exercised, and which underlying shares will be sold in
the Offering, by certain Selling Shareholders. Under an agreement with the
Company, certain shareholders have agreed that, once the Company has issued
an initial 1,095,000 shares of Common Stock under the 1995 Stock Option
Plan, the next 843,615 shares issued under that Plan upon option exercises
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) See Note 2 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the sale by the Company of 750,000 shares of Common
Stock at an assumed public offering price of $18.625 per share and the
application of the estimated net proceeds therefrom and the receipt of the
exercise price related to the exercise of options to purchase 40,000 shares
which are being sold in the Offering. 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."
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 are based on the beliefs
of, and estimates and assumptions made by and information currently available
to, the Company's management. Such statements are subject to certain risks,
uncertainties and assumptions. Actual results may vary materially from those
expected or anticipated in these forward-looking statements, including those
set forth below and elsewhere in this Prospectus. See "Certain Forward-Looking
Statements."
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 three largest customers include,
in alphabetical order, Hyundai, LGIC and Samsung. For the quarter ended March
30, 1997, these customers, each of which accounted for more than 20% of the
Company's net sales for such period, accounted for approximately 83% of the
Company's net sales. For fiscal 1996, these customers accounted for
approximately 75% of the Company's net sales. Hyundai, LGIC and Samsung
currently purchase products primarily for implementation in the South Korean
digital cellular telephone network. During the fourth quarter of 1996, they
began purchasing PCS products for the planned implementation in South Korea of
a new digital PCS network with initial operation targeted for January 1998.
The Company expects that these three customers will account for a substantial
majority of the Company's PCS product sales for the foreseeable future. In
addition, the Company currently believes that the South Korean digital
cellular network is more than 60% completed and that the build-out phase of
this network will begin declining during 1997 with full deployment estimated
to be completed by the end of 1998. The delay, termination or early completion
of the implementation of the South Korean digital cellular or PCS
communications networks would have a material adverse effect on the Company's
business, results of operations and financial condition.
A limited number of large OEMs account for a majority of RF power amplifier
purchasers in the wireless infrastructure equipment 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 and product delivery schedules, 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 upon its ability to
expand its customer base and, in particular, to successfully market its
products to OEMs for wireless networks and have its products chosen over any
internally designed or manufactured products.
The Company currently sells to its major customers under purchase orders
which are usually placed with short delivery requirements. As such, while the
Company receives periodic order forecasts from its major customers, such
customers have no obligation to purchase the forecasted amounts and may cancel
orders, change delivery schedules or change the mix of products ordered with
minimal notice. 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
6
<PAGE>
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 and
increased employee levels would reduce the Company's liquidity and could have
a material adverse effect on the Company's business, 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 83% of the Company's net sales for the quarter
ended March 30, 1997, and approximately 75% of the Company's net sales for
fiscal 1996. These customers are expected to continue to account for a
substantial majority of the Company's sales during the remainder of 1997.
These customers supply equipment for implementation in the South Korean
digital cellular and PCS networks. During fiscal 1995, 1996 and the first
quarter of 1997, Hyundai, LGIC and Samsung purchased multi-carrier linear RF
power amplifiers for installation in the build-out of the South Korean digital
cellular network. The delay or termination of the implementation of the South
Korean digital cellular network would have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company currently believes that the South Korean digital
cellular network is more than 60% completed and that the build-out phase of
this network will begin declining during 1997 with full deployment estimated
to be completed by the end of 1998. Accordingly, the Company's sales directly
related to the South Korean digital cellular network are anticipated to
decrease significantly over the same time period.
In contrast to the South Korean digital cellular network, the build-out of
the South Korean PCS network is in its initial stages. During the first
quarter of 1997, the Company began shipping in volume PCS single carrier
amplifiers for use in the new PCS network being built in South Korea. The
delay or termination of the infrastructure build-out of the South Korean PCS
network would have a material adverse effect on the Company's business,
results of operations and financial condition. Further, even if this network
is developed as anticipated, there can be no assurance that the Company's PCS
products will achieve market acceptance, or be capable of being manufactured
at competitive prices in sufficient volumes. In the event that the Company's
PCS products are not timely developed or do not gain market acceptance or are
not capable of being manufactured at competitive costs, the Company's
business, results of operations and financial condition would be materially
adversely affected.
Hyundai, LGIC and Samsung 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 sale 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 in
the United States the Federal Communications Commission ("FCC") has adopted
regulations requiring local phone companies to reduce the rates charged to
cellular carriers for
7
<PAGE>
connection to their wireline networks, it is anticipated that wireless service
rates will remain higher than rates charged by traditional wireline companies.
The growth in the implementation of wireless communications services is
dependent upon both developed countries, such as the United States, allowing
continued deployment of new networks, and less developed foreign countries
deploying wireless communications networks as opposed to constructing wireline
infrastructures. 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, the availability and cost of related equipment or other delays in
the implementation of these systems, 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. See "--Risks of Doing Business in International Markets."
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; capacity and
production constraints associated with single source component suppliers; the
timing, availability and sale of new products by the Company; product failures
and associated in-field support; 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, changes in the mix of products
sold, 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's quarterly results of operations will not be
similarly adversely affected 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."
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
8
<PAGE>
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.
In the fourth quarter of 1996, the Company introduced single carrier
amplifiers for PCS networks, and it is anticipated that such products will
account for an increasing percentage of the Company's net sales in the near
future. Sales of single carrier amplifiers are subject to intense price
competition and tend to carry lower gross margins than multi-carrier products.
In addition, the Company has recently increased production levels for its
single carrier PCS products and, as a result, has had difficulty reducing the
cost of materials for such products during this ramp-up. In the event that the
Company is unable to reduce the manufacturing costs of its single carrier
amplifiers and such amplifiers account for an increased percentage of net
sales, the Company's overall gross margins would be materially adversely
affected.
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
and product quality to meet increasing product demand and new product
introductions. Inaccuracies in demand forecasts in the environment in which
the Company operates can result in either insufficient or excessive
inventories and disproportionate overhead expenses. Any degradation in product
quality could adversely impact production rates, product delivery schedules
and overhead expenses associated with product support. The Company continues
to implement a number of new financial and management controls, reporting
systems and procedures. 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 to meet
demand forecasts. In the event that the Company's new personnel are unable to
work effectively as a team or achieve desired production levels and product
quality or if the Company's demand forecasts are incorrect, 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,
results of operations 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, particularly qualified engineers, is intense,
and the loss of a significant number 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
operations and financial condition.
DEPENDENCE ON SINGLE SOURCES FOR KEY COMPONENTS
The Company currently procures, and expects to continue to procure, certain
components from single source manufacturers due to unique component designs as
well as certain quality and performance
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requirements. In addition, in order to take advantage of volume pricing
discounts, the Company purchases certain customized components for its products
from single sources. The Company has experienced, and may in the future
experience, shortages of single-sourced components. In such event, the Company
may have to make adjustments to both product designs and production schedules.
If such single-sourced components were to become unavailable in sufficient
quantities or were to become available only on terms unsatisfactory to the
Company, the Company would be required to purchase comparable components from
other sources and "retune" its products to function properly with the
replacement components or redesign its products to use other components, either
of which could result delays in production and delivery. If for any reason the
Company could not obtain comparable replacement components in sufficient volume
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 operations and financial
condition could be adversely affected. In addition, if the Company were unable
to obtain sufficient quantities of single-sourced 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 as
well as potential customers.
COMPETITION
The wireless 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 wireless
infrastructure OEMs 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 the amplifiers
manufactured by these OEMs 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. See "--
Internal Amplifier Production Capabilities of OEMs."
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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. Several 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, performance and quality, 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.
During the first quarter of 1997, the Company continued to invest significant
resources in the development and manufacture of RF power amplifiers for PCS
networks and expects to continue to invest significant resources in this area.
There can be no assurance that the deployment of PCS networks will not be
delayed or that the Company's PCS products will achieve market acceptance or
be capable of being manufactured at competitive prices in sufficient volumes.
In the event the Company's PCS products are not timely and economically
developed and are not produced in sufficient quantities or do not achieve
widespread market acceptance, the Company's business, results of operations
and financial condition would be materially adversely affected.
In addition to its PCS development efforts, the Company continues to develop
improvements and additions to its cellular line of amplifier products,
including the Company's next-generation multi-carrier linear cellular
amplifier. Any 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. See "Business--Product Development."
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
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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 and engineers. 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. The
Company has been required to replace certain components in some of its
products in accordance with warranty provisions under which the products were
sold. The Company recently introduced single carrier RF power amplifiers for
PCS networks and anticipates that it will continue to introduce new-generation
RF power amplifier products for both cellular and PCS networks. Companies
involved in the development and manufacture of new products which contain
complex technologies often encounter difficulties in performance and
reliability and encounter delays in product introduction and volume shipments.
The Company believes that customers will demand increasingly stringent product
performance, quality and reliability. The Company has in the past experienced,
and may from time to time in the future experience, quality problems with its
products. If any of these problems were to occur on a significant level, the
Company could experience increased costs, delays in or cancellations of, 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.
There can be no assurance that the Company's product designs will continue to
be successful or will keep pace with technological developments, evolving
industry standards and communications protocols, and allow for continuous
improvements in product quality and meet the quality standards of customers.
Any potential design problems could damage relationships with both existing
and prospective customers and, in particular, could limit the Company's
ability to market its products to large OEMs, many of which manufacture power
amplifiers internally and have stringent quality control standards. See "--
Internal Amplifier Production Capabilities of OEMs."
INTERNAL AMPLIFIER PRODUCTION CAPABILITIES OF OEMS
Many of the leading wireless 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. Certain customers of the Company have produced internally
designed amplifiers in an attempt to replace products manufactured by the
Company. The Company expects that this practice will continue. In addition,
one of the Company's customers has entered into a joint venture manufacturing
arrangement with one of the Company's competitors. In the event that customers
of the Company do manufacture their own 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 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. There can be no assurance that the Company will continue to enter
into supply contracts with OEMs on terms that are acceptable to the Company,
if at all, or that such 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. If, for any reason, the
Company's major customers decide to produce their RF power amplifiers
internally or through joint ventures with other competitors, the Company's
business, results of operations and financial condition could be materially
adversely affected.
The Company's customers and other wireless 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
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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 the Company's major customers
decide to not purchase products from the Company due to the Company's
relationship to other customers, the Company's business, results of operations
and financial condition could be materially adversely affected.
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS
For the fiscal years 1995, 1996 and the first quarter ended March 30, 1997,
international revenues accounted for approximately 67%, 77% and 85%,
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, restrictions against
the 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 the Company's customers expect will deploy wireless communication
networks as an alternative to the construction of a wireline infrastructure.
If such countries decline to construct wireless communication systems, or
construction of such systems are 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, such delays could
have a material adverse effect on the Company's business, results of
operations and financial condition. 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. There have been recent press reports of
deteriorating living conditions within North Korea, which could lead to civil
unrest possibly resulting in potential military conflicts with South Korea.
Any conflict, either political or military, between North and South Korea
could have a material adverse impact on the Company's business, results of
operations and financial condition. 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.
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 a 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.
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
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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 the Company will be able to successfully protect its
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. See "Business--
Intellectual Property."
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 event 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. Further, 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
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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 may
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.
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 adopted
new regulations that impose more stringent radio frequency emissions standards
on the communications industry and there can be no assurance that 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 may have fewer opportunities to participate in the formation
of 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 liberalization 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.
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
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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.
CONTROL BY DIRECTORS, OFFICERS AND AFFILIATED ENTITIES
The Company's directors, officers and entities affiliated with them will, in
the aggregate, beneficially own approximately 58% 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."
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 17,031,324 shares of Common Stock outstanding. Of these outstanding
shares of Common Stock, a total of 5,778,827 shares, including the 3,000,000
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 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.
Certain officers, directors, Selling Shareholders and certain other
shareholders owning in the aggregate 10,192,443 shares, have agreed, pursuant
to certain lock-up agreements, that they will not offer, sell, contract to
sell, grant any option to sell or otherwise
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dispose of, directly or indirectly, any shares of Common Stock owned by them
for a period of 90 days after the date of this Prospectus without the prior
written consent of Alex. Brown & Sons Incorporated. Furthermore, all executive
officers, officers and directors have agreed to be precluded from selling any
shares issuable to them through the exercise of options for a 90-day lock-up
period. As of the date of this Prospectus 1,015,054 restricted shares are
available for sale under Rule 144 or 144(k). Upon expiration of the lock-up
agreements, approximately 319,818 additional shares of Common Stock held by
existing shareholders will be eligible for sale without restriction pursuant
to Rule 144(k), and approximately 9,872,625 additional shares held by existing
shareholders will be eligible for sale subject to the volume and other
restrictions of Rule 144 and Rule 701. In addition, it is anticipated that
approximately 112,218 shares of Common Stock issuable upon exercise of options
outstanding at May 31, 1997, will become eligible for sale in the public
market under the terms of such options upon the expiration of the lock-up.
Following completion of the Offering, 11,065,500 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 use substantially all of the net proceeds of the
Offering for capital expenditures, to finance new product development and to
increase the Company's funds available for working capital and other general
corporate purposes. The Company may utilize approximately $1.0 million of the
proceeds for capital expenditures related to the purchase of new equipment and
expansion of its facilities. Approximately $1.5 million of the proceeds may be
used toward new product research and development efforts, including research
and development related to PCS and cellular amplifiers and enhancements. The
remainder of the proceeds, approximately $10.3 million, may be used toward
other working capital purposes, such as increasing the Company's engineering
activities and augmenting the Company's sales, marketing, administrative and
technical support organizations. A portion of the net proceeds may also be
used for strategic acquisitions of businesses, products or technologies
complementary to those of the Company; however, the Company is not currently a
party to any commitments or agreements and is not currently involved in any
negotiations with respect to any acquisitions. The Company's management will
have broad discretion to allocate the proceeds of the Offering and the amounts
actually expended for each use listed above may vary significantly depending
on a number of factors, including the amount of future revenues, the amount of
cash generated or used by the Company's operations, the progress of the
Company's product development efforts, technological advances, the status of
competitive products and acquisition opportunities presented to the Company.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in short-term, investment-grade money market instruments. See "Use of
Proceeds."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$18.625 per share are estimated to be $12,770,312 ($17,193,749 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
Shareholders.
The Company expects to use substantially all of the net proceeds of the
Offering for capital expenditures, to finance new product development and to
increase the Company's funds available for working capital and other general
corporate purposes. The Company may utilize approximately $1.0 million of the
proceeds for capital expenditures related to the purchase of new equipment and
expansion of its facilities. Approximately $1.5 million of the proceeds may be
used toward new product research and development efforts, including research
and development related to PCS and cellular amplifiers and enhancements. The
remainder of the proceeds, approximately $10.3 million, may be used toward
other working capital purposes, such as increasing the Company's engineering
activities and augmenting the Company's sales, marketing, administrative and
technical support organizations. A portion of the net proceeds may also be
used for strategic acquisitions of businesses, products or technologies
complementary to those of the Company; however, the Company is not currently a
party to any commitments or agreements and is not currently involved in any
negotiations with respect to any acquisitions.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "PWAV." The following table sets forth for the periods indicated the
range of high and low sales prices for the Company's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1996
December 6 through December 29, 1996...................... $16 1/4 $11
FISCAL YEAR 1997
First Quarter Ended March 30, 1997........................ $25 $14
Second Quarter (through June 2, 1997)..................... $21 3/4 $14 1/2
</TABLE>
On June 2, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $18.625 per share. As of June 2, 1997, the Company
had approximately 37 holders of record of the Common Stock, and the Company
estimates that it had approximately 1,800 beneficial holders of its Common
Stock.
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.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of March 30, 1997 (i) the actual
capitalization of the Company; and (ii) the capitalization of the Company as
adjusted to reflect the receipt of net proceeds from the sale of 750,000
shares of Common Stock offered hereby at an assumed public offering price of
$18.625 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>
MARCH 30, 1997
--------------------
AS
ACTUAL ADJUSTED(1)
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.......................................... $ 631 $ 631
Shareholders' equity:
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized and no shares outstanding................... -- --
Common Stock, $.0001 par value; 40,000,000 shares
authorized, 16,241,324 shares issued and outstanding,
actual; 17,031,324 shares issued and outstanding, as
adjusted (1)(2)........................................ 37,668 50,548
Retained earnings....................................... 18,265 18,265
Less treasury stock at cost............................. (12,231) (12,231)
-------- --------
Total shareholders' equity............................ 43,702 56,582
-------- --------
Total capitalization................................ $ 44,333 $ 57,213
======== ========
</TABLE>
- --------
(1) Adjusted to reflect the sale by the Company of 750,000 shares of Common
Stock at an assumed public offering price of $18.625 per share and the
application of the estimated net proceeds therefrom and the receipt of the
exercise price related to the exercise of options to purchase 40,000
shares which are being sold in the Offering. See "Use of Proceeds" and
"Selected Consolidated Financial Data."
(2) Excludes 1,949,375 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 30, 1997 at a weighted average
exercise price of $4.36 per share, other than options to acquire 40,000
shares that will be exercised, and which underlying shares will be sold in
the Offering, by certain Selling Shareholders. Under an agreement with the
Company, certain shareholders have agreed that, once the Company has
issued an initial 1,095,000 shares of Common Stock under the 1995 Stock
Option Plan, the next 843,615 shares issued under that Plan upon option
exercises 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."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations data set forth below for
each of the fiscal years ended December 31, 1994, 1995 and December 29, 1996
and the balance sheet data as of December 31, 1995 and December 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 statement of operations data for the fiscal year
ended December 31, 1993 and the balance sheet data as of December 31, 1993 and
1994, are derived from the Company's audited financial statements which are
not included herein. The selected financial data with respect to the Company's
consolidated statements of operations for the year ended December 31, 1992 and
the consolidated balance sheet as of December 31, 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 three months ended March 31,
1996 and March 30, 1997 and the consolidated balance sheets as of March 31,
1996 and March 30, 1997, are derived from the Company's unaudited consolidated
financial statements. The unaudited consolidated 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 three months ended March 30, 1997 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
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $4,083 $8,717 $22,861 $36,044 $60,331 $ 13,807 $ 20,243
Cost of sales........... 2,928 6,567 14,466 22,713 34,770 8,229 11,528
------ ------ ------- ------- ------- --------- ---------
Gross profit............ 1,155 2,150 8,395 13,331 25,561 5,578 8,715
------ ------ ------- ------- ------- --------- ---------
Operating expenses:
Sales and marketing.... 200 387 570 1,557 4,365 1,056 1,581
Research and
development........... 380 581 1,433 2,252 5,770 1,075 2,211
General and
administrative........ 384 559 1,518 1,958 2,991 612 943
------ ------ ------- ------- ------- --------- ---------
Total operating
expenses............... 964 1,527 3,521 5,767 13,126 2,743 4,735
------ ------ ------- ------- ------- --------- ---------
Operating income........ 191 623 4,874 7,564 12,435 2,836 3,980
Other income (expense).. 6 (5) (20) 32 484 59 473
------ ------ ------- ------- ------- --------- ---------
Income before income
taxes.................. 197 618 4,854 7,596 12,919 2,894 4,453
Provision for income
taxes.................. 35 267 1,908 3,116 5,297 1,186 1,692
------ ------ ------- ------- ------- --------- ---------
Net income.............. $ 162 $ 351 $ 2,946 $ 4,480 $ 7,622 $ 1,708 $ 2,761
====== ====== ======= ======= ======= ========= =========
Pro forma net income and
net income per
share(1)............... $ .31 $ .52 $ .12 $ .17
======= ======= ========= =========
Pro forma weighted
average and weighted
average common shares.. 14,475 14,606 14,475 16,728
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 396 $ 359 $ 3,030 $ 5,861 $32,386 $ 6,002 $ 36,021
Working capital......... 592 679 3,486 9,640 33,243 10,946 37,341
Total assets............ 1,631 4,446 9,551 16,463 46,932 19,467 58,381
Long-term debt.......... 63 56 176 138 520 120 631
Total shareholders'
equity(2).............. 845 1,196 4,142 10,620 36,843 11,878 43,702
</TABLE>
- -------
(1) See Note 2 of Notes to Consolidated Financial Statements.
(2) Includes amounts attributable to Preferred Stock at December 31, 1995 and
March 31, 1996.
20
<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 and PCS base stations and
support a broad range of analog and digital transmission protocols, including
CDMA, TDMA, GSM, AMPS and TACS. The Company also produces power amplifiers for
the SMR market. The Company's customer base consists primarily of OEMs of
wireless infrastructure equipment as well as wireless network operators and
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-carrier linear RF amplifier which
could be utilized in the transmission of radio signals for cellular base
stations. In 1995, the Company began supplying multi-carrier linear RF
amplifiers for use in the deployment of a new digital cellular network
utilizing CDMA technology in South Korea. This new South Korean digital
cellular network began operating during 1996 with two independent service
providers offering nationwide coverage. SK Telecom, one of the two digital
cellular operators in South Korea, has reported that approximately one million
subscribers were using its digital CDMA network as of March 30, 1997. During
1996, the Company commenced development of linear RF amplifier products for
PCS networks. During the fourth quarter of 1996, the Company began supplying
single carrier RF amplifiers for use in the deployment of a new PCS network in
South Korea which is estimated to begin operation in January 1998. See "Risk
Factors--Reliance upon South Korean Market and Growth of Wireless Services
Market" and "--Internal Amplifier Production Capabilities of OEMs."
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 three largest customers include,
in alphabetical order, Hyundai, LGIC and Samsung. For the three months ended
March 30, 1997, these customers, each of which accounted for more than 20% of
the Company's net sales, accounted for approximately 83% of the Company's net
sales. 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 network and
have begun initial volume purchases of products for implementation in the PCS
network under deployment in South Korea. The Company expects that sales to
these customers of products for use in the South Korean digital 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 the wireless infrastructure equipment 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. See "Risk Factors--Customer
Concentration" and "--Internal Amplifier Production Capabilities of OEMs."
21
<PAGE>
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. 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 both its
multi-carrier and single carrier amplifier products. Wireless infrastructure
equipment manufacturers have come under increasing price pressure from
wireless service providers, which in turn has resulted in downward pricing
pressure on the Company's products. 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 generate 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. See "RiskFactors--Customer Concentration," "--Reliance upon South
Korean Market and Growth of Wireless Services Market" and "--Declining Average
Sales Prices."
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, 1994, 1995 and
December 29, 1996 and the three-month periods ended March 31, 1996 and March
30, 1997.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
<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........... 63.3 63.0 57.6 59.6 56.9
----- ----- ----- ----- -----
Gross profit............ 36.7 37.0 42.4 40.4 43.1
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing... 2.5 4.3 7.2 7.6 7.8
Research and
development.......... 6.3 6.3 9.6 7.8 10.9
General and
administrative....... 6.6 5.4 5.0 4.4 4.7
----- ----- ----- ----- -----
Total operating
expenses............... 15.4 16.0 21.8 19.8 23.4
----- ----- ----- ----- -----
Operating income........ 21.3 21.0 20.6 20.6 19.7
Other income (expense).. (0.1) 0.1 0.8 0.4 2.3
----- ----- ----- ----- -----
Income before income
taxes.................. 21.2 21.1 21.4 21.0 22.0
Provision for income
taxes.................. 8.3 8.7 8.8 8.6 8.4
----- ----- ----- ----- -----
Net income.............. 12.9% 12.4% 12.6% 12.4% 13.6%
===== ===== ===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996
Net Sales
The Company's net sales are primarily derived from the sale of RF power
amplifiers for use in wireless communications networks. Net sales increased by
67.4% from $36.0 million for the year ended December 31, 1995 to $60.3 million
for the year ended December 29, 1996. The growth in revenue was primarily
attributable to increased demand for cellular multi-carrier amplifiers,
partially offset by a decrease in sales of SMR and paging amplifiers. Fiscal
1996 saw continued growth in the demand for cellular multi-carrier amplifiers
by the Company's South Korean customers as they continued deployment of the
digital
22
<PAGE>
cellular CDMA system in South Korea. The Company expects sales of cellular
multi-carrier amplifiers for deployment in South Korea to decline during 1997
with full deployment estimated to be completed during 1998. For the year ended
1996, cellular multi-carrier amplifiers (including racks) accounted for
approximately 79.5% of revenues or $48.0 million, compared to approximately
54.5% or $19.6 million for 1995. SMR and paging amplifiers accounted for
approximately 10.8% or $6.5 million of revenues for 1996, compared to
approximately 29.1% or $10.5 million of revenues for 1995. Air-to-ground
amplifiers accounted for approximately 8.6% or $5.2 million for fiscal 1996,
compared to 15.4% or $5.6 million for 1995. PCS products accounted for 1.1% of
revenues or $0.7 million in 1996 compared to none for 1995. International
sales accounted for 77.2% of revenues for 1996, compared with 67.1% for 1995.
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test labor,
overhead, warranty costs and royalties. Gross profit margins for 1995 and 1996
were 37.0% and 42.4%, respectively. The increase in gross margins during 1996
was primarily attributable to reductions in manufacturing costs and a shift in
sales mix to cellular, multi-carrier linear RF amplifiers which achieved a
higher percentage of sales, generating improved gross margins. While the
Company continues to strive for manufacturing cost reductions to offset
pricing pressures on its products, there can be no assurance that these cost
reduction efforts will continue to keep pace with price declines. If the
Company is unable to continue to obtain cost reductions, its gross margins and
profitability will be adversely affected. For a discussion of the effects of
declining average sales prices on the Company's business, see "Risk Factors--
Declining Average Sales Prices."
Operating Expenses
Sales and marketing expenses consist primarily of sales commissions,
salaries and other expenses for sales and marketing personnel, travel
expenses, reserves for credit losses and trade show expenses. Sales and
marketing expenses increased by 180.3% from $1.6 million for the year ended
December 31, 1995 to $4.4 million for the year ended December 29, 1996. Sales
and marketing expenses as a percentage of sales were 4.3% and 7.2%,
respectively. The increase in sales and marketing expenses during 1996 was
primarily attributable to increases in the sales and marketing staff and sales
commissions related to increased product sales. In addition, during 1996 a
North American manufacturer's sales representative organization was
established. The Company intends to continue increasing its investment in
sales and marketing in future periods.
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 156.2% from $2.3 million for
the year ended December 31, 1995 to $5.8 million for the year ended December
29, 1996. Research and development expenses as a percentage of sales were 6.3%
and 9.6%, respectively. The increase in research and development expenses
during 1996 was primarily attributable to increased staffing and associated
engineering costs related to continued new product development, including the
Company's second generation multi-carrier linear RF amplifier for cellular
networks and ongoing product enhancements. In addition, during the second
quarter of 1996, the Company began research and development work, which
continued throughout the remainder of the year, on amplifier products for the
rapidly developing PCS market. The Company intends to continue to emphasize
investment in research and development programs in future periods with current
programs covering both PCS and cellular products.
23
<PAGE>
General and administrative expenses consist primarily of salaries and other
expenses for management, finance, facilities maintenance and human resources.
General and administrative expenses increased by 52.7% from $2.0 million for
the year ended December 31, 1995 to $3.0 million for the year ended December
29, 1996. General and administrative expenses as a percentage of sales were
5.4% and 5.0%, respectively. The increase in actual general and administrative
expenses during 1996 was primarily attributable to increased staffing costs
associated with supporting the Company's increased revenues and personnel. In
addition, during 1996 there were significant expenses associated with an
upgrade of the Company's computer systems and controls.
Other Income
The Company earned net interest income of $.5 million in 1996 compared to
$32,000 for 1995. The increase in interest income is attributable to the
larger cash balances the Company maintained during 1996 which were invested in
short-term money market instruments.
Provision for Income Taxes
The Company's effective tax rate was 41.0% for both years ending December
31, 1995 and December 29, 1996.
YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995
Net Sales
The Company's revenues increased 57.7% from $22.9 million in 1994 to $36.0
million in 1995. The increase in revenues from 1994 to 1995 was principally
attributable to the introduction of several new cellular multi-carrier linear
RF power amplifier products. In 1994, three domestic customers accounted for
approximately 65% of total revenues, while in 1995 the same three customers
accounted for approximately 17% of net sales, and three new customers from
South Korea accounted for approximately 57% of sales. For 1994, SMR and paging
systems accounted for approximately 56% of revenues, while air-to-ground
amplifier sales accounted for approximately 30% of revenues. Multi-carrier
linear RF amplifiers accounted for approximately 5% of revenues for 1994. For
1995, multi-carrier linear RF amplifiers accounted for approximately 54% of
revenues, while SMR and paging accounted for approximately 29% of revenues.
Revenues attributed to air-to-ground amplifiers were reduced to approximately
15% of revenues for 1995. The increase in multi-carrier amplifier sales during
1995 was largely attributable to supplying the Company's South Korean
customers for the implementation of the digital cellular network in South
Korea. For fiscal years 1994 and 1995, international revenues accounted for
8.7% and 67.1%, respectively, of the Company's net sales.
Gross Profit
Gross profit margins were 36.7% and 37.0% in 1994 and 1995, respectively.
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-carrier linear RF
amplifier products, which have higher gross margins.
Operating Expenses
Sales and marketing expenses increased 173.1% from $0.6 million in 1994 to
$1.6 million in 1995. Sales and marketing expenses as a percentage of revenues
were 2.5% and 4.3% in 1994 and 1995, respectively. 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 increased in 1995 by 57.2% from $1.4
million in 1994 to $2.3 million in 1995. Research and development expenses as
a percentage of revenues were 6.3% in both 1994 and 1995. The increase in
expenses between 1994 and 1995 was primarily due to increased
24
<PAGE>
personnel costs, materials costs related to design and development of product
prototypes, consulting costs and related overhead expenses which included
development during 1994 and 1995 of multi-carrier linear RF amplifiers for the
cellular marketplace.
General and administrative expenses increased by 29.0% from $1.5 million in
1994 to $2.0 million in 1995. General and administrative expenses as a
percentage of revenues were 6.6% and 5.4% in 1994 and 1995, respectively. The
increase in actual general and administrative expenses between 1994 and 1995
was primarily due to additions in personnel and related labor costs.
Other Income (Expense)
The Company incurred net interest expense in 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 39.3% and 41.0% for the years ended
December 31, 1994 and 1995, respectively.
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 30, 1997
Net Sales
Sales increased by 46.6% to $20.2 million for the quarter ended March 30,
1997 from $13.8 million for the quarter ended March 31, 1996. The growth in
revenue was primarily attributable to increased sales of cellular multi-
carrier linear amplifiers, as well as initial sales of single carrier PCS
amplifiers, offset by a decrease in sales of SMR amplifiers along with no
sales of air-to-ground amplifiers. The first quarter of fiscal 1997
experienced continued demand for cellular multi-carrier amplifiers by the
Company's South Korean customers as they continued deployment of the digital
cellular CDMA system in South Korea. The Company currently expects sales of
cellular multi-carrier amplifiers for deployment in South Korea to decline
during 1997 with full deployment estimated to be completed during 1998.
For the quarter ended March 30, 1997, cellular multi-carrier amplifiers
(including racks) accounted for approximately 84.0% of revenues or $17.0
million, compared to approximately 63.9% or $8.8 million for the first quarter
of fiscal 1996. The first quarter of 1997 saw an increase in the demand for
PCS single carrier products with initial volume shipments of such products.
PCS products accounted for approximately 8.8% of revenues or $1.8 million for
the first quarter of 1997 compared to none for the first quarter in 1996. The
Company anticipates that PCS products will account for an increasing
percentage of the Company's net sales in the near future. SMR (including
paging) amplifiers accounted for approximately 7.2% or $1.5 million of
revenues for the quarter ended March 30, 1997, compared to approximately 19.4%
or $2.7 million of revenues for the quarter ended March 31, 1996. There were
no sales of air-to-ground amplifiers for the first quarter of 1997 compared to
approximately $2.3 million or 16.7% of sales for the quarter ended March 31,
1996. In January 1997, In-Flight Phone Corporation, one of the Company's major
customers for air-to-ground amplifiers, filed for Chapter 11 Bankruptcy
protection. The Company had previously fully reserved its accounts receivable
exposure to this customer and does not expect this bankruptcy filing to have
any material impact on the Company's financial condition. International sales,
primarily to customers in South Korea, accounted for 84.7% of revenues for the
quarter ended March 30, 1997, compared with 60.0% for the quarter ended March
31, 1996.
Gross Profit
Gross profit margins for the first quarter of fiscal 1997 and 1996 were
43.1% and 40.4%, respectively. The increase in gross margins was primarily
attributable to reductions in manufacturing costs and a shift in sales mix to
cellular, multi-carrier linear RF amplifiers which achieved a higher
percentage of sales,
25
<PAGE>
generating improved gross margins. The Company anticipates that its sales of
single carrier PCS amplifiers, which have lower sales prices and potentially
lower gross margins, will increase in the near future which will accordingly
impact the Company's total gross margins. While the Company continues to
strive for manufacturing cost reductions to offset pricing pressures on its
products, there can be no assurance that these cost reduction efforts will
continue to keep pace with price declines. If the Company is unable to
continue to obtain cost reductions, its gross margins and profitability will
be adversely affected. 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 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. The Company has introduced new products at lower sales prices which
could impact the average sales prices of the Company's products. Future
pricing actions by the Company and its competitors may also 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. For a discussion of the impact of new
products on the Company's business, see "Risk Factors--Rapid Technological
Change; Dependence on New Products."
Operating Expenses
Sales and marketing expenses increased by 49.7% to $1.6 million for the
quarter ended March 30, 1997 from $1.1 million for the quarter ended March 31,
1996. As a percentage of sales, sales and marketing expenses were 7.8% 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
continue increasing its actual investment in sales and marketing in future
periods.
Research and development expenses increased by 105.7% to $2.2 million for
the quarter ended March 30, 1997 from $1.1 million for the quarter ended March
31, 1996. Research and development expenses as a percentage of sales were
10.9% and 7.8%, respectively. The increase in research and development
expenses was primarily attributable to increased staffing and associated
engineering costs related to continued new and existing product development,
including the continued development of amplifiers for PCS networks which began
during the third quarter of 1996. There was no PCS development during the
first quarter of 1996. The Company intends to continue to emphasize investment
in research and development programs in future periods with current programs
covering both PCS and cellular products.
General and administrative expenses increased by 54.2% to $.9 million for
the quarter ended March 30, 1997, from $.6 million for the quarter ended March
31, 1996. General and administrative expenses as a percentage of sales were
4.7% and 4.4%, respectively. The increase in actual general and administrative
expenses was primarily attributable to increased staffing costs associated
with supporting the Company's increased revenues.
Other Income
The Company earned other income of $472,778 in the first quarter of 1997
compared to $58,544 for the first quarter of 1996. Other income consists
primarily of interest income, net of any interest expense. The increase in net
interest income is attributed to the Company's increased cash position
maintained during the first quarter of 1997 compared to the cash balances
maintained during the first quarter of 1996. The larger cash balances were due
to both the Company's initial public offering, as well as cash flow generated
from operations. The larger cash balances were invested in short-term money
market instruments.
26
<PAGE>
Provision for Income Taxes
The Company's effective tax rate was 38.0% and 41.0% for the quarters ended
March 30, 1997 and March 31, 1996, respectively.
Selected Quarterly Results of Operations
The following tables present unaudited quarterly financial information for
each quarter of fiscal 1995, 1996 and the first three months of 1997. 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. 29, DEC. 29, MAR. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $4,593 $6,980 $10,811 $13,660 $13,807 $15,301 $14,486 $16,737 $20,243
Cost of sales........... 3,337 4,616 6,601 8,159 8,229 9,000 8,142 9,399 11,528
------ ------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 1,256 2,364 4,210 5,501 5,578 6,301 6,344 7,338 8,715
------ ------ ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 227 338 448 544 1,056 1,103 1,156 1,050 1,581
Research and
development........... 298 461 642 851 1,075 1,375 1,583 1,737 2,211
General and administra-
tive.................. 397 441 450 670 612 671 721 987 943
------ ------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 922 1,240 1,540 2,065 2,743 3,149 3,460 3,774 4,735
------ ------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 334 1,124 2,670 3,436 2,835 3,152 2,884 3,564 3,980
Other income (expense).. 18 (11) (7) 32 59 120 154 151 473
------ ------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 352 1,113 2,663 3,468 2,894 3,272 3,038 3,715 4,453
Provision for income
taxes.................. 144 457 1,093 1,422 1,186 1,342 1,246 1,523 1,692
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 208 $ 656 $ 1,570 $ 2,046 $ 1,708 $ 1,930 $ 1,792 $ 2,192 $ 2,761
====== ====== ======= ======= ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF NET SALES
--------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, DEC. 29, MAR. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 72.7 66.1 61.1 59.7 59.6 58.8 56.2 56.2 56.9
------ ------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 27.3 33.9 38.9 40.3 40.4 41.2 43.8 43.8 43.1
------ ------ ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 5.0 4.8 4.1 4.0 7.6 7.2 8.0 6.3 7.8
Research and
development........... 6.5 6.6 5.9 6.2 7.8 9.0 10.9 10.3 10.9
General and
administrative........ 8.6 6.3 4.2 4.9 4.4 4.4 5.0 5.9 4.7
------ ------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 20.1 17.7 14.2 15.1 19.8 20.6 23.9 22.5 23.4
------ ------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 7.2 16.2 24.7 25.2 20.6 20.6 19.9 21.3 19.7
Other income (expense).. 0.5 (0.3) (0.1) 0.2 0.4 0.8 1.1 0.9 2.3
------ ------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 7.7 15.9 24.6 25.4 21.0 21.4 21.0 22.2 22.0
Provision for income
taxes.................. 3.2 6.5 10.1 10.4 8.6 8.8 8.6 9.1 8.4
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income.............. 4.5% 9.4% 14.5% 15.0% 12.4% 12.6% 12.4% 13.1% 13.6%
====== ====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<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; capacity and
production constraints associated with single source component suppliers; the
timing, availability and sale of new products by the Company; product failures
and associated in-field support; 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 a 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, changes in the mix of
products sold, 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's quarterly results of operations will not be
similarly adversely affected in the future. See "Risk Factors--Fluctuations in
Quarterly Results."
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 nine-quarter period, with significant
quarter to quarter fluctuations. Fluctuations in revenues for 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 four quarters of fiscal 1996 resulted
primarily from increasing demand for cellular multi-carrier linear RF
amplifier products. The Company relocated its manufacturing and headquarters
facility during July 1996, and the transition resulted in a reduction in
revenue during the third quarter of 1996. The growth in revenue for the first
quarter of 1997 was primarily attributable to increased sales of cellular
multi-carrier linear amplifiers as well as initial sales of single carrier PCS
amplifiers, offset by a decrease in sales of SMR amplifiers along with a
reduction in the average sales prices of the Company's multi-carrier cellular
amplifier products. The first quarter of fiscal 1997 experienced continued
demand for cellular multi-carrier amplifiers by the Company's South Korean
customers as they continued deployment of the digital cellular CDMA system in
South Korea.
Gross Profit
Gross profit margins ranged from 27.3% to 43.8% over the nine-quarter
period, with significant quarter to quarter fluctuations. The Company
experienced lower gross profit margins 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
28
<PAGE>
quarter of fiscal 1995 thru fiscal 1996 were primarily attributable to a shift
in the sales mix to cellular multi-carrier linear RF amplifiers, improved
manufacturing efficiencies and lower materials costs. The decline in gross
margins from fourth quarter fiscal 1996 to first quarter fiscal 1997 is
primarily attributable to lower average sales prices and manufacturing
inefficiencies experienced in the introduction of the Company's new PCS single
carrier amplifiers.
Operating Expenses
Sales and marketing expenses increased over the nine-quarter period, with
generally consistent increases quarter to quarter. The increases in sales and
marketing expenses were primarily a result of increased staffing and higher
sales commissions associated with the overall growth in revenue.
Research and development expenses increased substantially over the nine-
quarter period. The increases in research and development expenses were
primarily a result of increased staffing and associated development costs as
the Company staffed several cellular and PCS amplifier development projects.
General and administrative expenses generally increased over the nine-
quarter period in support of increasing revenues. The increases in general and
administrative expenses were primarily a result of increased staffing costs
associated with supporting the Company's revenue growth.
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 both
private and public equity offerings. As of March 30, 1997, the Company had
working capital of $37.3 million, including $36.0 million in cash and cash
equivalents as compared with working capital of $33.2 million at December 29,
1996. The increase in cash balances for the first quarter of 1997 compared to
the prior period was primarily attributed to the Company's initial public
offering which was completed in December 1996 and provided the Company with
additional cash of $18.3 million (net of expenses), and the sale of the over-
allotment common shares which added an additional $3.9 million in January
1997.
Cash provided by operations was approximately $3.7 million, $.9 million,
$11.2 million and $2.5 million in 1994, 1995, 1996, and in the three months
ended March 30, 1997, respectively. Cash generated from operations in 1994 was
primarily due to improved profitability and reductions in accounts receivable.
The reduction in cash flow during 1995 was related to increases in accounts
receivable, inventories and the payment of income taxes payable. The
significant increase in cash generated from operations during 1996 was
primarily a result of increased profitability, improved inventory and working
capital management associated with the Company's larger revenue base. The
increase in cash provided by operations for the first quarter of 1997 is
primarily attributable to increased profitability and an increase in income
taxes payable.
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 Convertible Preferred
Stock at an aggregate price of $15.0 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. This Series A
Convertible Preferred Stock was converted into Common Stock, at a rate of one
and one-half shares of Common Stock for each Series A Convertible Preferred
Stock, due to the successful completion of the December 1996 initial public
offering. A total of 5,063,850 Common Shares were issued upon conversion.
29
<PAGE>
Capital expenditures were approximately $.2 million, $.5 million, $3.8
million and $3.0 million in 1994, 1995, 1996, and in the three months ended
March 30, 1997, respectively. 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. The remainder of capital spending largely represents spending
on electronic test equipment utilized in both the Company's manufacturing and
research and development areas.
On May 30, 1996, the Company entered into a $5.0 million unsecured committed
revolving credit agreement which expired on May 31, 1997. The Company is in
the process of negotiating a new revolving credit facility to replace the
facility and expects to have a new facility in place by the end of the second
quarter of 1997.
The Company had cash and cash equivalents of $36.0 million at March 30,
1997, compared with $32.4 million at December 29, 1996. 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 existing cash balances, funds expected to be
generated from operations and the proceeds of the Offering 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 equipment used in its
manufacturing and research and development operations and expects to continue
to do so in the future. The Company currently anticipates spending
approximately $2.5 million of existing working capital over the next six
months in order to increase production capacity and support additional
research and development activities. 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 the sale of 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 when the Company may require it. See "Risk Factors--Future
Capital Requirements."
30
<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-carrier power amplifiers to significantly reduce
RF interference thereby increasing the efficiency of the wireless service
provider's network.
Powerwave manufactures both single carrier and multi-carrier amplifiers,
with a primary focus on multi-carrier products. Multi-carrier 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 and PCS base
stations in both digital and analog-based networks. The Company's products
support a wide range of digital and analog transmission protocols including
CDMA, TDMA, GSM, AMPS and TACS. 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 began selling RF power amplifiers for use in analog wireless
networks in 1985. In 1995, the Company began selling multi-carrier 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 install a
nationwide digital cellular network. In the first quarter of 1997, the Company
began initial volume shipments of PCS amplifiers to customers in South Korea
which, in addition to installing a digital cellular network, is implementing a
new nationwide digital PCS network. The Company's customers in the South
Korean market include Hyundai, LGIC and Samsung. The Company also sells
amplifiers domestically to numerous wireless infrastructure equipment
suppliers, including ADC Wireless Systems, Inc., AirNet Communications Corp.,
AT&T Wireless Services, BellSouth Cellular 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 56% from 87
million in 1995 to 135 million in 1996. 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.
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
31
<PAGE>
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 which utilizes a higher frequency range than cellular. PCS applications
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. 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. Currently, PCS
networks are operational in a limited number of metropolitan markets
throughout the United States, including Atlanta, Baltimore, Chicago, Dallas,
Denver, Houston, Minneapolis, New York City, Orlando, San Diego, San Francisco
and Washington D.C.
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 subscriber 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 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. Lower frequency signals penetrate into buildings and other
obstacles better than higher frequency signals. 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 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 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
32
<PAGE>
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 carrier 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-carrier
amplifiers, unused channels in cells are temporarily reallocated to augment
more heavily utilized adjacent cells. The signals are amplified simultaneously
through a multi-carrier power amplifier which allows for the simultaneous
amplification of all channels within a base station. Multi-carrier amplifiers
require significantly higher linearity than do single carrier designs, but do
not require separate, high-maintenance, tunable cavity filters. By eliminating
the need for separate cavity filters for each channel, multi-carrier
amplifiers reduce overall deployment and maintenance costs associated with
base stations. While adaptive channel allocation using multi-carrier 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 PCS market is in the initial deployment stage. South Korea expects to
have its nationwide PCS network operational in January 1998. Based on the
build-out pattern experienced in that country's CDMA cellular network and the
configuration of initial PCS base stations, the Company believes that PCS
service providers will use lower capacity single carrier amplifiers to
initiate network service. As capacity becomes a constraint to growth of the
subscriber base, the Company expects that service providers may shift from
single carrier amplifiers to multi-carrier amplifiers.
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-carrier RF power amplifiers in a
repeatable, cost-effective manner.
33
<PAGE>
THE POWERWAVE SOLUTION
Powerwave's focus on multi-carrier 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-carrier power amplifier technology. The Company has developed the
ability to manufacture ultra-linear multi-carrier RF power amplifiers in a
standard, repeatable manner, thus allowing for increased production and
reliability. For the expanding PCS market where less capacity is currently
required, Powerwave offers high performance single carrier power amplifiers.
The Company has also developed a PCS multi-carrier amplifier to address
anticipated capacity constraints in the PCS market. By obtaining components
from numerous leading technology companies, Powerwave believes it is able to
respond quickly and cost-effectively to new transmission protocols and design
specifications. The manufacturability of the Company's existing 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 RF power amplifiers
represents a competitive advantage over other third-party manufacturers of RF
power amplifiers.
Powerwave's ultra-linear multi-carrier 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-
carrier 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 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 signal
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-CARRIER AMPLIFIER SUPPLIER. Powerwave
intends to continue to leverage its experience in supplying ultra-linear
multi-carrier 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-carrier 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 focuses on establishing relationships with new domestic and
international 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 equipment market. In addition, the
Company intends to leverage its existing relationships with its South Korean
customers as they attempt to market their wireless infrastructure equipment
throughout the world.
34
<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.
INCREASE PENETRATION IN THE PCS MARKET. Powerwave intends to continue its
development of PCS single and multi-carrier RF power amplifier products and
utilize its network of sales representatives to market its PCS amplifiers to
customers domestically and worldwide. A limited number of markets are
currently operational in the United States and network operators in Asia and
Europe are also moving forward with PCS technology. In the South Korean
market, three operators have been awarded PCS licenses and the Company is
currently supplying single carrier PCS amplifiers for deployment in these
systems. In the U.S., the Company believes that PCS network operators and
wireless infrastructure equipment 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 wireless infrastructure equipment 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.
35
<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, in 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 increased demand for network infrastructure equipment. Consumer
demand for additional services, combined with capacity constraints and other
limitations of cellular networks, has led to the development of PCS. PCS
networks utilize only digital transmission protocols. A limited number of PCS
networks are currently operational in the United States, and network operators
in Asia and Europe are also moving forward with PCS technology. In the South
Korean market, three operators have been awarded operator licenses and are
currently utilizing single carrier amplifiers for deployment of the new PCS
networks. 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>
ANALOG AMPS = Advanced Mobile Phone Services North America & Asia--800MHz
CELLULAR TACS = Total Access Communication System Europe & Asia--900MHz
NMT = Nordic Mobile Telephone Europe & Asia--900MHz
- --------------------------------------------------------------------------------------------
DIGITAL CDMA = Code Division Multiple Access North America & Asia--800/900MHz
CELLULAR TDMA = Time Division Multiple Access North America & Asia--800/450MHz
GSM = Global System for Mobile Communications Europe & Asia--900MHz
PDC = Pacific Digital Cellular Japan--800/1400MHz
- --------------------------------------------------------------------------------------------
PCS CDMA = Code Division Multiple Access North America & Asia--1800/1900MHz
DCS-1800 = Digital Communications System Europe & Asia--1800MHz
GSM = Global System for Mobile Communications North America & Asia--1900MHz
PHS = Personal Handyphone System Japan--1900MHz
</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.
36
<PAGE>
PRODUCTS
Powerwave designs and manufactures both single carrier and multi-carrier
ultra-linear power amplifiers which are sold into the cellular and PCS markets.
To date, the Company has primarily sold multi-carrier RF power amplifiers to
the more mature cellular market where the multi-carrier products' ability to
increase system capacity is currently in significant demand. In the first
quarter of 1997, the Company began shipping single carrier amplifiers for PCS
networks where service providers have recently begun to establish networks and
accordingly are principally concerned with coverage as opposed to system
capacity. The Company also designs and manufactures single carrier power
amplifiers which are sold into the SMR market.
Although the Company sells single carrier amplifiers, its primary focus is on
the design, manufacture and sale of ultra-linear multi-carrier amplifiers.
These ultra-linear multi-carrier amplifiers utilize a single feedforward 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 feedforward loop design which results in better
tracking between the pilot tone and the actual signal and reduces interference.
Powerwave's multi-carrier 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.
MCA SERIES. The MCA Series offers ultra-linear multi-carrier power amplifier
technology for CDMA and TDMA digital cellular systems positioned between 800-
960 MHz, as well as analog systems utilizing AMPS, TACS, ETACS and GSM
protocols. These amplifiers are designed to be installed in racks of three or
four amplifiers. A smart combiner parallels units to allow for both higher
power as well as system redundancy, which is the ability of the system to
remain operational 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-carrier amplifiers provide remote status/fault monitoring
capabilities.
The MCA8000-250, produces 25 Watts (W) average, 250W peak power per channel
with maximum distortion of -60dBc. Up to four 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-carrier
amplifier, the MCA9100-40 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 MCA8000-250, 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 three units in a rack yields effective power ratings of 32W,
70W and 100W.
PCS SERIES. The PCS Series offers both single and multi-carrier 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 100W. The PCS Series of multi-carrier amplifiers offers
similar power combining, system redundancy, and remote status/fault monitoring
capabilities as the Company's MCA Series.
SMR SERIES. The SMR Series is the Company's standard single carrier 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 10 milliwatts to 30W and produce
output powers ranging from 30W to 250W. These amplifiers have been designed for
simple installation and maintenance and are fully modular for serviceability in
the field. The Company also provides
37
<PAGE>
broadband amplifiers for both digital and analog applications which can be used
as building blocks in larger amplification systems or used as stand-alone
amplifiers.
The Company's multi-carrier power amplifiers range in price from $5,000 to
$15,000 per amplifier, based upon the specification requirements. The Company's
single carrier amplifiers range in price from $500 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.
The Company's primary products are summarized below:
Powerwave MULTI-CARRIER Amplifier Configurations
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
Product Frequency Avg. Power Linearity
Series Protocol (MHz) (Watts) (dBc)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular:
MCA Analog 800-960 32-130 -65
CDMA 851-960 25-100 -65
TDMA 851-960 25-100 -65
GSM 851-960 30-90 -70
PDC 810-830 25-90 -60
ESMR 851-866 32-130 -65
- ------------------------------------------------------------------------------------------
PCS:
PCS CDMA 1805-1880 10-100 -60
DCS-1800 TDMA 1805-1880 10-100 -60
CDMA 1930-1990 10-100 -60
TDMA 1930-1990 10-100 -60
</TABLE>
Powerwave SINGLE CARRIER Amplifier Configurations
<TABLE>
----------------------------------------------------------------------------------------------
<CAPTION>
Product Frequency
Series Protocol (MHz) Avg. Power (Watts)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cellular:
LP CDMA 851-960 10-120
TDMA 851-960 10-120
GSM 851-960 10-120
----------------------------------------------------------------------------------------------
PCS:
PCS CDMA 1805-1880 5-36
TDMA 1805-1880
GSM 1805-1880 2-80
CDMA 1930-1990 5-36
TDMA 1930-1990
GSM 1930-1990 2-80
----------------------------------------------------------------------------------------------
SMR
SMR 30-960 50-160
30-960 30-60
30-960 250
----------------------------------------------------------------------------------------------
LDA LDA: 20-1000 5-150
</TABLE>
38
<PAGE>
CUSTOMERS
The Company sells its products to customers worldwide. During the three
months ended March 30, 1997, sales to Hyundai, LGIC and Samsung accounted for
83% of net sales, with each accounting for more than 20% of net sales. Sales to
these three customers are expected to continue to account for a substantial
majority of sales through the remainder of fiscal 1997. 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. See "Risk
Factors--Customer Concentration; and --Reliance upon South Korean Market and
Growth of Wireless Services Market."
The Company also sells to a wide variety of wireless equipment suppliers,
including ADC Wireless Systems, Inc., AirNet Communications Corp., AT&T
Wireless Services, BellSouth Cellular Corp., Metawave Communications
Corporation and Phoenix Wireless Group, Inc.
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 utilizes a network of independent sales representatives selected
for their familiarity with potential customers of the Company and knowledge of
the wireless infrastructure equipment market. Both the direct sales personnel
and independent sales representatives generate product sales, provide product
and customer service, and provide customer feedback 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 9%, 67%, 77% and
85% of net sales for the years ended December 31, 1994, December 31, 1995,
December 29, 1996 and for the three-month period ended March 30, 1997,
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. The
Company currently has two service employees located in South Korea and utilizes
its South Korean location to provide service support for the Asian region.
39
<PAGE>
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 consisted of 52 people as of March 30, 1997. Expenditures for
product development amounted to approximately $1.4 million in 1994, $2.3
million in 1995, $5.8 million in 1996 and $2.2 million for the three months
ended March 30, 1997.
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 and PCS networks. See "Risk Factors--Rapid
Technological Change; Dependence on New Products."
COMPETITION
The wireless 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 wireless
infrastructure OEMs 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. See "Risk Factors--Internal Amplifier Production Capabilities of
OEMs."
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
40
<PAGE>
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 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 $42.0 million on March 30,
1997 compared to approximately $37.2 million on December 29, 1996. A
substantial portion of the backlog at March 30, 1997 is due to orders from
customers for the South Korean market. The Company includes in 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 currently procures, and expects to continue to procure, 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 from single sources. The Company has experienced, and may
in the future experience, shortages of single source components. In such event,
the Company may have to make adjustments to both product designs and production
schedules which could result in delays in production and delivery. See "Risk
Factors--Dependence on Single Sources for Key Components."
The Company has received 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.
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 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.
41
<PAGE>
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, which sublease expires in October 1997. The Company currently
anticipates utilizing this space once the sublease expires.
EMPLOYEES
As of March 30, 1997, the Company had 315 full and part-time employees,
including 52 in research and development, 12 in sales and marketing and 30 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.
LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation. The Company
is from time to time a party to routine litigation incidental to its business,
none of which, individually or in the aggregate, is expected to have a material
adverse effect on the Company.
42
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the Company's
directors and officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Alfonso G. Cordero........ 57 Chairman of the Board
Bruce C. Edwards.......... 43 President, Chief Executive Officer and
Director
Mercy B. Cordero.......... 48 Vice President, Administration
Kevin T. Michaels......... 38 Vice President, Finance, Chief Financial
Officer and Secretary
Ki Y. Nam................. 37 Vice President, New Business Development
Richard D. Posner......... 54 Vice President, Engineering
Eric A. Tanner............ 37 Vice President, Operations
Mark D. Winters........... 36 Vice President, Quality
Gregory M. Avis (1)....... 38 Director
David L. George (1)....... 43 Director
Eugene L. Goda (2)........ 61 Director
Rich Shapero (2).......... 49 Director
Sam Yau (1)............... 48 Director
</TABLE>
- --------
(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 Corporation.
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.
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 to June
1996. From July 1991 to October 1995 Mr. Michaels was Treasurer of AST
Research, Inc. and from June 1988 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
43
<PAGE>
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., Digital Link Corp.
and Splash Technology Holdings, Inc.
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. Mr. Goda is 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.
SAM YAU has been a member of the Company's Board of Directors since November
1995. Mr. Yau has served as President and 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 and Procom Technology, Incorporated.
All directors hold office until the next annual meeting of shareholders of
the Company and until their successors have been elected and qualified.
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.
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<PAGE>
The Compensation Committee consists of Messrs. Goda and Shapero. The
Compensation Committee establishes remuneration levels for executive officers
of the Company, reviews management organization and development and reviews
executive compensation and significant employee benefit programs.
The Company's outside directors, other than Messrs. Avis and Shapero who
have waived their fees, receive $1,500 per meeting of 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 shareholders of the Company approved the 1996
Director Stock Option Plan (the "Director Plan") which became effective
December 5, 1996. 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 new director
elected after December 5, 1996 will be granted an initial option under the
plan covering 30,000 shares of Common Stock, which option shall vest in annual
installments as to 25% of the optioned shares over a period of four years from
the anniversary of the date of grant. Furthermore, on December 5, 1996 and on
each anniversary date thereof, each director who shall have been an eligible
participant under the Director Plan for at least six months shall be granted
an annual option under the Director Plan to purchase 5,000 shares of Common
Stock, which option shall vest in its entirety on the fourth anniversary of
the date of such grant. The primary purposes of the Director Plan are to
enhance the Company's ability to attract and retain well-qualified persons for
service as directors and to provide incentives to such directors to continue
their associations with the Company. There are 15,000 options outstanding
(5,000 each to Messrs. George, Goda and Yau) under the Director Plan as of
March 30, 1997 at a weighted average exercise price of $11.50.
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.
45
<PAGE>
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 two year period ended December 29, 1996
to the Company's Chairman, and the Company's other executive officers whose
salary and bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Alfonso G. Cordero........................ 1996 $ 85,000 $250,000 $ 12,691(1)
Chairman 1995 85,000 268,000 0
Bruce C. Edwards(2)....................... 1996 114,230 175,000 208(3)
President and Chief Executive Officer
Ki Y. Nam................................. 1996 102,692 150,000 16,300(4)
Vice President, New Business Development 1995 85,000 125,000 0
Peter L. Manno(5)......................... 1996 90,109 40,000 259,428(6)
Executive Vice President
Kevin T. Michaels(7)...................... 1996 48,462 40,000 1,083(8)
Vice President, Finance,
Chief Financial Officer and Secretary
</TABLE>
- --------
(1) Included in this amount is the Company's profit sharing contribution of
$9,100 and the Company's 401(k) plan matching contribution of $687, health
care coverage of $819 and $2,086 of automobile expenses.
(2) Bruce Edwards joined the Company as President and Chief Executive Officer
on February 19, 1996 at an annual base salary of $135,000.
(3) Amount represents the Company's matching contribution to the Company's
401(k) plan.
(4) Included in this amount is the Company's profit sharing contribution of
$10,269 and the Company's 401(k) plan matching contribution of $679,
health care coverage of $1,499 and $3,853 of automobile expenses.
(5) Peter Manno joined the Company as Executive Vice President on April 4,
1996 at an annual base salary of $125,000 and an annual commission of
$75,000, and resigned from the Company on May 2, 1997.
(6) Amount includes $55,228 of annual commission, the Company's matching
contribution to the Company's 401(k) plan of $218, health care coverage of
$576 and $203,407 of relocation expenses.
(7) Kevin Michaels joined the Company as Vice President, Finance and Chief
Financial Officer on June 10, 1996 at an annual base salary of $90,000.
(8) Amount represents health care coverage costs.
OPTION MATTERS
Option Grants. The following table sets forth certain information concerning
grants of options to each of the Company's executive officers named in the
Summary Compensation Table during the fiscal year ended December 29, 1996. In
addition, in accordance with the rules and regulations of the Securities and
Exchange Commission, the following table sets forth the hypothetical gains or
"option spreads" that would exist for the options. Such gains are based on
assumed rates of annual compound stock appreciation of 5% and 10% from the
date on which the options were granted over the full term of the options. The
rates do not represent the Company's estimate or projection of future Common
Stock prices
46
<PAGE>
and no assurance can be given that the rates of annual compound stock
appreciation assumed for the purposes of the following table will be achieved.
OPTION GRANTS DURING FISCAL 1996
<TABLE>
<CAPTION>
% OF POTENTIAL
TOTAL REALIZABLE VALUE AT
OPTIONS ASSUMED RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE EXPIRATION OPTION
OPTIONS IN FISCAL PRICE TERM -------------------
NAME GRANTED(#) YEAR(1) ($/SHARE) DATE(2) 5% 10%
---- ---------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce C. Edwards........ 450,000 29.54% $ 2.67 1/19/06 $754,675 $1,912,493
Peter L. Manno.......... 300,000 19.69% $ 2.67 3/4/06 $503,116 $1,274,996
25,000 1.64% $11.50 12/5/06 $180,807 $ 458,201
Kevin T. Michaels....... 90,000 5.91% $ 4.67 6/10/06 $265,143 $ 672,506
</TABLE>
- --------
(1) Options to purchase an aggregate of 1,523,400 shares of Common Stock were
granted to employees, including the executive officers named in the table,
during the fiscal year ended December 29, 1996.
(2) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
Options Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's executive officers
named in the Summary Compensation Table during the fiscal year ended December
29, 1996, including the aggregate value of gains on the date of exercise. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options as of December 29, 1996. Also reported are the
values for "in the money" options which represent the positive spread between
the exercise prices of any such existing stock options and the fiscal year end
price of common stock.
AGGREGATE OPTION EXERCISES DURING FISCAL 1996
AND OPTION VALUES ON DECEMBER 29, 1996
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/29/96 AT 12/29/96(2)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce C. Edwards........ 112,500 $ 0 0 337,500 $ 0 $4,162,499
Peter L. Manno.......... 0 0 0 325,000 0 3,787,499
Kevin T. Michaels....... 0 0 0 90,000 0 930,000
</TABLE>
- --------
(1) Market value on the date of exercise of shares, less option exercise
price.
(2) In accordance with the Securities and Exchange Commission's rules, values
are calculated by subtracting the exercise price from the fair market
value of the underlying common stock. For purposes of this table, fair
market value per share is deemed to be $15.00, the closing common stock
price reported by Nasdaq on December 27, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Alfonso G. Cordero, Chairman of the Company, served on the Compensation
Committee during the fiscal year ended December 29, 1996.
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 1,095,000 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 December 5, 1996, Stockholders and the Company agreed
that this share redemption agreement
47
<PAGE>
applies only to the exercise of options to purchase a total of 843,615 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 1,050,000 are subject to the
approval of Alfonso G. Cordero and to give Mr. Cordero the right to terminate
the granting of additional option grants under 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. 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. Unique Technologies
International is a customer of the Company and purchases products from the
Company on terms no less favorable to the Company than could otherwise be
obtained from unaffiliated third parties. Total sales during fiscal 1996 did
not exceed $50,000.
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 substantially all of the Company's
Common Stock prior to the Company's initial public offering, 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. This
loan was repaid in full by the Partnership in 1996. 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
approximately 45% of the Company's Common Stock outstanding as of March 30,
1997, 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 executive officers and certain affiliated entities. Such agreements
require the Company to indemnify such individuals to the fullest extent
permitted by Delaware law.
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 March 30, 1997, 131,327 options
have been exercised under the plan and there were 1,804,375 options
outstanding under the 1995 Option Plan at a weighted average exercise price of
$3.34.
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. In the
event that an option holder's employment by the Company is terminated (other
than for cause) within 180 days after any such transaction, such option
holder's options become exercisable in full on the date of termination.
48
<PAGE>
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 1,095,000 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 granting of additional option grants under the Plan may be
terminated at the discretion of Mr. Cordero.
1996 STOCK INCENTIVE PLAN
On October 7, 1996, the shareholders of the Company approved the 1996 Stock
Incentive Plan (the "1996 Plan") which became effective on December 5, 1996.
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 were 170,000 options outstanding under the 1996
Plan as of March 30, 1997, at a weighted average exercise price of $14.02.
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), 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. In addition, in the event that an option
holder's employment by the Company is terminated (other than for cause) within
180 days after a change in control, such option holder's options become
exercisable in full on the date of termination.
EMPLOYEE STOCK PURCHASE PLAN
On October 7, 1996, the shareholders of the Company approved the Employee
Stock Purchase Plan (the "Purchase Plan") which became effective on December
5, 1996. 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, provides for
six-month offerings with purchases occurring at six month intervals. The first
period began effective December 5, 1996 and will terminate on July 31, 1997.
The Purchase Plan is administered by the Board of Directors. Employees will be
eligible to participate if they are employed by the Company for at least 20
hours per week and if they have been employed by the Company for at least 90
days. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 20% of an employee's
compensation. The price of Common Stock purchased under the Purchase Plan is
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
49
<PAGE>
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 were rights to purchase approximately 17,100
shares of Common Stock outstanding under the Purchase Plan as of March 30,
1997.
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. For
1996, the Company match was 10% of employee contributions. For 1997, the
Company may match up to 20% of eligible employee contributions. For fiscal
1996, the Company contributed $21,783 to the 401(k) Plan. In addition, for
1996 the Company made profit-sharing contributions to the 401(k) Plan of
$595,000.
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.
50
<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 of May 31, 1997, as
adjusted to give effect to the sale by the Company and the Selling
Shareholders 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
Shareholders, (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 SHARES
BENEFICIALLY OWNED BENEFICIALLY
PRIOR TO NUMBER OF OWNED AFTER
DIRECTORS, NAMED EXECUTIVE OFFERING(1) SHARES OFFERING(1)(2)
OFFICERS AND ------------------ BEING -----------------
5% AND SELLING SHAREHOLDERS OWNED PERCENT OFFERED NUMBER PERCENT
--------------------------- ---------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Alfonso G. Cordero (3)......... 5,496,088 33.8% 590,000 4,906,088 28.8%
2026 McGaw Avenue
Irvine, California 92614
Summit Partners (4)............ 3,989,272 24.6 1,000,000 2,989,272 17.6
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Gregory M. Avis (5)............ 3,989,272 24.6 1,000,000 2,989,272 17.6
Ki Y. Nam (6).................. 1,660,187 10.2 290,000 1,370,187 8.0
2026 McGaw Avenue
Irvine, California 92614
Crosspoint Ventures (7)........ 759,578 4.7 250,000 509,578 3.0
One First Street
Palo Alto, California 94022
Rich Shapero (8)............... 759,578 4.7 250,000 509,578 3.0
Bill H. Doi (9)................ 257,213 1.6 30,000 227,213 1.3
Thomas Ha (10)................. 180,873 1.1 20,000 160,873 *
Bruce C. Edwards (11).......... 168,750 1.0 168,750 1.0
Sussanne Torretta (12)......... 122,605 * 30,000 92,605 *
Eric A. Tanner (13)............ 49,530 * 10,000 39,530 *
Mark D. Winters (14)........... 45,000 * 10,000 35,000 *
Kevin T. Michaels (15)......... 24,475 * 5,000 19,475 *
Abbey R. Kassinove (16)........ 14,000 * 10,000 4,000 *
David L. George (17)........... 12,500 * 12,500 *
Eugene L. Goda (18)............ 12,500 * 5,000 7,500 *
Sam Yau (19)................... 12,500 * 12,500 *
All Executive Officers and
Directors as a Group (9
persons)(20).................. 12,135,850 74.1% 2,140,000 9,995,850 58.3%
</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 May 31, 1997, 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. As
of May 31, 1997, the Company had a total of 16,241,324 shares of Common
Stock issued and outstanding. Except as indicated by footnote and subject
to community property laws where
51
<PAGE>
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 15,000 shares, consisting of options exercisable within 60 days
of May 31, 1997, owned by Mr. Cordero's spouse, an officer of the
Company. Mr. Cordero disclaims beneficial ownership of such shares. Also
includes 522,618 shares subject to redemption by the Company for shares
of Common Stock issued by the Company in excess of 1,095,000 pursuant to
the exercise of stock options under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan."
(4) Includes 1,924,864 shares held by Summit Ventures IV, L.P., 1,924,864
shares held by Summit Ventures III, L.P., and 139,544 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 160,156 shares subject to redemption by the Company for shares
of Common Stock issued by the Company in excess of 1,095,000 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 736,607 shares held by Crosspoint Venture Partners 1993 and
22,971 shares held by Crosspoint Venture Partners Entrepreneurs 1993.
Voting power with respect to shares held by Crosspoint Venture Partners
1993 and Crosspoint Venture 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 25,287 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,095,000 shares of
Common Stock pursuant to the exercise of stock options under the 1995
Stock Option Plan. See "Management--1995 Stock Option Plan."
(10) Includes 14,062 shares, consisting of options exercisable within 60 days
of May 31, 1997, and 16,860 shares subject to redemption by the Company
for shares of Common Stock issued by the Company in excess of 1,095,000
shares of Common Stock pursuant to the exercise of stock options under
the 1995 Stock Option Plan. See "Management--1995 Stock Option Plan."
(11) Includes options exercisable for 56,250 shares within 60 days of May 31,
1997.
(12) Includes 12,643 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,095,000 shares of
Common Stock pursuant to the exercise of stock options under the 1995
Stock Option Plan. See "Management--1995 Stock Option Plan."
(13) Consists of options exercisable for 49,530 shares within 60 days of May
31, 1997.
(14) Consists of options exercisable for 45,000 shares within 60 days of May
31, 1997.
(15) Consists of options exercisable for 24,375 shares within 60 days of May
31, 1997.
(16) Consists of options exercisable for 14,000 shares within 60 days of May
31, 1997.
(17) Consists of options exercisable for 12,500 shares within 60 days of May
31, 1997.
(18) Consists of options exercisable for 12,500 shares within 60 days of May
31, 1997.
(19) Consists of options exercisable for 12,500 shares within 60 days of May
31, 1997.
(20) Includes 682,774 shares subject to redemption by the Company (see notes 3
and 6) and options exercisable for 133,125 shares within 60 days of May
31, 1997 (see notes 3, 11, 15, 17, 18 and 19).
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists 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 March 30, 1997, there were 16,241,324 shares of Common Stock
outstanding held of record by approximately 37 shareholders. There will be
17,031,324 shares of Common Stock outstanding after the sale of the shares of
Common Stock offered hereby assuming no exercise of outstanding stock options
other than options to acquire 40,000 shares that will be exercised and which
underlying shares will be sold in the Offering. 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
As of March 30, 1997, there were no shares of Preferred Stock issued or
outstanding.
The Board of Directors has 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 90-day lock-up agreement
with the Underwriters, the holders of approximately 11,065,500 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, 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
53
<PAGE>
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.
The Company's Amended and Restated Certificate of Incorporation 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 eliminates the
ability of shareholders to call special meetings and requires 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.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 17,031,324 shares of
Common Stock outstanding, assuming no exercise of outstanding stock options
other than options to acquire 40,000 shares that will be exercised and which
underlying shares will be sold in the Offering. Of these shares, the 3,000,000
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless they are purchased by
"affiliates" of the Company as that term is used under the Securities Act.
11,252,497 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.
Certain officers, directors, Selling Shareholders and certain other
shareholders have agreed with the Underwriters that they will not sell any of
the 10,192,443 shares of Common Stock owned by them for a period of 90 days
after the effective date of the Offering without the prior written consent of
Alex. Brown & Sons Incorporated (the "90-day lock-up"). Furthermore, all
option holders are precluded from selling any shares issuable to them through
the exercise of options for a 90-day lock-up period, under the terms of such
options. 1,015,054 restricted shares will be available for sale in the public
market under either Rule 144 or 144(k) on the date of the Offering. Upon the
expiration of the 90-day lock-up (or earlier upon the consent of Alex. Brown &
Sons Incorporated), 319,818 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 9,872,625 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, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year 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 170,313 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 two 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, certain shares issued
upon exercise of options granted by the Company prior to the date of the
Company's initial public offering will also be available for sale in the
public market, subject to expiration of the 90-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
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 has filed 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.
Approximately 112,218 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 90 days after the closing of the Offering.
55
<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 Shareholders the following respective numbers of shares of Common
Stock at the 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.............................................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Shareholders 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 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 public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company and certain Selling Shareholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 450,000 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 shown in the above
table bears to 3,000,000, and the Company and those Selling Shareholders 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 3,000,000 shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Selling Shareholders, all of the officers and directors and certain
other shareholders of the Company have agreed not to offer, sell, contract to
sell, or otherwise dispose of any of such Common Stock for a period of 90 days
after the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. See "Shares Eligible for Future Sale."
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.
56
<PAGE>
In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the restricted period immediately preceding the
pricing of the Common Stock offered hereby. The Commission has, however,
adopted exemptions from its rules that permit passive market making under
certain conditions. The rules permit an Underwriter to continue to make a
market subject to certain conditions, including that its bid not exceed the
highest bid by a market maker not connected with the Offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters, selling group members (if any) or
their respective affiliates intend to engage in passive market making in
Common Stock during the restricted period.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. The Underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to
an underwriter or a dealer for distributing Common Stock in the Offering, if
the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short position, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of
Common Stock in market making transactions. These activities may stabilize or
maintain the market price of Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders 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. Certain shareholders of and attorneys associated with
Stradling Yocca Carlson & Rauth beneficially own shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1995 and December 29, 1996 and for each of the three years in the
period ended December 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 of such firm 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
57
<PAGE>
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 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 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; and through the Commission's Website on the World Wide Web at
the following address: http://www.sec.gov.
CERTAIN FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and 21E of the Exchange Act and
information that are based on beliefs of, and information currently available
to, the Company's management as well as estimates and assumptions made by the
Company's management. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, the
costs of product development and other risks and uncertainties including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory
circumstances and conditions and actions taken or omitted to be taken by third
parties, including the Company's shareholders, customers, suppliers, business
partners, competitors, and legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying estimates or assumptions
prove incorrect, actual results or outcomes may vary significantly from those
anticipated, believed, estimated, expected, intended or planned.
58
<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, 1995, December 29, 1996 and
March 30, 1997 (unaudited)............................................... F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995 and December 29, 1996 and the Three Months Ended March 31, 1996
(unaudited) and March 30, 1997 (unaudited)............................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1994, 1995 and December 29, 1996 and the Three Months
Ended March 30, 1997 (unaudited)......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and December 29, 1996 and the Three Months Ended March 31,
1996 (unaudited) and March 30, 1997 (unaudited).......................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Powerwave Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Powerwave
Technologies, Inc. and subsidiary (formerly Milcom International, Inc.) (the
"Company") as of December 29, 1996 and December 31, 1995, and the related
consolidated statements of income, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 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
29, 1996 and December 31, 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 29, 1996,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
January 15, 1997
F-2
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, MARCH 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.......... $ 5,860,785 $32,386,331 $36,021,106
Accounts receivable, net of
allowance for doubtful accounts of
$122,532, $485,368 and $610,842 at
December 31, 1995, December 29,
1996, and March 30, 1997,
respectively...................... 3,103,990 3,324,699 6,305,922
Inventories, net................... 4,724,261 4,707,545 6,356,448
Income tax refund receivable....... 609,550 -- --
Prepaid expenses and other current
assets............................ 15,163 327,816 618,262
Deferred tax assets................ 1,031,482 1,875,572 1,875,572
----------- ----------- -----------
Total current assets.............. 15,345,231 42,621,963 51,177,310
Property and equipment............... 1,800,078 5,211,764 8,189,886
Accumulated depreciation and
amortization........................ (734,285) (1,011,132) (1,324,929)
----------- ----------- -----------
Net property and equipment......... 1,065,793 4,200,632 6,864,957
----------- ----------- -----------
Other assets......................... 52,299 109,606 338,335
----------- ----------- -----------
TOTAL ASSETS......................... $16,463,323 $46,932,201 $58,380,602
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................... $ 3,508,098 $ 3,588,885 $ 5,881,233
Accrued expenses and other
liabilities....................... 2,080,446 3,878,396 4,552,391
Due to shareholders................ 50,000 -- --
Current portion of long-term debt.. 66,824 253,747 304,042
Income taxes payable............... -- 1,658,019 3,098,479
----------- ----------- -----------
Total current liabilities......... 5,705,368 9,379,047 13,836,145
Deferred tax liabilities............. -- 189,432 189,432
Other non-current liabilities........ -- -- 21,934
Long-term debt....................... 137,526 520,399 630,887
----------- ----------- -----------
TOTAL LIABILITIES.................... $ 5,842,894 $10,088,878 $14,678,398
Commitments and contingency
Series A Convertible Preferred Stock,
$.0001 par value; 3,375,900 shares
authorized and outstanding at
December 31, 1995; 3,375,900 shares
authorized and no shares outstanding
at
December 29, 1996 and March 30,
1997................................ 14,498,193 -- --
Shareholders' Equity (Deficit):
Preferred Stock, $.0001 par value,
5,000,000 shares authorized and no
shares outstanding
Common Stock, $.0001 par value,
20,000,000 shares authorized,
8,886,147 shares issued and
outstanding at December 31, 1995;
40,000,000 shares authorized,
15,862,497 and 16,241,324 shares
issued and outstanding at December
29, 1996 and March 30, 1997......... 471,380 33,570,573 37,668,786
Retained earnings.................... 7,882,236 15,504,130 18,264,798
Less treasury stock at cost.......... (12,231,380) (12,231,380) (12,231,380)
----------- ----------- -----------
Total shareholders' equity
(deficit)........................ (3,877,764) 36,843,323 43,702,204
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $16,463,323 $46,932,201 $58,380,602
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
--------------------------------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $22,860,634 $36,044,438 $60,330,864 $13,807,400 $20,242,742
Cost of sales........... 14,465,477 22,713,227 34,770,160 8,229,251 11,527,916
----------- ----------- ----------- ----------- -----------
Gross profit............ 8,395,157 13,331,211 25,560,704 5,578,149 8,714,826
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing... 570,276 1,557,282 4,364,834 1,055,601 1,580,623
Research and
development.......... 1,432,544 2,252,254 5,770,523 1,074,662 2,211,404
General and
administrative....... 1,517,704 1,958,228 2,990,580 611,552 942,886
----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 3,520,524 5,767,764 13,125,937 2,741,815 4,734,913
----------- ----------- ----------- ----------- -----------
Operating income........ 4,874,633 7,563,447 12,434,767 2,836,334 3,979,913
Other income (expense).. (19,892) 32,237 483,696 58,544 472,778
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 4,854,741 7,595,684 12,918,463 2,894,878 4,452,691
Provision for income
taxes.................. 1,908,406 3,115,648 5,296,569 1,186,900 1,692,023
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,946,335 $ 4,480,036 $ 7,621,894 $ 1,707,978 $ 2,760,668
=========== =========== =========== =========== ===========
Pro forma net income and
net income per share... $ .31 $ .52 $ .12 $ .17
=========== =========== =========== ===========
Pro forma weighted
average and weighted
average common shares.. 14,475,481 14,606,372 14,475,481 16,728,008
=========== =========== =========== ===========
</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,
1994................... 13,949,997 $ 740,000 $ $ 455,865 $ 1,195,865
Net income.............. 2,946,335 2,946,335
---------- ----------- --------- ------------ ----------- -----------
Balance at December 31,
1994................... 13,949,997 740,000 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................... 8,886,147 471,380 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
Issuance of Common Stock
related to the IPO,
net.................... 1,800,000 18,301,000 18,301,000
Conversion of Preferred
Stock to Common Stock
(Note 6)............... 5,063,850 14,498,193 14,498,193
Net income.............. 7,621,894 7,621,894
---------- ----------- --------- ------------ ----------- -----------
Balance at December 29,
1996................... 15,862,497 $33,570,573 5,063,850 $(12,231,380) $15,504,130 $36,843,323
Unaudited:
Issuance of Common Stock
related to the exercise
of stock options (Note
9)..................... 18,827 46,608 46,608
Tax benefit related to
stock option exercises. 151,562 151,562
Exercise of over-
allotment, net......... 360,000 3,884,019 3,884,019
Compensation expense
related to stock option
grants................. 16,024 16,024
Net income.............. 2,760,668 2,760,668
---------- ----------- --------- ------------ ----------- -----------
Balance at March 30,
1997................... 16,241,324 $37,668,786 5,063,850 $(12,231,380) $18,264,798 $43,702,204
========== =========== ========= ============ =========== ===========
</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>
DECEMBER 31, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income............ $2,946,335 $ 4,480,036 $ 7,621,894 $1,707,978 $ 2,760,668
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 166,597 353,929 656,733 126,072 313,795
Deferred income taxes. (399,127) (609,927) (654,658)
Changes in assets and
liabilities:
Accounts receivable.. 1,127,618 (1,675,766) (220,709) (3,348,242) (2,981,223)
Inventories.......... (2,350,424) (1,448,235) 16,716 (152,579) (1,648,903)
Income tax refund
receivable.......... (609,550) 609,550 609,550
Prepaid expenses and
other current
assets.............. (5,694) (48,730) (312,653) (11,825) (290,446)
Accounts payable..... (1,277,867) 2,066,914 80,787 (487,833) 2,292,348
Accrued expenses and
other liabilities... 1,379,052 737,138 1,797,950 1,349,433 695,929
Compensation expense
related to stock
options............. 16,026
Other assets......... (57,307) (228,729)
Income taxes payable. 2,072,384 (2,304,855) 1,658,019 502,350 1,592,022
---------- ----------- ----------- ---------- -----------
Net cash provided by
operating
activities........... 3,658,874 940,954 11,196,322 294,904 2,521,487
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (207,502) (537,909) (3,791,572) (53,175) (2,978,122)
Sale (purchase) of
short-term
investments.......... (494,795) 494,795 13,165
---------- ----------- ----------- ---------- -----------
Net cash used in
investing
activities........... (702,297) (43,114) (3,791,572) (40,010) (2,978,122)
---------- ----------- ----------- ---------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES:
Principal payments on
long-term debt....... (284,880) (65,459) (133,747) (67,699) (75,049)
Proceeds from sale of
assets............... 703,543 235,832
Decrease in amounts
due to shareholders.. (50,000)
Issuance of Preferred
Stock................ 14,498,193
Issuance of Common
Stock................ 18,301,000 3,884,019
Repurchase of Common
Stock................ (12,500,000)
Proceeds from exercise
of stock options..... 300,000 46,608
---------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities........... (284,880) 1,932,734 19,120,796 (67,699) 4,091,410
---------- ----------- ----------- ---------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 2,671,697 2,830,574 26,525,546 187,195 3,634,775
CASH AND CASH
EQUIVALENTS, beginning. 358,514 3,030,211 5,860,785 5,841,456 32,386,331
---------- ----------- ----------- ---------- -----------
CASH AND CASH
EQUIVALENTS, ending.... $3,030,211 $ 5,860,785 $32,386,331 $6,028,651 $36,021,106
========== =========== =========== ========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for:
Interest.............. $ 58,942 $ 56,783 $ 18,393 $ 4,664 $ 19,267
========== =========== =========== ========== ===========
Income taxes.......... $ 235,149 $ 6,665,000 $ 3,809,000 $ 75,000 $ 100,000
========== =========== =========== ========== ===========
NON CASH ITEMS:
Acquisition of property
through capital lease.. $ 248,141 $ 703,543 $ 235,832
========== =========== ===========
Preferred dividends
payable................ $ 450,000
==========
Conversion of Preferred
Stock to Common Stock.. $14,498,193
===========
Tax benefit related to
stock option exercises. $ 151,562
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 radio frequency ("RF") power amplifiers and related electronic
equipment for use in the wireless communications market. The Company
manufactures both single carrier and multi-carrier amplifiers, with a focus on
multi-carrier products. The Company's products are currently utilized in both
cellular and PCS 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 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.
NOTE 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 accompanying consolidated balance sheet as of March 30, 1997 and the
related consolidated statements of income and cash flows for the three months
ended March 31, 1996 and March 30, 1997, have been prepared by the Company
without audit in accordance with Generally Accepted Accounting Principles for
interim financial information and, in the opinion of management, contain all
adjustments consisting only of normal recurring accruals necessary for a fair
presentation of such information.
Fiscal Year
The Company operated on a calendar fiscal year basis through fiscal 1995.
Commencing with fiscal year 1996, the Company adopted a conventional 52/53
week accounting fiscal year. Beginning in 1996, the Company's fiscal year ends
on the Sunday closest to December 31st. Fiscal year 1996 ended 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.
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.
F-7
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company periodically reviews inventory
quantities on hand and provides reserves for obsolete inventory based
primarily on current production requirements and forecasted product demand.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates or
amortizes these assets using the straight-line method over the estimated
useful lives of the various classes of assets, as follows:
Machinery and equipment 2 to 5 years
Office furniture and equipment 5 years
Leasehold improvements 7 to 10 years
Property under capital leases 3 to 5 years
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, December 29, 1996, and March 30, 1997, management
believes that the carrying amounts of cash, receivables and trade payables
approximate fair value because of the short maturity of these financial
instruments.
Accounting for Stock-Based Compensation
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 non-employee
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, 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 are required to disclose in a note to the
financial statements pro forma net income and 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 (See 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
F-8
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 October 8, 1996, and increased
the number of shares of 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 have
been restated to reflect the stock split for all periods presented.
Net Income and Pro Forma Net Income Per Share
Net income and pro forma net income per share amounts are based upon the
weighted average number of common shares, dilutive common equivalent shares
for each period presented and the pro forma conversion of preferred stock into
common stock up to the date of such conversion. Common equivalent shares
include Stock Options using the treasury stock method and, pursuant to
Securities and Exchange Commission Staff Accounting Bulletin Topic 4D, stock
options granted during the twelve months prior to the date of the Company's
initial public offering ("IPO") as if they were outstanding for all periods
presented using the treasury stock method.
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, 1994, 1995 and
December 29, 1996, sales to three customers (four customers for year ended
December 29, 1996) totaled $14,861,190, $20,741,883, and $50,330,957 or 65%,
58%, and 83% of net sales, respectively. During the three months ended March
31, 1996 and March 30,
F-9
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997, sales to four customers (three customers for the three months ended
March 30, 1997) totaled $10,096,428 and $16,828,449 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, 1994, 1995 and December 29, 1996,
international sales, primarily to the Asian market, were $1,981,203,
$24,202,748, and $46,591,560 respectively. International sales for the three
months ended March 31, 1996 and March 30, 1997 were $8,286,171 and $17,151,183
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, results of operations and financial condition until alternative
sources could be developed.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Early adoption of
the statement is not permitted. The Company has applied this statement to the
1996 first quarter and annual results and to the 1997 first quarter results
and determined that the adoption of this statement would not have had a
material impact on the earnings per share calculations for these periods.
NOTE 3. INVENTORIES
Inventories consist of the following at December 31, 1995, December 29, 1996
and March 30, 1997:
<TABLE>
<CAPTION>
1995 1996 MARCH 30, 1997
---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Parts and components.................... $2,646,063 $3,178,401 $4,747,118
Work-in-process......................... 1,695,172 1,345,035 1,440,532
Finished goods.......................... 383,026 184,109 168,798
---------- ---------- ----------
$4,724,261 $4,707,545 $6,356,448
========== ========== ==========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995,
December 29, 1996 and March 30, 1997:
<TABLE>
<CAPTION>
1995 1996 MARCH 30, 1997
---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............. $1,062,094 $ 2,500,455 $ 5,258,432
Office furniture and equipment...... 538,398 1,413,881 1,570,854
Leasehold improvements.............. 199,586 1,281,870 1,281,870
Construction in progress............ -- 15,558 78,730
---------- ----------- -----------
1,800,078 5,211,764 8,189,886
Less accumulated depreciation and
amortization....................... (734,285) (1,011,132) (1,324,929)
---------- ----------- -----------
Net property and equipment.......... $1,065,793 $ 4,200,632 $ 6,864,957
========== =========== ===========
</TABLE>
F-10
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in property and equipment are assets under capital lease of
$351,801, $867,134 and $1,102,726 at December 31, 1995, December 29, 1996 and
March 30, 1997, respectively. Accumulated amortization of assets under capital
leases were $140,875, $123,836 and $167,192 at December 31, 1995, December 29,
1996 and March 30, 1997, respectively.
NOTE 5. FINANCING ARRANGEMENTS
At December 31, 1995, the Company had a revolving line of credit of $3
million secured by substantially all of the Company's assets. Borrowings under
the line bear interest at the bank's reference rate plus .25%. This line of
credit expired in May 1996. On May 30, 1996, the Company entered into a new $5
million unsecured revolving credit agreement with the same financial
institution. This credit agreement allowed the Company to borrow at the bank's
reference rate (8.25% at December 29, 1996). The Company was required to pay a
commitment fee equal to .125% per annum based on the average daily unused
portion of the facility. The fee was payable quarterly in arrears. The credit
agreement contained covenants regarding certain financial statement amounts,
ratios and activities of the Company. At March 30, 1997, the Company was in
compliance with all covenants. The line of credit expired on May 31, 1997 and
the Company is in the process of negotiating a new revolving line of credit
agreement.
NOTE 6. SHAREHOLDERS' EQUITY
Preferred Stock
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. Such shares
are redeemable at the option of the holder and therefore are classified
outside of shareholders' equity at December 31, 1995. The Company then used a
portion of the proceeds to purchase 5,063,850 shares of the Company's Common
Stock at $2.47 per share from the shareholders. A total of $12,500,000 was
paid to Shareholders to purchase such shares. These shares are being held as
treasury stock by the Company. The Series A Preferred Stock shares were
convertible, at the holder's option, into shares of Common Stock on a 1 to 1.5
share basis (adjusted for the October 1996 stock split). Upon completion of
the Company's initial public offering in December 1996, the Series A Preferred
Stock was automatically converted into Common Stock. The Series A Preferred
Stock carried a dividend rate of 12% per annum which accrued beginning in
January 1996. Per the terms of the Series A Preferred Stock, such accrued
dividends were canceled upon completion of the Company's IPO and the
corresponding accrued dividends reversed.
NOTE 7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994,
December 31, 1995 and December 29, 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $1,800,618 $2,900,929 $4,663,553
State.................................. 506,915 824,646 1,287,674
---------- ---------- ----------
Total current provision.............. 2,307,533 3,725,575 5,951,227
Deferred:
Federal................................ (333,148) (493,630) (570,807)
State.................................. (65,979) (116,297) (83,851)
---------- ---------- ----------
Provision for income taxes............... $1,908,406 $3,115,648 $5,296,569
========== ========== ==========
</TABLE>
F-11
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1994, December 31, 1995 and December 29, 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Taxes at federal statutory rate $1,699,159 $2,658,489 $4,521,461
State taxes, net of federal benefit...... 286,608 460,427 782,485
Other.................................... (77,361) (3,268) (7,377)
---------- ---------- ----------
Provision for income taxes............... $1,908,406 $3,115,648 $5,296,569
========== ========== ==========
</TABLE>
At December 31, 1995 and December 29, 1996, the Company's net deferred tax
asset was comprised of the following major components:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Depreciation of property $ 2,434 $ (189,432)
Accruals and reserves................................ 437,574 812,094
Costs capitalized into inventories................... 362,452 639,496
State taxes.......................................... 229,022 423,982
---------- ----------
Net deferred tax asset............................... $1,031,482 $1,686,140
========== ==========
</TABLE>
NOTE 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, 1995 and December 29, 1996, the
Board authorized $340,000 and $595,000 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, 1995 and December 29, 1996 were
$15,669 and $21,783 respectively.
NOTE 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 non-employee members of the Board of Directors of
the Company to participate in ownership of the Company. The 1995 Plan is
administered by the Compensation Committee of the Company's Board of
Directors. 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
1,095,000 shares of Common Stock under the 1995 Stock Option Plan, any
additional
F-12
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Company and those
certain shareholders have agreed that this share redemption agreement applies
only to the exercise of options to purchase a total of 843,615 shares of the
Company's Common Stock. As of December 29, 1996, 112,500 options were
exercised under the 1995 Plan and 1,824,252 options were outstanding at a
weighted average exercise price of $3.33. As of March 30, 1997, 131,327
options were exercised under the 1995 Plan and 1,804,375 options were
outstanding at a weighted average exercise price of $3.34.
1996 Stock Incentive Plan--On October 7, 1996 the shareholders of the
Company approved the 1996 Stock Incentive Plan (the "1996 Plan"), which became
effective December 5, 1996. 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 were 80,000 options
outstanding under the 1996 Plan as of December 29, 1996 at a weighted average
exercise price of $11.50. There were 170,000 options outstanding under the
1996 Plan as of March 30, 1997, at a weighted average exercise price of
$14.02.
1996 Director Stock Option Plan--On October 7, 1996 the shareholders of the
Company approved the 1996 Director Stock Option Plan (the "Director Plan"),
which became effective December 5, 1996. 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 new director elected after December 5, 1996 will be granted an
initial option under the plan covering 30,000 shares of Common Stock, which
option shall vest in annual installments as to 25% of the optioned shares over
a period of four (4) years from the anniversary of the date of grant.
Furthermore, on December 5, 1996 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 were 15,000
options outstanding under the Director Plan as of March 30, 1997 at a weighted
average exercise price of $11.50.
F-13
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes activity under all of the Company's stock
option plans:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1995
Granted................................. 562,500 $2.47- 2.71 219,087
--------- -------
Balance at December 31, 1995.............. 562,500 $2.47- 2.71 219,087
=======
Granted................................. 1,538,400 $2.67-11.50
Exercised............................... (112,500) $2.67
Canceled................................ (69,148) $2.67- 4.67
---------
Balance at December 29, 1996.............. 1,919,252 $2.47-11.50 262,490
========= =======
</TABLE>
At December 29, 1996, 1,606,863 options were available for grant under the
all of the Company's option plans.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 29, 1996
------------------------------------------------------------------
WEIGHTED
AVERAGE OPTIONS WEIGHTED
WEIGHTED REMAINING EXERCISABLE AVERAGE
OPTIONS AVERAGE CONTRACTUAL AT DEC. 29, EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE 1996 PRICE
------------------------ ----------- -------------- ----------- ----------- --------
(YEARS)
<S> <C> <C> <C> <C> <C>
$2.47................... 473,250 $ 2.47 8.9 207,369 $2.47
$2.67-2.71.............. 660,000 $ 2.67 9.1 11,718 $2.71
$4.00-4.67.............. 684,002 $ 4.51 9.5 43,403 $4.64
$10.00-11.50............ 102,000 $11.40 9.2 -- --
--------- -------
Total................... 1,919,252 $ 3.74 9.2 262,490 $2.84
========= =======
</TABLE>
The price at which options were granted at during 1995 and 1996, prior to
the Company's IPO, 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.
F-14
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair value of options granted during 1996 was $2.44 per share.
The estimated fair value of options granted during 1995 was $1.33 per share.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for its stock option
plans and its stock purchase plan other than that described above. Had
compensation cost for the Company's stock option plans and its stock purchase
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS 123, the Company's net
income and earnings per share for the years ended December 31, 1995 and
December 29, 1996 would have been reduced to the pro forma amounts indicated
in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 29, 1996
----------------- -----------------
<S> <C> <C>
Net income before taxes As reported..... $ 7,595,684 $12,918,463
Less: Net expense per SFAS 123.......... (80,454) (1,383,951)
----------- -----------
Pro forma operating income before taxes. 7,515,230 11,534,512
Less: Pro forma provision for income
taxes.................................. (3,081,244) (4,729,150)
----------- -----------
Pro forma net income.................... $ 4,433,986 $ 6,805,362
=========== ===========
Net income as reported.................. $ 4,480,036 $ 7,621,894
=========== ===========
Net income per common and common
equivalent share
As reported........................... $ 0.31 $ 0.52
Pro forma............................. $ 0.31 $ 0.47
Weighted average and pro forma weighted
average common shares.................. 14,475,481 14,606,372
=========== ===========
</TABLE>
The fair value of options granted under the Company's stock option plans
during 1996 and 1995 was estimated on the date of grant using the Black-
Scholes option-pricing model utilizing the multiple option approach with the
following weighted-average assumptions used: no dividend yield, expected
volatility of 83%, risk-free interest rates of 5.87% to 6.21% and expected
lives of five years. Forfeitures are recognized as they occur.
Employee Stock Purchase Plan--On October 7, 1996, the shareholders of the
Company approved the Employee Stock Purchase Plan (the "Purchase Plan"), which
became effective on December 5, 1996. 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, is implemented utilizing six-month offerings with purchases
occurring at six-month intervals commencing February 7, 1997. The Purchase
Plan is administered by the Board of Directors. Employees are eligible to
participate if they are employed by the Company for at least 20 hours per week
and if they have been employed by the Company for at least 90 days. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 20% of an employee's compensation.
The price of Common 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 termination may adversely affect options previously granted
under the Purchase Plan. The first offering period under the Purchase Plan
commenced on December 5, 1996, with the completion of the Company's IPO.
Employee contributions commenced in February 1997. There were no outstanding
rights to purchase Common Stock under the Purchase Plan at December 29, 1996.
At March 30, 1997, there were rights to purchase approximately 17,100 shares
of Common Stock outstanding under the Purchase Plan.
F-15
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is an unaudited summary of stock option transactions under the
Company's stock option plans, including the 1995 Stock Option Plan, the 1996
Stock Incentive Plan, and the 1996 Director Stock Option Plan, for the three
months ended March 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- ------------ -----------
<S> <C> <C> <C>
Balance at December 29, 1996............. 1,919,252 $ 2.47-11.50 262,490
=======
Granted................................ 90,000 $16.25-17.00
Exercised.............................. (18,827) $ 2.47- 4.67
Canceled............................... (1,050) $ 4.00- 4.67
---------
Balance at March 30, 1997................ 1,989,375 382,404
========= =======
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company leased its former manufacturing and headquarters facility from
its shareholders. During July 1996, 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 29, 1996 are as follows:
<TABLE>
<CAPTION>
COMMITMENT TO OPERATING CAPITALIZED
SHAREHOLDERS LEASES LEASES
------------- ---------- -----------
<S> <C> <C> <C>
Fiscal Year:
1997................................. $ 704,246 $ 662,152 $ 302,528
1998................................. 714,810 619,399 284,620
1999................................. 735,937 593,134 262,994
2000................................. 757,065 11,396 16,149
2001................................. 778,192 -- --
Thereafter........................... 3,760,676 -- --
---------- ---------- ---------
Total future minimum lease payments.... $7,450,926 $1,886,081 866,291
========== ========== =========
Less amount representing interest...... (92,145)
---------
Present value of future minimum lease
payments.............................. 774,146
Less current portion................... (253,747)
---------
$ 520,399
=========
</TABLE>
Total rent expense was $168,721, $173,142 and $378,373 for the years ended
December 31, 1994, 1995 and December 29, 1996, respectively. Total rent
expense was $45,442 and $176,647 for the three months ended March 31, 1996 and
March 30, 1997, respectively.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the results of operations or financial condition of the Company.
F-16
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the design, manufacture and
sale of RF power amplifiers for use in wireless communication networks. The
Company currently markets its products through its manufacturers'
representative sales force as well as its own internal sales force. All of the
Company's manufacturing and design operations are located at its headquarters
facility in California. The following table summarizes the Company's sales by
region:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales for the year ended December 31, 1994... $20,880 $ 1,981 $22,861
Sales for the year ended December 31, 1995... $11,842 $24,202 $36,044
Sales for the year ended December 29, 1996... $13,739 $46,592 $60,331
Unaudited:
Sales for the three months ended March 31,
1996........................................ $ 5,521 $ 8,286 $13,807
Sales for the three months ended March 30,
1997........................................ $ 3,092 $17,151 $20,243
</TABLE>
NOTE 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 and $284,070 for the
years ended December 31, 1994, 1995 and December 29, 1996, respectively. For
the years ended December 31, 1994, 1995 and December 29, 1996, sales of the
related product represented 17%, 14% and 5% of net sales, respectively. The
Company does not currently have any royalty commitments beyond December 1996.
NOTE 13. OTHER INFORMATION
Accrued expenses and other liabilities consist of the following at December
31, 1995, December 29, 1996 and March 30, 1997:
<TABLE>
<CAPTION>
1995 1996 MARCH 30, 1997
---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued expenses and other liabilities:
Accrued warranty costs............... $ 320,594 $ 871,330 $1,021,330
Accrued sales returns................ 480,000 324,586 359,156
Accrued royalties.................... 149,021 -- --
Accrued payroll and employee
benefits............................ 755,828 1,520,119 1,790,551
Other accrued expenses............... 375,003 1,162,361 1,381,354
---------- ---------- ----------
$2,080,446 $3,878,396 $4,552,391
========== ========== ==========
</TABLE>
NOTE 14. RELATED PARTY TRANSACTIONS
As of December 31, 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
December 29, 1996, the Company had no significant amounts payable to
shareholders other than that described below.
As disclosed in Note 10, the Company leases its manufacturing and office
facility from certain of the Company's shareholders. Rent paid to the
shareholders was $160,320, $166,782 and $365,472 for the years ended December
31, 1994, 1995 and December 29, 1996, respectively. Rent paid to the
shareholders was $41,682 and $145,692 for the three months ended March 31,
1996 and March 30, 1997, respectively.
F-17
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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. Unique Technologies International is a
customer of the Company and purchases products from the Company on terms no
less favorable to the Company than could otherwise be obtained from
unaffiliated third parties. Total sales during fiscal 1996 did not exceed
$50,000.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995:
Net sales................................. $ 4,593 $ 6,980 $10,811 $13,660
Cost of Sales............................. 3,337 4,616 6,601 8,159
------- ------- ------- -------
Gross profit.............................. 1,256 2,364 4,210 5,501
Operating expenses:
Sales and marketing..................... 227 338 448 544
Research and development................ 298 461 642 851
General and administrative.............. 397 441 450 670
------- ------- ------- -------
Total operating expenses.................. 922 1,240 1,540 2,065
------- ------- ------- -------
Operating income.......................... 334 1,124 2,670 3,436
Other income (expense).................... 18 (11) (7) 32
------- ------- ------- -------
Income before income taxes................ 352 1,113 2,663 3,468
Provision for income taxes................ 144 457 1,093 1,422
------- ------- ------- -------
Net income................................ $ 208 $ 656 $ 1,570 $ 2,046
======= ======= ======= =======
1996:
Net sales................................. $13,807 $15,301 $14,486 $16,737
Cost of sales............................. 8,229 9,000 8,142 9,399
------- ------- ------- -------
Gross profit.............................. 5,578 6,301 6,344 7,338
Operating expenses:
Sales and marketing..................... 1,056 1,103 1,156 1,050
Research and development................ 1,075 1,375 1,583 1,737
General and administrative.............. 612 671 721 987
------- ------- ------- -------
Total operating expenses.................. 2,743 3,149 3,460 3,774
------- ------- ------- -------
Operating income.......................... 2,835 3,152 2,884 3,564
Other income.............................. 59 120 154 151
------- ------- ------- -------
Income before income taxes................ 2,894 3,272 3,038 3,715
Provision for income taxes................ 1,186 1,342 1,246 1,523
------- ------- ------- -------
Net Income................................ $ 1,708 $ 1,930 $ 1,792 $ 2,192
======= ======= ======= =======
</TABLE>
F-18
<PAGE>
[PICTURES OF CERTAIN OF THE COMPANY'S PRODUCTS]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS
OR THE SELLING SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY 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 DATE SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 18
Price Range of Common Stock............................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 31
Management................................................................ 43
Principal and Selling Shareholders........................................ 51
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 57
Additional Information.................................................... 57
Available Information..................................................... 58
Certain Forward-Looking Statements........................................ 58
Index to Consolidated Financial Statements................................ F-1
</TABLE>
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 Shares
LOGO
OF POWERWAVE TECHNOLOGIES
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
UBS Securities
Wessels, Arnold & Henderson
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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........................................... $ 19,406
NASD filing fee................................................ 6,904
Nasdaq National Market listing fee............................. 15,000
Printing expenses.............................................. 125,000
Legal fees and expenses........................................ 125,000
Accounting fees and expenses................................... 50,000
Blue sky fees and expenses..................................... 10,000
Transfer agent and registrar fees.............................. 10,000
Miscellaneous.................................................. 138,690
--------
Total........................................................ $500,000
========
</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 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 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 which provide for the indemnification of such
persons against any and all expenses, judgments, fines, penalties and amounts
paid in settlement, to the fullest extent permitted by law.
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
II-1
<PAGE>
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.
3.2 Amended and Restated Certificate of Incorporation 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.*
10.3.1 Amendment No. 2 to 1995 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.*
10.6.1 Amendment No. 1 to 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.*
10.9.1 Amendment No. 1 to 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.*
10.16 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.*
10.21 Separation Agreement and Mutual General Release, dated May 2, 1997,
between the Company and Peter Manno.
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.
24.1 Power of Attorney (see page II-5).
</TABLE>
- --------
* Incorporated by reference to the same numbered exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 333-13679).
** Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and
Quarterly Report on Form 10-Q for the quarter ended March 30, 1997.
II-3
<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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on the 2nd day of June, 1997.
POWERWAVE TECHNOLOGIES, INC.
By: /s/ Bruce C. Edwards
_____________________________________
Bruce C. Edwards
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Powerwave Technologies, Inc.,
do hereby constitute and appoint Bruce C. Edwards and Kevin T. Michaels, or
either of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations, and
requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended; and we do hereby ratify and confirm
all that the said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
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 June 2, 1997
____________________________________ Officer and Director
Bruce C. Edwards (Principal Executive
Officer)
/s/ Kevin T. Michaels Vice President, Finance and June 2, 1997
____________________________________ Chief Financial Officer
Kevin T. Michaels (Principal Financial and
Principal Accounting
Officer)
/s/ Alfonso G. Cordero Director June 2, 1997
____________________________________
Alfonso G. Cordero
/s/ Gregory M. Avis Director June 2, 1997
____________________________________
Gregory M. Avis
/s/ Eugene L. Goda Director June 2, 1997
____________________________________
Eugene L. Goda
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David L. George Director June 2, 1997
____________________________________
David L. George
/s/ Rich Shapero Director June 2, 1997
____________________________________
Rich Shapero
/s/ Sam Yau Director June 2, 1997
____________________________________
Sam Yau
</TABLE>
II-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGES TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 29, 1996:
Allowance for doubtful accounts.... $122,532 $ 376,867 $ (14,031) $ 485,368
Inventory reserves................. $791,942 $1,008,000 $(398,746) $1,401,196
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
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.2 Amended and Restated Certificate of Incorporation 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.*
10.3.1 Amendment No. 2 to 1995 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.*
10.6.1 Amendment No. 1 to 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.*
10.9.1 Amendment No. 1 to 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.*
10.16 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.*
10.21 Separation Agreement and Mutual General Release, dated May 2, 1997,
between the Company and Peter Manno.
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.
24.1 Power of Attorney (see page II-5).
</TABLE>
- --------
* Incorporated by reference to the same numbered exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 333-13679).
** Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and
Quarterly Report on Form 10-Q for the quarter ended March 30, 1997.
<PAGE>
EXHIBIT 1.1
Draft dated 6/2/97
3,000,000 Shares
POWERWAVE TECHNOLOGIES, INC.
Common Stock
($.0001 Par Value)
UNDERWRITING AGREEMENT
----------------------
June ___, 1997
Alex. Brown & Sons Incorporated
UBS Securities LLC
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Powerwave Technologies, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company (the "Selling Stockholders") propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
3,000,000 shares of the Company's Common Stock, $.0001 par value (the "Firm
Shares"), of which 750,000 shares will be sold by the Company and 1,250,000
shares will be sold by the Selling Stockholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Stockholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Stockholders are sometimes referred to
herein collectively as the "Sellers." The Company and certain Selling
Stockholders also propose to sell at the Underwriters' option an aggregate of up
to 450,000 additional shares of the Company's Common Stock (the "Option
Shares").
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters,
<PAGE>
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholders.
-------------
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-______)
with respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462 (b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of
the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior
to the time it becomes effective or filed pursuant to Rule 424(a) under the
Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, together with the term sheet or abbreviated term
sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act.
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective is herein referred to as a "Preliminary
Prospectus."
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The
Company has two subsidiaries as listed in Exhibit 21.1 to Item 16(a) of the
Registration Statement (the "Subsidiaries"), each of which has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease
2
<PAGE>
its properties and conduct its business as described in the Registration
Statement. The Subsidiaries are the only subsidiaries, direct or indirect,
of the Company. The Company and the Subsidiaries are each duly qualified to
transact business in all jurisdictions in which the conduct of their
business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The outstanding shares of capital stock of
the Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable and are owned by the Company free and clear of all
liens, encumbrances and equities and claims; and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Stockholders, have been duly
authorized and validly issued and are fully paid and non-assessable; the
portion of the Shares to be issued and sold by the Company have been duly
authorized and, when issued and paid for as contemplated herein, will be
validly issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Shares nor, to the best of the Company's knowledge, instituted
proceedings for that purpose. The Registration Statement contains, and the
Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to
the requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain,
any untrue statement of a material fact and do not omit, and will not omit,
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any
amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact; and do not omit, and will not omit,
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes
no representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to
3
<PAGE>
the Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company and the Subsidiaries,
at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied
throughout the periods involved, except as disclosed herein, and all
adjustments necessary for a fair presentation of results for such periods
have been made. The summary financial and statistical data included in the
Registration Statement presents fairly the information shown therein and
such data has been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company. The
pro forma financial statements and other pro forma financial information
included in the Registration Statement and the Prospectus present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(vii) Deloitte & Touche LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
the Rules and Regulations.
(viii) Except as described in the Prospectus, there is no action,
suit, claim or proceeding pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiaries before any court or
administrative agency or otherwise which if determined adversely to the
Company or either Subsidiary might result in any material adverse change in
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of the
Subsidiaries taken as a whole or might prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and each of the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the
financial statements hereinabove described (or as described in the
Registration Statement), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement) or which are not material
in amount. The Company and the Subsidiaries occupy their leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
4
<PAGE>
(x) The Company and each of the Subsidiaries have filed all
federal, state, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns and
all assessments received by them or any of them to the extent that such
taxes have become due, except for any taxes that are being contested in
good faith by the Company and for which adequate reserves for any tax
liability have been established in the financial statements. All tax
liabilities have been adequately provided for in the financial statements
of the Company.
(xi) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a
whole, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of business
and changes and transactions described in the Registration Statement, as it
may be amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the Company's
financial statements that are included in the Registration Statement.
(xii) Neither the Company nor either of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in violation
of or in default under its Charter or Bylaws, as applicable, or under any
agreement, lease, contract, indenture or other instrument or obligation to
which it is a party or by which it, or any of its properties, is bound and
which default is of material significance in respect of the condition,
financial or otherwise of the Company and its Subsidiaries taken as a whole
or the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole. The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
any material indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or either of the Subsidiaries is a party,
or of the Charter or Bylaws, as applicable, of the Company or any order,
rule or regulation applicable to the Company or either of the Subsidiaries
of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
herein contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the
"NASD") or such additional steps as may be necessary to
5
<PAGE>
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws) has been obtained or made and is in full force
and effect.
(xiv) Each of the Company and the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; the Company and the
Subsidiaries each own or possess the right to use all patents, patent
rights, trademarks, trade names, service marks, service names, copyrights,
license rights, know-how (including trade secrets and other unpatented and
unpatentable proprietary or confidential information, systems or
procedures) and other intellectual property rights necessary to carry on
its business in all material respects; and to the best of Company's
knowledge, neither the Company nor either of the Subsidiaries has
infringed, and none of the Company or the Subsidiaries have received notice
of conflict with any patents, patent rights, trade names, trademarks or
copyrights, which infringement or conflict is material to the business of
the Company and the Subsidiaries taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares.
(xvi) None of the Company or the Subsidiaries is an "investment
company" within the meaning of such term under the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations of the
Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (a) transactions
are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (c) access
to assets is permitted only in accordance with management's general or
specific authorization; and (d) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xviii) The Company and the Subsidiaries each carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in
similar industries.
6
<PAGE>
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (a) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(b) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, An Act Relating to Disclosure of doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to
the Department.
(xxi) To the best of the Company's knowledge, no relationship,
direct or indirect, exists between or among the Company or the
Subsidiaries, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or the Subsidiaries, on the other
hand, which is required to be described in the Prospectus that is not so
described.
(xxii) Neither the Company nor the Subsidiaries, nor, to the
best of the Company's knowledge, any director, officer, agent, employee or
other person associated with or acting on behalf of the Company or the
Subsidiaries, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or
is in violation of any provisions of the Foreign Corrupt Practices Act of
1972; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(xxiii) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, except where failure to
7
<PAGE>
be so in compliance would not materially adversely affect the business or
properties of the Company and the Subsidiaries, taken as a whole.
(xxiv) The business, operations and facilities of the Company and
the Subsidiaries have been and are being conducted in compliance with all
applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational
safety and health, pollution, protection of health or the environment
(including, without limitation, those relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or hazardous or
toxic substances, materials or wastes into ambient air, surface water,
groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, gaseous or liquid in
nature) or otherwise relating to remediating real property in which the
Company or the Subsidiaries have or had any interest, whether owned or
leased, of any governmental department, commission, board, bureau, agency
or instrumentality of the United States, any state or political subdivision
thereof and all applicable judicial or administrative agency or regulatory
decrees, awards, judgments and orders relating thereto, except for such
failures to so comply as would not, individually or in the aggregate, have
a material adverse affect on the Company's and the Subsidiaries business,
taken as a whole; and neither the Company nor either of the Subsidiaries
has received any notice from a governmental instrumentality or any third
party alleging any violation thereof or liability thereunder (including,
without limitation, liability for costs of investigating or remediating
sites containing hazardous substances or damage to natural resources),
except for such violations or liabilities which would not, individually or
in the aggregate, have a material adverse affect on the Company's and the
Subsidiaries' business taken as a whole.
(b) Each of the Selling Stockholders severally represents and warrants
as follows:
(i) Such Selling Stockholder now has and at the Closing Date and
the Option Closing Date, as the case may be (as such dates are hereinafter
defined), will have good and marketable title to the Firm Shares to be sold
by such Selling Stockholder, free and clear of any liens, encumbrances,
equities and claims, and full right, power and authority to effect the sale
and delivery of such Firm Shares; and upon the delivery of, against payment
for, such Firm Shares pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power and authority
to execute and deliver this Agreement and the Custody Agreement and Power
of Attorney referred to below and to perform its obligations under such
agreements. The execution and delivery of this Agreement and the
consummation by such Selling Stockholder of the transactions herein
contemplated and the fulfillment by such Selling Stockholder of the terms
hereof will not require any consent, approval, authorization, or other
order of any
8
<PAGE>
court, regulatory body, administrative agency or other governmental body
(except as may be required under the Act, state securities laws or Blue Sky
laws) and will not result in a breach of any of the terms and provisions
of, or constitute a default under, the organizational documents of such
Selling Stockholder, if not an individual, or any indenture, mortgage, deed
of trust or other agreement or instrument to which such Selling Stockholder
is a party, or of any order, rule or regulation applicable to such Selling
Stockholder of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the
Company and, other than as permitted by the Act, the Selling Stockholder
will not distribute any prospectus or other offering material in connection
with the offering of the Shares.
(iv) As to each of Alfonso G. Cordero, Kevin T. Michaels, Ki Y.
Nam, Eric A. Tanner, Mark D. Winters, and Eugene L. Goda after due inquiry,
and as to each of the other Selling Shareholders, without having undertaken
to determine independently the accuracy or completeness of either the
representations and warranties of the Company contained herein or the
information contained in the Registration Statement, such Selling
Stockholder (a) has no reason to believe that the representations and
warranties of the Company contained in this Section 1 are not true and
correct, (b) is familiar with the Registration Statement and (c) has no
knowledge of any material fact, condition or information not disclosed in
the Registration Statement which has adversely affected or may adversely
affect the business of the Company or the Subsidiaries. The sale of the
Firm Shares by such Selling Stockholder pursuant hereto is not prompted by
any information concerning the Company or the Subsidiaries which is not set
forth in the Registration Statement. The information pertaining to such
Selling Stockholder under the caption "Principal and Selling Shareholders"
in the Prospectus is complete and accurate in all material respects.
2. Purchase, Sale and Delivery of the Firm Shares.
-----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, each
Seller, severally and not jointly, agrees to sell to the Underwriters and
each Underwriter agrees, severally and not jointly, to purchase, at a price
of $_______ per share, the number of Firm Shares set forth opposite the
name of each Underwriter in Schedule I hereto, subject to adjustments in
accordance with Section 9 hereof. The number of Firm Shares to be purchased
by each Underwriter from each Seller shall be as nearly as practicable in
the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The
obligations of the Company and of each of the Selling Stockholders shall be
several and not joint.
9
<PAGE>
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Stockholders have been placed in
custody with U.S. Stock Transfer Corporation as custodian (the "Custodian")
pursuant to the Custody Agreement and Power of Attorney executed by each
Selling Stockholder for delivery of all Firm Shares and any Option Shares
to be sold hereunder by the Selling Stockholders. Each of the Selling
Stockholders specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Stockholders under the Custody
Agreement are subject to the interests of the Underwriters hereunder, that
the arrangements made by the Selling Stockholders for such custody are to
that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminable by any act or deed of the
Selling Stockholders (or by any other person, firm or corporation including
the Company, the Custodian or the Underwriters) or by operation of law
(including the death of an individual Selling Stockholder or the
dissolution of a corporate Selling Stockholder) or by the occurrence of any
other event or events, except as set forth in the Custody Agreement. If any
such event should occur prior to the delivery to the Underwriters of the
Firm Shares hereunder, certificates for the Firm Shares shall be delivered
by the Custodian in accordance with the terms and conditions of the Custody
Agreement and this Agreement as if such event has not occurred. The
Custodian is authorized to receive and acknowledge receipt of the proceeds
of sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by certified or bank cashier's checks drawn
to the order of the Company for the shares to be sold by it or by wire
transfer of same-day funds to an account specified by the Company, and to
the order of "U.S. Stock Transfer Corporation, as Custodian" for the shares
to be sold by the Selling Stockholders, in each case against delivery of
certificates therefor to the Representatives for the several accounts of
the Underwriters. Such payment and delivery are to be made at the offices
of Alex. Brown & Sons Incorporated, 1 South Street, Baltimore, Maryland, at
10:00 a.m., Baltimore time, on the third business day after the date of
this Agreement or at such other time and date not later than five business
days thereafter as you and the Company shall agree upon, such time and date
being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading
and on which banks in New York are open for business and not permitted by
law or executive order to be closed.) The certificates for the Firm Shares
will be delivered in such denominations and in such registrations as the
Representatives request in writing not later than the second full business
day prior to the Closing Date, and will be made available for inspection by
the Representatives at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company and certain Selling Stockholders listed on Scheduled III hereby
grant an option to the several Underwriters to purchase the Option Shares
at the price per share as set forth in the first
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<PAGE>
paragraph of this Section 2. The maximum number of Option Shares to be sold
by the Company and the Selling Stockholders is set forth opposite their
respective names on Schedule III hereto. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at any time
before the Closing Date and (ii) only once thereafter within 30 days after
the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company, the Attorney-in-Fact, and the Custodian
setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in
which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. If the option granted hereby is
exercised in part, the respective number of Option Shares to be sold by the
Company and each of the Selling Stockholders listed in Schedule III hereto
shall be determined on a pro rata basis in accordance with the percentages
set forth opposite their names on Schedule III hereto, adjusted by you in
such manner as to avoid fractional shares. The time and date at which
certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10
full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option
with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several Underwriters, may
cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company, the Attorney-in Fact, and the
Custodian. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in New York
Clearing House funds by certified or bank cashier's check drawn to the
order of the Company for the Option Shares to be sold by it and to the
order of "US Stock Transfer Corporation as Custodian," for the Option
Shares to be sold by the Selling Stockholders, or by wire transfer of same-
day funds to an account specified by the Company or such Custodian against
delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date any Selling
Stockholder fails to sell the Firm Shares or Option Shares which such
Selling Stockholder has agreed to sell on such date as set forth in
Schedule II and Schedule III hereto, the Company agrees that it will sell
or arrange for the sale of that number of shares of Common Stock to the
Underwriters which represents the Firm Shares or Option Shares which such
Selling Stockholder has failed to so sell, as set forth in Schedule II and
Schedule III hereto, or such lesser number as may be requested by the
Representatives.
3. Offering by the Underwriters.
-----------------------------
11
<PAGE>
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option
Shares are purchased pursuant to Section 2 hereof, the Underwriters will
offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with
a Master Agreement Among Underwriters entered into by you and the several
other Underwriters.
4. Covenants of the Company and the Selling Stockholders.
------------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (a) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations and (b) not
file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations.
(ii) The Company will advise the Representatives promptly (a) when
the Registration Statement or any post-effective amendment thereto shall
have become effective, (b) of receipt of any comments from the Commission,
(c) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (d) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company
will,
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from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in
effect for so long a period as the Representatives may reasonably request
for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, three signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of
the exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail,
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of
the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and
copies of all other documents, reports and information furnished by the
Company to its stockholders or filed
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<PAGE>
with any securities exchange pursuant to the requirements of such exchange
or with the Commission pursuant to the Act or the Exchange Act. The Company
will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into
or exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreements for such) will be made for a period of 90 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated; provided, however, that the Company shall be permitted
(A) to grant options to purchase Common Stock under its employee stock
option plans, (B) to issue Common Stock upon exercise of currently
outstanding options, and (C) to issue shares of Common Stock under its
employee stock purchase plan; provided further that no options granted
under (A), above, shall vest within 90 days after the effective date of the
Registration Statement.
(ix) The Company will file an application for additional listing
of the Shares on The Nasdaq National Market.
(x) The Company has caused each officer and director, and certain
stockholders of the Company to furnish to you, on or prior to the date of
this Agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree that,
without the prior written consent of Alex. Brown & Sons Incorporated, such
person will not, directly or indirectly offer, sell, pledge, contract to
sell (including any short sale), grant any option to purchase or otherwise
dispose of any shares of Common Stock (including, without limitation,
shares of Common Stock of the Company which may be deemed to be
beneficially owned by such person on the effective date of the Registration
Statement in accordance with the rules and regulations of the Commission
and shares of Common Stock which may be issued upon exercise of a stock
option or warrant) or enter into any Hedging Transaction (as defined
therein) relating to the Common Stock for a period of 90 days after the
effective date of the Registration Statement ("Lockup Agreements") except
as may otherwise be permitted under the Lockup Agreements.
(xi) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or the Subsidiaries to register as an investment
company under the 1940 Act.
(xii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
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<PAGE>
(xiii) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters that:
(i) Without the prior written consent of Alex. Brown & Sons
Incorporated, such Selling Stockholder will not, directly or indirectly
offer, sell, pledge, contract to sell (including any short sale), grant any
option to purchase or otherwise dispose of any shares of Common Stock
(including, without limitation, shares of Common Stock of the Company which
may be deemed to be beneficially owned by such Selling Stockholder on the
effective date of the Registration Statement in accordance with the rules
and regulations of the Commission and shares of Common Stock which may be
issued upon exercise of a stock option or warrant) or enter into any
Hedging Transaction (as defined below) relating to the Common Stock (each
of the foregoing referred to as a "Disposition") for a period of 90 days
after the effective date of the Registration Statement (the "Lockup
Period"). The foregoing restriction is expressly intended to preclude such
Selling Stockholder from engaging in any Hedging Transaction or other
transaction which is designed to or reasonably expected to lead to or
result in a Disposition during the Lockup Period even if the securities
would be disposed of by someone other than such Selling Stockholder.
"Hedging Transaction" means any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any security (other than a broad-
based market basket or index) that includes, relates to or derives any
significant part of its value from the Common Stock. Notwithstanding the
foregoing, such Selling Stockholder may transfer any or all of the Shares
by gift, will or intestacy; provided, however, that in any such case it
shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is reviewing and holding the Shares
subject to the provisions of this Agreement and there shall be no further
transfer of such Shares except in accordance with this Agreement.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act
of 1983 with respect to the transactions herein contemplated, each of the
Selling Stockholders agrees to deliver to you prior to or at the Closing
Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
15
<PAGE>
5. Costs and Expenses.
-------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for
the Company, in the capacity of representing the Company; the cost of
printing or duplicating, as the case may be, and delivering to, or as
requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto;
the filing fees of the Commission; the filing fees and expenses (including
legal fees and disbursements) incident to securing any required review by
the National Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Shares; the Listing Fee of the Nasdaq National
Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under State securities or Blue Sky laws. Any transfer taxes imposed
on the sale of the Shares to the several Underwriters will be paid by the
Sellers pro rata. The Sellers shall not, however, be required to pay for
any of the Underwriters expenses (other than those related to qualification
under NASD regulation and state securities or Blue Sky laws) except that,
if this Agreement shall not be consummated because the conditions in
Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representatives pursuant to Section 11(b)(i) hereof, or by reason of
any failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with
said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-
pocket expenses, including fees and disbursements of counsel, reasonably
incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations
hereunder; but the Company and the Selling Stockholders shall not in any
event be liable to any of the several Underwriters for damages on account
of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
----------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of
the Company and the Selling Stockholders contained herein, and to the
performance by the Company and the Selling Stockholders of their covenants
and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for
16
<PAGE>
additional information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representatives and complied
with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time,
shall have been issued and no proceedings for that purpose shall have been
taken or, to the knowledge of the Company or the Selling Stockholders,
shall be contemplated by the Commission and no injunction, restraining
order, or order of any nature by a federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinions of Stradling, Yocca,
Carlson & Rauth, counsel for the Company and the Selling Stockholders,
dated the Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; the
Subsidiaries have been duly organized and are validly existing as
corporations in good standing under the laws of the jurisdiction of their
respective incorporation, with corporate power and authority to own or
lease their properties and conduct their business as described in the
Registration Statement; the Company and the Subsidiaries are duly qualified
to transact business in all jurisdictions in which the conduct of their
business requires such qualification and in which the failure to qualify
would have a materially adverse effect upon the business of the Company and
the Subsidiaries taken as a whole; and the outstanding shares of capital
stock of the Subsidiaries have been duly authorized and validly issued, are
non-assessable and, to such counsel's knowledge, fully paid, and are owned
by the Company; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of the Subsidiaries are owned free and
clear of all liens, encumbrances and equities and claims, and no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into any shares of capital
stock or of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock, including the Shares
to be sold by the Selling Stockholders, have been duly authorized and
validly issued, are non-assessable and, to such counsel's knowledge, fully
paid; all of the Shares conform in all material respects to the description
thereof contained in the Prospectus; the certificates for the Shares,
assuming they are in the form filed with the Commission, are in due and
proper form under the Delaware General Corporation Law; the shares of
Common Stock, including the Option Shares, if any, to be sold by the
Company pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for as
17
<PAGE>
contemplated by this Agreement; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock
or any securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no holder of
any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the right to
have any Common Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares
of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements, related schedules and statistical data therein).
(vi) The statements under the captions "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are summarized
in the Registration Statement or the Prospectus are fairly summarized in
all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or the Subsidiaries
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a
18
<PAGE>
breach of any of the terms or provisions of, or constitute a default under,
the Charter or Bylaws of the Company or the Subsidiary, or any agreement or
instrument known to such counsel to which the Company or either of the
Subsidiaries is a party or by which the Company or either of the
Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the Shares
to be sold by such Selling Stockholder.
(xv) The Custody Agreement and the Power of Attorney executed and
delivered by each Selling Stockholder is valid and binding.
(xvi) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) upon delivery
of and payment for the Shares being sold by each Selling Stockholder on the
Closing Date, and the Option Closing Date, as the case may be, will receive
good and valid title to such Shares, free and clear of all liens,
encumbrances, equities and claims.
In rendering such opinion Stradling, Yocca, Carlson & Rauth may rely
as to matters governed by the laws of states other than Delaware and
California or Federal laws on local counsel in such jurisdictions and as to
the matters set forth in subparagraphs (xiii), (xiv) and (xv) on opinions
of other counsel representing the respective Selling Shareholders, provided
that in each case Stradling, Yocca, Carlson & Rauth shall state that they
believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads
19
<PAGE>
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the
Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement,
Stradling, Yocca, Carlson & Rauth may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Morrison & Foerster
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (iv) and (v) of Paragraph (b) of this Section 6,
and that the Company is a duly organized and validly existing corporation
under the laws of the State of Delaware. In rendering such opinion Morrison
& Foerster llp may rely as to all matters governed other than by the laws
of the State of Delaware or California or federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads
them to believe that (i) the Registration Statement, or any amendment
thereto, as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial statements,
schedules and statistical information therein). With respect to such
statement, Morrison & Foerster llp may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Morrison & Foerster LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
the state securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
20
<PAGE>
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of Deloitte & Touche LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such
other statements and information as is ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have been
taken or are, to the best of his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424
or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and
Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, and since the effective date of the Registration Statement, no
event has occurred which should have been set forth in a supplement to or
an amendment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition
21
<PAGE>
(financial or otherwise) or prospects of the Company and the Subsidiaries
taken as a whole, whether or not arising in the ordinary course of
business.
(g) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein
and related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
additional listing by The Nasdaq National Market.
(i) The Lockup Agreements described in Section 4 (a)(x) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in
all material respects reasonably satisfactory to the Representatives and to
Morrison & Foerster LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling
Stockholders of such termination in writing or by telegram at or prior to
the Closing Date or the Option Closing Date, as the case may be.
In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Company.
---------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
----------------
(a) The Company and the Selling Stockholders, severally and not
jointly, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue
22
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statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any act or failure to
act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above, provided that the Company shall not be liable
under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action relates to or arose directly from any such acts
or failures to act undertaken or omitted to be taken by such Underwriter
through its negligence or willful misconduct; and will reimburse each
Underwriter and each such controlling person upon demand for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company and the Selling
Stockholders will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof; and
provided, further, that the foregoing indemnity agreement shall not inure
to the benefit of any Underwriter, or any person controlling such
Underwriter, from whom the person asserting such losses, claims, damages or
liabilities purchased Shares if a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, each Selling Stockholder (other than the
Principal Stockholders, as defined below) shall only be liable under this
Section 8 to the extent and only to the extent, that any loss, claim,
damage or liability of any Underwriter, or controlling person, if any,
arises out of or is based upon (i) any untrue statement or omission, or any
alleged untrue statement or omission, made in the Registration Statement
(or any amendment thereto) in reliance upon and in conforming with
information furnished to the Company by or on behalf of such Selling
Stockholder expressly for use in the Registration Statement (or any
amendment thereto) or any Preliminary Prospectus (or any amendment thereto)
or (ii) any breach of such Selling Stockholder's representation and
warranty made in Section 1(b)(iv) hereof. In no event, however, shall the
liability of any Selling Stockholder for indemnification under this Section
8(a) exceed the net proceeds received by such Selling Stockholder from the
23
<PAGE>
Underwriters in the offering. This indemnity agreement will be in addition
to any liability which the Company or the Selling Stockholders may
otherwise have.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Stockholders, and each
person, if any, who controls the Company or the Selling Stockholders within
the meaning of the Act, against any losses, claims, damages or liabilities
to which the Company or any such director, officer, Selling Stockholder or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission has been made
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related
and was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the
24
<PAGE>
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel reasonably acceptable to the indemnified party within a
reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all
such indemnified parties. Such firm shall be designated in writing by you
in the case of parties indemnified pursuant to Section 8(a) and by the
Company and the Selling Stockholders in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder if the
indemnified party is an actual or reasonably likely potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by (i) the Company, (ii) the Selling Stockholders, and (iii) the
Underwriters from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of (i) the Company, (ii) the Selling Stockholders, and (iii)
the Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by (i) the Company, (ii) the
Selling Stockholders and (iii) the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set
25
<PAGE>
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by (i)
the Company, (ii) the Selling Stockholders, or (iii) the Underwriters, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation, and (iii) no
Selling Stockholder shall be required to contribute any amount in excess of
the net proceeds received by such Selling Stockholder from the Underwriters
in the offering. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any
such proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Stockholders
set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, its officers or
employees, any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, or any
Selling Stockholder or person controlling a Selling Stockholder,
26
<PAGE>
(ii) acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, its officers
or employees, or to the Company, its directors or officers, or to any
Selling Stockholder, or any person controlling any Underwriter, the Company
or any Selling Stockholder, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. Default by Underwriters.
------------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such
date (otherwise than by reason of any default on the part of the Company or
a Selling Stockholder), you, as Representatives of the Underwriters, shall
use your reasonable efforts to procure within 36 hours thereafter one or
more of the other Underwriters, or any others, to purchase from the Company
and the Selling Stockholders such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case
may be, which the defaulting Underwriter or Underwriters failed to
purchase. If during such 36 hours you, as such Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10%
of the Firm Shares or Option Shares, as the case may be, covered hereby,
the other Underwriters shall be obligated, severally, in proportion to the
respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares
or Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares
of Firm Shares or Option Shares, as the case may be, with respect to which
such default shall occur exceeds 10% of the Firm Shares or Option Shares,
as the case may be, covered hereby, the Company and the Selling
Stockholders, or you as the Representatives of the Underwriters, will have
the right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or of the Company or of the
Selling Stockholders except to the extent provided in Section 8 hereof. In
the event of a default by any Underwriter or Underwriters, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case may
be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. Notices.
--------
27
<PAGE>
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Alex.
Brown & Sons Incorporated, 101 California Street, 48th Floor, San
Francisco, California 94111, Attention: Tony Meneghetti, with a copy to
Alex. Brown & Sons Incorporated, 1 South Street, Baltimore, Maryland 21202.
Attention: General Counsel; if to the Company or to the Selling
Stockholders, to Powerwave Technologies, Inc., 2026 McGaw Avenue, Irvine,
California 92614, Attention: Chief Executive Officer; with a copy to
Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite 1600,
Newport Beach, California, Attention: Nick E. Yocca, Esq.
11. Termination.
------------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets
of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of
the Shares, or (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree
or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects or may materially and adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by
United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the Commission on the Nasdaq National
Market or (vii) the taking of any action by any governmental body or agency
in respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the
United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
28
<PAGE>
12. Successors.
-----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person
will have any right or obligation hereunder. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign merely
because of such purchase.
13. Information Provided by Underwriters.
---------------------------------------
The Company, the Selling Stockholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to
the Underwriters), legends required by Item 502(d) of Regulation S-K under
the Act and the information under the caption "Underwriting" in the
Prospectus.
14. CONSENT TO JURISDICTION.
------------------------
(a) Each of the parties hereto consents to the jurisdiction of and
venue in federal and state courts located in the County of Baltimore and
State of Maryland, over any suit, action or proceeding with respect to this
Agreement.
(b) The Company hereby irrevocably and unconditionally agrees that
service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Company at the
address of the Principal U.S. Office set forth in the Registration
Statement.
29
<PAGE>
15. Miscellaneous.
--------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter, its officers or employees, or
controlling person thereof, or by or on behalf of the Company or its
directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
30
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders, the
Company, and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
POWERWAVE TECHNOLOGIES, INC.
By:__________________________________________
Bruce C. Edwards
President and Chief Executive Officer
SELLING STOCKHOLDERS LISTED ON SCHEDULE II
By:__________________________________________
Attorney-in-Fact
31
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
UBS SECURITIES LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:_____________________________________
Authorized Officer
32
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
Alex. Brown & Sons Incorporated
UBS Securities LLC
Wessels, Arnold & Henderson, L.L.C.
Total 3,000,000
=========
</TABLE>
Schedule I
<PAGE>
SCHEDULE II
Schedule of Selling Stockholders
<TABLE>
<CAPTION>
Number of Firm Shares
Selling Stockholder to be Sold
------------------- ---------------------
<S> <C>
Total 2,250,000
=========
</TABLE>
Schedule II
<PAGE>
SCHEDULE III
Schedule of Option Shares
<TABLE>
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
- --------------- ---------------- ---------------
<S> <C> <C>
Company 250,000
------- ---
Total 450,000 100%
---
</TABLE>
Schedule III
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF STRADLING YOCCA CARLSON & RAUTH]
June 3, 1997
Powerwave Technologies, Inc.
2026 McGaw Avenue
Irvine, California 92614
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
filed by Powerwave Technologies, Inc., a Delaware corporation (the "Company"),
with the Securities and Exchange Commission on June 4, 1997 (as amended, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 3,450,000 shares of Common stock, $.0001
par value per share, of the Company (the "Common Stock"). Said shares of Common
Stock, which include 450,000 shares which will be subject to an over-allotment
option to be granted to the underwriters by the Company and certain selling
shareholders, are to be sold to the underwriters as described in the
Registration Statement for sale to the public.
As your counsel in connection with this transaction, we have examined the
proceedings taken and are familiar with the proceedings proposed to be taken by
you in connection with the authorization, issuance and sale of the shares of the
Common Stock.
Based on the foregoing, and subject to compliance with applicable state
securities laws, it is our opinion that the 3,450,000 shares of Common Stock,
when issued and sold in the manner described in the Registration Statement, will
be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus which is a part of the Registration Statement.
Very truly yours,
STRADLING, YOCCA, CARLSON & RAUTH
<PAGE>
EXHIBIT 10.3.1
POWERWAVE TECHNOLOGIES, INC.
AMENDMENT NO. 2
TO
MILCOM INTERNATIONAL, INC. 1995 STOCK OPTION PLAN
As approved at a regularly scheduled meeting of the Board of Directors of
Powerwave Technologies, Inc., a Delaware corporation (formerly Milcom
International, Inc., the "Company"), the 1995 Stock Option Plan is amended as
follows:
First, a new Section 2(c)(i) is added as follows:
"(c)(i) Cause. "Cause" with respect to any Participant shall mean "cause"
as defined in such Participant's employment agreement or, in the absence of
any employment agreement, (i) the material breach or material neglect of
the duties and obligations required by the Participant, which breach or
neglect continues for at least thirty (30) days after the Board of
Directors of the Company (or its successor) has given written notice to the
Participant of such breach or neglect, stating with particularity the
nature thereof; (ii) the conviction of the Participant of a felony or any
crime (whether or not a felony) involving moral turpitude; or (c) proven
unauthorized disclosure of material confidential information or trade
secrets of the Company."
Second, Section 9(b) is amended to include a new third sentence which reads
as follows:
"If, within 180 days of any such merger, sale of assets or consolidation,
an individual Participant's status as an Employee is terminated by the
Company or its successor other than for Cause, then such Participant's
Options, to the extent not previously accelerated, shall be accelerated and
concurrent with the date of such termination such Participant shall have
the right to exercise such Options in respect to any or all shares subject
thereto."
Attest:
/s/ KEVIN T. MICHAELS
----------------------------
Kevin T. Michaels, Secretary
<PAGE>
EXHIBIT 10.6.1
POWERWAVE TECHNOLOGIES, INC.
AMENDMENT NO. 1
TO
1996 STOCK INCENTIVE PLAN
As approved at a regularly scheduled meeting of the Board of Directors of
Powerwave Technologies, Inc., a Delaware corporation (the "Company"), the 1996
Stock Incentive Plan is amended as follows:
First, a new Section 2.3.1 is added as follows:
"2.3.1 Cause. "Cause" with respect to any Participant shall mean "cause"
as defined in such Participant's employment agreement or, in the absence of
any employment agreement, (i) the material breach or material neglect of
the duties and obligations required by the Participant, which breach or
neglect continues for at least thirty (30) days after the Board of
Directors of the Company (or its successor) has given written notice to the
Participant of such breach or neglect, stating with particularity the
nature thereof; (ii) the conviction of the Participant of a felony or any
crime (whether or not a felony) involving moral turpitude; or (c) proven
unauthorized disclosure of material confidential information or trade
secrets of the Company."
Second, Section 8.1 is amended to include a new second sentence which reads
as follows:
"If, within 180 days of a Change in Control (regardless of its approval or
non-approval by the Continuing Directors), an individual Participant's
status as a Service Provider is terminated by the Company or its successor
other than for Cause, then such Participant's Options, Rights of Purchase
and Restricted Stock, to the extent not previously accelerated, shall be
accelerated and concurrent with the date of such termination such
Participant shall have the right to exercise such Options and Rights of
Purchase in respect to any or all shares subject thereto."
Attest:
/s/ KEVIN T. MICHAELS
----------------------------
Kevin T. Michaels, Secretary
<PAGE>
EXHIBIT 10.9.1
POWERWAVE TECHNOLOGIES, INC.
AMENDMENT NO. 1
TO
EMPLOYEE STOCK PURCHASE PLAN
As approved at a regularly scheduled meeting of the Board of Directors of
Powerwave Technologies, Inc., a Delaware corporation (the "Company"), the
Employee Stock Purchase Plan is amended as follows:
First, Section 3.1 is amended and restated in its entirety as follows:
"3.1 Eligibility. Each Employee of the Company, or any Designated
Subsidiary, who, on the Grant Date, is customarily engaged on a regularly-
scheduled basis of more than twenty (20) hours per week and who has been
employed for at least ninety (90) days (or, for the initial Offering Period
only, such Employees who are employed on the Effective Date) in the
rendition of personal services to the Company, or any Designated
Subsidiary, may become a Participant in the Plan on the Grant Date
coincident with or next following his satisfaction of such requirements of
employment with the Company or any Designated Subsidiary."
Second, Section 5.1 is amended and restated in its entirety as follows:
"5.1 Participant Election. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll
deductions to be made from his or her paycheck to purchase Company Stock
under the Plan. The amount of payroll deductions shall be designated in
whole percentages of Compensation, not to exceed 20%. The amount so
designated upon the Stock Purchase Agreement shall be effective as of the
next Grant Date and shall continue until terminated or altered in
accordance with Section 5.2 below."
Attest:
/s/ KEVIN T. MICHAELS
----------------------------
Kevin T. Michaels, Secretary
<PAGE>
EXHIBIT 10.21
SEPARATION AGREEMENT AND MUTUAL GENERAL RELEASE
-----------------------------------------------
This Separation Agreement and General Release ("Agreement") is made and
entered into by and between PETER L. MANNO ("Manno") and POWERWAVE TECHNOLOGIES,
INC., a Delaware corporation (the "Company").
WHEREAS, Manno has served as an Executive Vice President of the Company;
and
WHEREAS, Manno and the Company have mutually agreed upon the terms and
provisions for Manno's severance and separation from the Company.
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and of good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties do hereby agree as follows:
1. Manno understands and agrees that his employment with the Company will
terminate effective May 2, 1997, and that he has already received in full any
and all salary, wages, commissions, incentives, bonuses, accrued unused
vacation, expense reimbursements (subject to paragraph 5), compensation, and
other benefits to which he is entitled through the date of termination of his
employment.
2. Manno further agrees as follows:
(a) Manno agrees that for a period of one (1) year from May 2, 1997,
the period during which the Company has agreed to make payments to Manno under
Paragraph 5, Manno will not, without the prior written consent of the Company,
enter into or engage in any business or perform any service, as an employee,
agent, consultant, or otherwise, in any enterprise, which competes with the
Company, including, without limitation, Spectrian Corporation, Micro Power
Devices, Inc. M/A Com, Inc., Avantek (a division of Hewlett-Packard Company),
Celeritek, JCA, Trontech, or AML Communications (a "Competitive Business"), in
any geographic region in which the Company conducts or proposes to conduct its
business, including without limitation, the United States, the Pacific Rim,
Europe and other areas in the world which have or may have wireless
communication.
(b) Manno recognizes that the provisions contained in Paragraph 2
(i) are reasonably necessary for the Company's protection and realization of the
benefit to the Company of its bargains under this Agreement and that a violation
of Paragraph 2 will cause damage which will be irreparable or impossible to
ascertain, and, accordingly, that the Company shall be entitled to an injunction
or other similar relief in equity from a court of competent jurisdiction to
enforce these restrictions or restrain a violation of Paragraph 2. The right of
the Company to such relief shall be in addition to any other rights it may have,
whether at law or in equity, including the Company's rights under Paragraph 11.
(c) If Manno violates the terms of this Paragraph 2 and the Company
brings legal action for injunctive or other relief, the Company shall not, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full term of the covenants provided herein. In the event a court of
competent jurisdiction decides that an action of Manno is considered to be a
violation of this
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Paragraph 2, the covenants shall be deemed to have a duration specified in this
Paragraph 2, to be increased with the time such violation lasted.
3. Simultaneous with the execution of this Agreement, Manno will return to
the Company any and all documents and materials which are the property of the
Company, including but not limited to: (a) all documents relating to any of the
Company's productivity, profitability, contracts, marketing plans, contact
lists, and financial reports, and any and all other confidential and/or
proprietary documents; and (b) all office equipment, computers, and printers.
Manno represents that, other than in the ordinary course of performing his
duties for the Company, he has not and will not deliver, reproduce, or in any
way allow such materials or documents to be delivered or used by any third
person without the specific written consent of the Company.
4. Manno represents to the Company that he is signing this Agreement
voluntarily and with a full understanding of and agreement with its terms for
the purpose of receiving additional pay beyond that normally provided by the
Company's policies and practices.
5. In reliance on Manno's representations, agreements and releases in
this Agreement, the Company agrees: (a) to continue to pay Manno an amount equal
to his regular annual salary of $125,000 per year for a period of one year
beginning May 2, 1997, such amount to paid in bi-weekly installments, less all
applicable federal and state payroll deductions and withholdings; (b) to pay
Manno an amount equal to his annualized commission amount of $75,000, such
amount to be paid over a one year period beginning May 2, 1997 in bi-weekly
installments, less all applicable federal and state payroll deductions and
withholdings; (c) to pay Manno $37,063.00 on the date of this Agreement and an
amount not less than $0 nor more than $ check #50056 (which amount may in fact
be $0) to be determined by the parties within seven (7) days of the date of this
Agreement as full and final settlement of any and all relocation expenses
incurred by Manno in connection with his initial employment with the Company;
(d) that Manno's options to purchase Common Stock of the Company (the "Options")
granted to Manno under either of the Company's 1995 Stock Option Plan or its
1996 Stock Incentive Plan (collectively, the "Plans") will vest through May 5,
1997, and that fifty percent (50%) of any unvested Options at May 5, 1997 will
accelerate and become immediately exercisable for a period of ninety (90) days
from May 2, 1997 and that after such ninety (90) day period, unless sooner
exercised by Manno, such Options shall terminate in accordance with the Plans;
(e) other than as set forth in this Paragraph 5, no stock options held by Manno
not vested as of May 5, 1997, shall vest and become exercisable as a result of
this Agreement; (f) that as of May 2, 1997, Manno will no longer be eligible to
participate in the Company's Future Income Program Plan and Trust (i.e., the
401(k) plan); (g) that all contributions Manno has deferred to the Company's
Employee Stock Purchase Plan (the "ESPP") will be returned to him in accordance
with the ESPP and that Manno shall have no right to purchase shares of Common
Stock of the Company under the ESPP; and (h) that Manno's medical benefits will
continue through May 30, 1997, at which time he may elect to continue such
benefits under COBRA at his own expense.
6. In consideration of the foregoing, Manno agrees to be generally
available to the Chief Executive Officer of the Company until August 1, 1997 to
consult with and provide assistance to the Chief Executive Officer in
transitioning the duties and responsibilities of Manno, pursuing sales leads,
and otherwise, as the Chief Executive Officer may reasonably request. The
Company acknowledges that Manno may be absent from the Southern California area
from time to time.
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7. In exchange for the additional pay and other consideration provided to
Manno in Paragraph 5 and Manno's agreements set forth in this Agreement, Manno
and the Company agree to waive and release all claims, rights, benefits,
obligations, and causes of action, known and unknown, which either party may
have against the other party or their related entities, and, in the case of the
Company, its officers, directors, shareholders, employees, agents,
representatives, successors, and assigns, regarding any aspect of Manno's
employment, compensation, or the cessation of Manno's employment, except for any
such claims related to either party's rights or obligations under this
Agreement.
8. IT IS FURTHER UNDERSTOOD AND AGREED that as a condition of this
Agreement, all rights under Section 1542 of the Civil Code of the State of
California are expressly waived by Manno and the Company. Such Section reads as
follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Notwithstanding Section 1542, and for the purpose of implementing a full and
complete release and discharge of Manno and the Company, Manno and the Company
expressly acknowledge that this Agreement is intended to include and does
include in its effect, without limitation, all claims which Manno or the Company
does not know or suspect to exist in his or its favor against the other party at
the time of execution hereof, and that this Agreement expressly contemplates the
extinguishment of all such claims.
9. For purposes of the Older Workers Benefit Protection Act, 29 U.S.C.
section 626(F) and to assure that the Agreement bars any claims under the
Federal Age Discrimination in Employment Act, Manno acknowledges: (a) that he
has read this Agreement and understands that it bars all claims, including those
for age discrimination; (b) that the release of claims relating to age
discrimination does not apply to claims based on events that take place after
this Agreement takes effect; (c) that he is receiving consideration that he is
not otherwise entitled to from the Company; (d) that he has been advised in
writing to consult an attorney before signing this Agreement and has done so;
(e) that he has been given at least twenty-one (21) days in which to decide
whether to accept this Agreement insofar as it relates to Age discrimination;
and (f) that the release insofar as it relates to claims of age discrimination
does not take effect until seven days after he has signed it, during which time
he may revoke his acceptance of the Agreement insofar as it relates to claims of
age discrimination.
10. Manno further agrees to keep each and every term of this Agreement
completely confidential and that he will not hereafter disclose the substance or
contents hereof to any person or persons, including but not limited to any past,
present or prospective employees of the Company, but not including Manno's
attorneys and other advisors or as required by law. Manno also understands and
agrees that he remains bound by the terms of the confidentiality and non-
disclosure agreement he previously signed in connection with his employment by
the Company. The Company agrees to keep each and every term of this Agreement
completely confidential and that it will not hereafter disclose the substance of
contents hereof to any person or persons, except for the Company's attorneys and
other advisors or as required by law.
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11. No provision of this Agreement shall be construed against any party or
his/its counsel merely because that party or his/its counsel drafted the
provision in question. This Agreement will be interpreted in accordance with
the laws of the State of California. All actions or proceedings arising in
connection with this Agreement shall be tried and litigated exclusively in the
state and Federal courts located in the County of Orange, State of California.
In the event of any such action or proceeding, the prevailing party shall be
entitle to receive from the other party reasonable attorneys' fees and costs;
provided, however, a party shall only be deemed a "prevailing party" if it
obtains an actual award of damages or injunctive relief and not as the result of
any settlement of the matter.
12. This Separation Agreement and General Release sets forth the entire
agreement between the parties and supersedes any and all prior agreements,
letters, memoranda or understandings, oral or written, in connection with the
subject matter of this Agreement. Manno agrees that he is not entitled to
receive, and will not claim, any right, benefit, or compensation other than what
is expressly set forth above.
13. This Separation Agreement and General Release may be modified only by
written agreement signed by the party against whom any amendment is to be
enforced and shall be binding upon and inure to the benefit of the parties
hereto and their representatives, heirs, executors, assigns, and successors in
interest.
14. If any provision of this Separation Agreement and General Release is
held by a court of competent jurisdiction to be invalid, void or unenforceable
for any reason, the remaining provisions not so declared shall nevertheless
continue in full force and effect, but shall be construed in a manner so as to
effectuate the intent of this Separation Agreement and General Release as a
whole, notwithstanding such stricken provision or provisions.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
dates set forth opposite their signatures below.
PETER MANNO
DATED: May 2, 1997 /s/ PETER MANNO
-----------------------------------
POWERWAVE TECHNOLOGIES, INC.
DATED: May 2, 1997 By: /s/ BRUCE EDWARDS
-----------------------------------
Bruce Edwards
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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 this Registration Statement of Powerwave
Technologies, Inc. ("the Company") on Form S-1 of our report dated January 15,
1997, appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the headings "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
June 3, 1997
