<PAGE>
As filed with the Securities and Exchange Commission on March 9, 1999
Registration No. 333-72781
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
---------------
Delaware 11-2723423
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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2026 McGaw Avenue, Irvine, California 92614
(949) 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
(949) 757-0530
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
NICK E. YOCCA, Esq. ROBERT M. MATTSON, JR., Esq.
K.C. SCHAAF, Esq. TAMARA POWELL TATE, Esq.
MARK L. SKAIST, Esq. MICHAEL A. CONNOR, 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 (949) 251-7500
(949) 725-4000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor does it +
+seek offers to buy these securities in any jurisdiction where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
March 9, 1999
2,000,000 Shares
[LOGO OF POWERWAVE TECHNOLOGIES]
Common Stock
-----------
Powerwave Technologies, Inc. is offering 2,000,000 shares.
Powerwave's Common Stock is traded on the Nasdaq National Market under the
symbol "PWAV." On February 22, 1999, the last reported sale price for the
Common Stock on the Nasdaq National Market was $26.75 per share.
Investing in the Common Stock involves risks.
See "Risk Factors" beginning on page 4.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Powerwave..................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
Powerwave has granted the underwriters the right to purchase up to 300,000
additional shares at the public offering price to cover any over-allotments.
-----------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in Baltimore,
Maryland on , 1999.
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Donaldson, Lufkin & Jenrette
Warburg Dillon Read LLC
, 1999
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. Except as otherwise specified, all information in this
prospectus assumes no exercise of the underwriters' over-allotment option.
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks and
actual results could differ materially. The sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" contain a discussion of some of the factors that
could contribute to those differences.
Powerwave Technologies
We design, manufacture and market ultra-linear radio frequency, or RF, power
amplifiers for use in the wireless communications market. Our RF power
amplifiers are key components of wireless communications networks because they
amplify the radio signal from the base station to a handset while reducing
interference, or "noise." Stronger signals reduce the number of interrupted and
dropped calls. Less noise enables wireless service providers to deliver clearer
call connections.
Products
We manufacture both single and multi-carrier RF power amplifiers which are
used in cellular and personal communications services, or PCS, base stations in
both digital and analog-based wireless networks. Our products support a wide
range of digital and analog transmission protocols including CDMA, TDMA, GSM,
AMPS and TACS. We also produce RF power amplifiers for the land mobile radio
and wireless local loop markets.
Customers
We sell RF power amplifiers to numerous wireless equipment suppliers
worldwide, including Hyundai Electronics Industries Co., Ltd., LG Information &
Communications Co., Ltd., LM Ericsson Telephone Company, Lucent Technologies
Inc., Metawave Communications Corporation, Nokia Telecommunications Inc.,
Northern Telecom Limited and Samsung Electronics Co. Ltd. We also sell RF power
amplifiers to operators of wireless networks, such as AT&T Wireless Services
and BellSouth Cellular Corp.
Market Trends
Worldwide deregulation of the wireless communications industry, increased
government allocation of wireless spectrum, technological advancements in
wireless communications and economies of scale for wireless service providers
have resulted in increased availability of wireless services and increased
competition among service providers. This competition has encouraged service
providers to increase call quality and to offer more affordable service plans,
such as single rate plans which incorporate lower per minute charges, free
national roaming and free long distance charges. The combination of improved
quality, availability and affordability has led to increased minutes of use by
existing subscribers and increased penetration of the available market for
wireless services.
According to International Data Corporation, the number of subscribers of
worldwide cellular and PCS services increased 32% from 195 million subscribers
in 1997 to 257 million subscribers in 1998, and is projected to exceed 550
million subscribers by 2002. This increased demand for service by consumers has
led wireless service providers to increase the capacity and expand the coverage
of their networks. Worldwide cellular and PCS infrastructure spending is
expected to exceed $12 billion each year through 2002, according to
International Data Corporation.
1
<PAGE>
Strategy
Our strategy is to become the leading supplier of high performance RF power
amplifiers used in digital and analog-based wireless networks worldwide and
includes the following key elements:
. provide leading technology to the RF power amplifier industry through
research and development that continues to improve our products'
technical performance, to raise our productivity and to lower costs;
. leverage our position as a leading supplier of both single and multi-
carrier RF power amplifiers to increase our market share and expand our
relationships with existing customers;
. continue to expand our customer base of wireless network original
equipment manufacturers and leading wireless network operators; and
. maintain our focus on the quality, reliability and manufacturability of
our RF power amplifier products.
Recent Developments
On October 9, 1998, we purchased Hewlett-Packard Company's RF power amplifier
business for approximately $65.9 million. The assets purchased included HP's
Folsom, California manufacturing and research and development facility. The
product lines we acquired from HP are single carrier RF power amplifiers that
cover a broad range of wireless transmission protocols, including CDMA, TDMA
and GSM. This acquisition, which we refer to as the HP Acquisition, increased
and diversified our product lines, and we now offer full lines of both single
and multi-carrier RF power amplifiers which cover all common digital and analog
transmission protocols. As part of the HP Acquisition, we significantly
increased our sales to Nortel and added Lucent as a customer. We believe that
our broader array of product lines will allow us to attract new customers and
more fully address the diverse product demands of our current customers. We
also believe that our ability to offer a complete array of single and multi-
carrier RF power amplifiers to new and existing customers gives us a
competitive advantage over other manufacturers of RF power amplifiers.
About Us
We incorporated in Delaware in January 1985 under the name Milcom
International, Inc. and changed our name to Powerwave Technologies, Inc. in
June 1996. Our main offices are located at 2026 McGaw Avenue, Irvine,
California 92614, and our phone number is (949) 757-0530. Our Web site is
located at http://www.powerwave.com. Information contained on our Web site does
not constitute part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Powerwave.................. 2,000,000 shares
Shares to be outstanding after the offering.. 19,461,891 shares(1)
Use of proceeds.............................. For debt repayment and general corporate purposes,
including working capital requirements.
Nasdaq National Market symbol................ PWAV
</TABLE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------
March 29, June 28, Sept. 27, January 3,
1998 1998 1998 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales.................. $ 22,650 $ 21,099 $ 16,456 $ 40,026
Cost of sales.............. 13,795 12,567 10,697 28,997
----------- ----------- ------------ -----------
Gross profit............... 8,855 8,532 5,759 11,029
----------- ----------- ------------ -----------
Operating expenses:
Sales and marketing...... 2,031 2,164 2,147 3,191
Research and
development............. 2,957 2,950 2,938 4,627
General and
administrative.......... 1,236 1,204 1,329 2,002
In-process research and
development............. -- -- -- 12,400
----------- ----------- ------------ -----------
Total operating expenses... 6,224 6,318 6,414 22,220
----------- ----------- ------------ -----------
Operating income (loss).... 2,631 2,214 (655) (11,191)
Other income (loss)........ 845 745 845 (105)
----------- ----------- ------------ -----------
Income (loss) before income
taxes..................... 3,476 2,959 190 (11,296)
Provision (benefit) for
income taxes.............. 1,269 1,080 69 (4,123)
----------- ----------- ------------ -----------
Net income (loss).......... $ 2,207 $ 1,879 $ 121 $ (7,173)
=========== =========== ============ ===========
Basic earnings (loss) per
share..................... $ 0.13 $ 0.11 $ 0.01 $ (0.42)
Diluted earnings (loss) per
share..................... $ 0.13 $ 0.11 $ 0.01 $ (0.42)
Basic weighted average
common shares............. 17,136 17,140 17,188 17,248
Diluted weighted average
common shares............. 17,353 17,466 17,347 17,248
</TABLE>
<TABLE>
<CAPTION>
January 3, 1999
-----------------------
Actual As Adjusted(2)
-------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Working capital......................................... $ 35,210 $ 67,901
Total assets............................................ 131,985 158,676
Long-term debt.......................................... 17,621 121
Total shareholders' equity.............................. $ 71,070 $121,261
</TABLE>
- --------
(1) Based on the number of shares outstanding as of February 22, 1999. Excludes
2,715,102 shares of Common Stock issuable upon exercise of outstanding
stock options as of January 3, 1999, at a weighted average exercise price
of $9.72 per share, 180,426 of which have been exercised as of February 22,
1999. Includes 31,789 shares issued on February 1, 1999 pursuant to the
Employee Stock Purchase 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, 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.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at an assumed public offering price of $26.75 per share in the
offering, after deducting the estimated underwriters' discount and
estimated offering expenses, and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
3
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our Common Stock. If
any of the following risks actually occur, our business, financial condition
and results of operations could be materially adversely affected. This could
cause the trading price of our Common Stock to decline, and you may lose part
or all of your investment.
This prospectus also contains certain forward-looking statements that
involve risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes," "expects," "may," "will," "should,"
"seeks," "pro forma," or "anticipates," and similar expressions. Our actual
results could differ materially from those discussed in these statements.
Factors that could contribute to these differences include those discussed
below and elsewhere in this prospectus.
A Significant Amount of Our Revenues Comes from a Few Customers
We sell most of our products to a limited number of customers, and we expect
that this will continue. We believe that our success depends on our ability to
establish and maintain relationships with major wireless original equipment
manufacturers, or OEMs, such as Hyundai Electronics Industries Co., Ltd.
(Hyundai), LG Information and Communications Co., Ltd. (LGIC), LM Ericsson
Telephone Company (Ericsson), Lucent Technologies Inc. (Lucent), Nokia
Telecommunications Inc. (Nokia), Northern Telecom Limited (including its
affiliates, Nortel) and Samsung Electronics Co. Ltd. (Samsung), as well as
major operators of wireless networks, such as AT&T Wireless Services (AT&T
Wireless) and BellSouth Cellular Corp. (including its affiliates, BellSouth).
Our dependence on a small number of major customers exposes us to numerous
risks, including:
. slowdowns in deployment of wireless networks that reduce customer demand
for our products;
. changes in customer forecasts and demand;
. customers leveraging their buying power to change the terms of pricing,
payment and product delivery schedules; and
. direct competition should a customer decide to manufacture RF power
amplifiers internally.
Revenues attributable to our top four customers for fiscal 1998, BellSouth,
LGIC, Nortel and Samsung, accounted for approximately 69% of our net revenues.
Risks related to our customer concentration were magnified in 1998 due to the
customers' geographic concentration in South Korea which experienced an
economic and financial crisis during 1998. Our South Korean customers,
including Hyundai, LGIC, Samsung, and SK Global Co., Ltd., accounted for $30.1
million, or approximately 30%, of total net sales for 1998. This was a
significant drop from 1997, when Hyundai, LGIC and Samsung accounted for $99.3
million, or approximately 83%, of our total net sales.
We realize that our future success depends on our ability to expand our
customer base so that the loss of revenues attributable to any particular
customer, or the loss of revenues attributable to customers in any particular
geographic region, will not have as great an impact on our business, financial
condition and results of operations. However, we cannot guarantee that we will
be able to fully replace the business that declined as a result of the Asian
financial crisis or that any customers will maintain or increase their
purchases of our products. A decrease in business from one or more of our
major customers could have a material adverse effect on our business,
financial condition and results of operations.
Hyundai, LGIC and Samsung supply equipment for South Korea's digital
cellular and PCS telephone networks. Delays, postponements and cancellations
in the development and deployment of South Korea's digital wireless networks
adversely affected our revenues and results of operations in 1998. We expect
to continue to encounter further delays and cancellations, with similar
consequences,
4
<PAGE>
in the deployments of the South Korean digital wireless networks. In addition,
we believe the expansion of South Korea's digital wireless networks has slowed
considerably. We cannot predict when, if ever, the South Korean digital
wireless networks will resume expanding on the levels originally forecasted
prior to 1998. Therefore, we expect sales relating to these networks to
continue to decrease.
We Recently Acquired HP's RF Power Amplifier Business and are Currently
Integrating It With Our Existing Business
Last October, we completed the purchase of HP's RF power amplifier business
for a total purchase price of approximately $65.9 million. As part of this
acquisition, we acquired HP's manufacturing and research and development
facility in Folsom, California, and its production equipment and manufacturing
lines located in Malaysia. Since the HP Acquisition, we have closed the
Malaysian manufacturing operations and have relocated the production equipment
to our existing manufacturing facility located in Irvine, California.
Additionally, we are currently consolidating the Folsom manufacturing facility
into our Irvine manufacturing facility.
Upon completion of the HP Acquisition, we became responsible for the
operation of the Folsom manufacturing facility and the production of products
formerly manufactured by HP. Additionally, with the closing of the Malaysian
manufacturing operations we will have to manufacture all products in our
domestic manufacturing facilities. We have no experience in operating multiple
manufacturing facilities and rely upon a significant number of contract
employees from HP and third-party employment services to operate the Folsom
facility. We may fail to successfully operate the Folsom manufacturing facility
or to consolidate it with our Irvine facility on schedule or within our budget.
Either situation would have a material adverse effect upon our business,
financial condition and results of operations.
The transfer and consolidation of the Folsom manufacturing operations carry
the following risks:
. failure to properly train new employees on how to manufacture existing
products;
. failure to retain existing Folsom employees;
. delays or failures to achieve requalification from customers of the
products to be produced in Irvine;
. failure to manage manufacturing capacity to meet product demand;
. failure to manage, reproduce or maintain the quality of the HP
manufacturing processes; and
. failure to successfully redesign and requalify certain products that
were formerly designed and manufactured by HP which utilize transistors
manufactured by HP before the end of a one-year supply agreement with HP
covering those transistors.
Our integration of HP's RF power amplifier business also carries the
following business risks:
. diversion of management time and attention;
. failure to successfully operate multiple research and development
facilities;
. failure to retain former HP employees; and
. transition of customer relationships.
A large percentage of our revenues in the fourth quarter of 1998 was
attributable to the HP Acquisition. We must properly manage the integration of
HP's RF power amplifier business with our business to ensure that our
manufacturing capacity can meet product demand and to achieve the anticipated
cost reductions and synergies from the HP Acquisition. Failure to do so could
result in a reduction in our revenues, gross margins and working capital, and,
more generally, our business, financial condition and results of operations.
5
<PAGE>
Our Quarterly Results Fluctuate Significantly
We experience, and will 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 our business, financial condition and results of operations.
Factors that could cause our results of operations to vary include the
following:
. variations in the timing of customer orders and shipments;
. cancellations or reductions of customer orders and shipments due to
economic slowdowns in key markets;
. variations in size of customer orders and shipments;
. our ability to timely and successfully complete the integration of the
operations acquired in the HP Acquisition;
. variations in manufacturing capacities, efficiencies and costs;
. capacity and production constraints, including constraints associated
with single-source component suppliers;
. delays in qualification by customers of new products or redesigns or
delays in qualification of new production facilities;
. the availability and cost of components;
. the timing, availability of production and sale of new products by us or
our competitors;
. product failures and associated field support costs;
. changes in the mix of products having differing gross margins;
. warranty expenses;
. changes in average sales prices;
. long sales cycles associated with our products;
. variations in product development and other operating expenses;
. discounts given to customers for large volume purchases;
. competitive factors, including pricing, availability and demand for
competing amplification products; and
. high fixed expenses that increase operating expenses, especially during
a quarter with a sales shortfall.
Our sales to customers are usually made under purchase orders with short
delivery requirements. While we receive periodic order forecasts, customers
have no obligation to purchase the forecasted amounts and may change delivery
schedules or the mix of products ordered with minimal notice. We maintain
significant work-in-progress and raw materials inventory and technical
production staff to meet order forecasts. If customers purchase less than the
forecasted amounts or a different product mix, we could be left with excess
inventory that faces a greater risk of obsolescence and excess production
staff. If our customers desire to purchase products in excess of the forecasted
amounts or in a different product mix, we may lack the inventory or
manufacturing capacity to fill their orders. Either situation could have a
material adverse effect upon our business, financial condition and results of
operations.
Due to these factors, our past results are not reliable indicators of our
future performance. Current operating profitability may fall, and future
revenues and operating results may not meet the expectations of public market
analysts and investors. In either case, the price of our Common Stock could be
materially adversely affected.
6
<PAGE>
Our Success is Tied to Growth of the Wireless Services Market
Most of our revenues come from the sale of RF power amplifiers for wireless
communications networks. Our future success depends to a considerable extent
upon the continued growth and increased availability of wireless communications
services, including cellular and PCS. Wireless communications services may not
continue to grow and create demand for our products. We believe that continued
growth in the use of wireless communications services depends, in part, on
lowering the cost per subscriber by reducing the costs of the infrastructure
capital equipment and thereby enabling reductions in wireless service pricing.
Although FCC regulations require local phone companies to reduce the rates
charged to wireless carriers for connection to their wireline networks,
wireless service rates will probably remain higher than rates charged by
traditional wireline companies.
The expansion of wireless communications services depends on developed
countries, such as the United States, continuing to allow deployment of new
networks and upgrades to existing networks, and on less developed countries
deploying wireless communications networks.
Our performance could be adversely affected by any of the following risks:
. failure of local governments or foreign countries to allow construction
of new wireless communications systems;
. termination or delays by local governments or foreign countries of
existing construction of wireless communications systems;
. imposition of moratoriums by local governments or foreign countries on
building new base stations for existing wireless communications systems;
and
. foreign authorities may disfavor wireless communications systems because
of environmental concerns, political unrest, economic downturns,
favorable prices for other communications services or delays in
implementing wireless communications systems.
There are Many Risks Associated With International Operations
International revenues for fiscal years 1995, 1996, 1997 and 1998, accounted
for approximately 67%, 77%, 84% and 41% of our net sales. These revenues will
continue to account for a significant percentage of our revenues for the
foreseeable future. Therefore, the following risks associated with
international operations could have a material adverse effect on our
performance:
. compliance with multiple and potentially conflicting regulations,
including export requirements, tariffs and other barriers, and health
and safety requirements;
. differences in intellectual property protections;
. difficulties in staffing and managing foreign operations;
. longer accounts receivable collection cycles;
. currency fluctuations;
. restrictions against the repatriation of earnings from a foreign
country;
. overlapping or differing tax structures;
. economic instability, including inflation and interest rate
fluctuations, such as those seen in Brazil; and
. political or civil turmoil.
We have traditionally invoiced all of our foreign sales in U.S. Dollars.
Accordingly, we do not currently engage in foreign currency hedging
transactions. However, as we continue to expand our
7
<PAGE>
international operations, we may be paid in foreign currencies and, therefore,
would become exposed to possible losses in foreign currency transactions. Since
we sell our products in many countries, when the U.S. Dollar becomes more
expensive relative to the currency of our foreign customers, the price of our
products in those countries rises and our sales into those countries may fall.
If any of the above risks actually occurs, there may be a material adverse
effect on our business, financial condition and results of operations.
Our Average Sales Prices are Declining
We anticipate that the average sales prices for our products will continue to
decline and negatively impact our gross profit margins. Wireless service
providers are placing increasing price pressure on wireless infrastructure
manufacturers, which in turn has resulted in downward pricing pressure on our
products. Competition among third-party suppliers also has increased the
downward price pressure on our products. Since wireless infrastructure
manufacturers frequently negotiate supply arrangements far in advance of
delivery dates, we must often commit to price reductions for our products
before we know how, or if, we can obtain such cost reductions. In addition,
average sales prices are affected by price discounts negotiated for large
volume purchases by certain customers. To offset declining average sales
prices, we must reduce manufacturing costs and ultimately develop new products
with lower costs or higher average sales prices. If we cannot achieve such cost
reductions or product improvements, our gross margins could continue to
decline.
We anticipate that single carrier RF power amplifier products will account
for a larger portion of our net sales in 1999 than in prior years. Our recent
HP Acquisition included only single carrier RF power amplifier business with no
existing multi-carrier RF power amplifier business. Sales of single carrier
RF power amplifiers have been subject to intense price competition and carry
lower gross margins than multi-carrier RF power amplifier products. If we
cannot reduce manufacturing costs on our single carrier RF power amplifiers and
such RF power amplifiers account for an increased percentage of net sales, our
overall gross margins will fall.
Our Failure to Manage Future Growth Could Have Adverse Effects
Our ability to compete effectively, capitalize on the HP Acquisition and
manage future growth depends on our ability to:
. effectively expand, train and manage our work force, particularly to
complete the transition of the Folsom manufacturing operations;
. manage production and inventory levels to meet product demand and new
product introductions;
. manage and improve production quality;
. expand both the range of customers and the geographic scope of our
customer base; and
. improve financial and management controls, reporting systems and
procedures.
Any failure to manage growth effectively could have a material adverse effect
on our business, financial condition and results of operations.
The Sales Cycle for Our Products is Lengthy
The sales cycle associated with our products is typically lengthy, often
lasting from six to eighteen months. Our customers normally conduct significant
technical evaluations of our products and our competitors' products before
making purchase commitments. Our OEM customers typically require extensive
technical qualification of our products before they are integrated into each
OEM's products. This qualification process involves a significant investment of
time and resources from us and the OEMs
8
<PAGE>
to ensure that our product designs are fully qualified to perform with each
OEM's equipment. Also, individual wireless network operators can subject our
products to field and evaluation trials, which can last anywhere from one to
six months, before making a purchase. The qualification and evaluation process
and the customer field trials may delay the shipment of sales forecasted for a
specific customer for a particular quarter and our operating results for that
quarter could be materially adversely affected.
We Must Retain Key Executives and Personnel
We need to hire and retain highly qualified technical, marketing and
managerial personnel. Competition for 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 our business, financial
condition and results of operations.
We Depend on Single Sources for Key Components
A number of the parts used in our products are available from only one or a
limited number of outside suppliers due to unique component designs as well as
certain quality and performance requirements. To take advantage of volume
pricing discounts, we also purchase certain customized components from single
sources. We have experienced, and expect to continue to experience, shortages
of single-sourced components. Shortages have compelled us to adjust our product
designs and production schedules. If single-sourced components become
unavailable in sufficient quantities or available only on unsatisfactory terms,
we would be required to purchase comparable components from other sources and
"retune" our products to function with the replacement components, or we may be
required to redesign our products to use other components, either of which
could delay production and delivery of our products. If we could not obtain
comparable replacements or effectively retune or redesign our products, there
could be a material adverse effect on our business, financial condition and
results of operations.
The Market in Which We Operate is Highly Competitive
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, frequent new
product development and rapid product obsolescence, evolving industry standards
and significant price erosion over the life of a product. Our products compete
on the basis of the following key characteristics:
. performance;
. functionality;
. reliability;
. pricing;
. quality;
. designs that can be efficiently manufactured in large volumes;
. time-to-market delivery capabilities; and
. compliance with industry standards.
While we believe that we compete favorably with respect to these
characteristics at present, this may change. If we fail to address our
competitive challenges, there could be a material adverse effect on our
business, financial condition and results of operations.
Our current competitors include AML Communications, Inc., M/A-COM, Inc. (a
subsidiary of AMP, Inc.), Microwave Power Devices, Inc. and Spectrian
Corporation, in addition to the RF power amplifier manufacturing operations of
the leading wireless infrastructure manufacturers such as Ericsson, Lucent,
9
<PAGE>
Motorola, Nokia and Samsung. Some competitors have significantly greater
financial, technical, manufacturing, sales, marketing and other resources than
we do and have achieved greater name recognition for their products.
Our success depends in part upon the rate at which wireless infrastructure
manufacturers incorporate our products into their systems. A substantial
portion of the present worldwide production of RF power amplifiers is captive
within the internal manufacturing operations of leading wireless
infrastructure manufacturers such as Ericsson, Lucent, Motorola, Nokia and
Samsung. These companies regularly evaluate whether to manufacture their own
RF power amplifiers rather than purchase them from us. These companies could
also directly compete with us by selling their RF power amplifiers to other
manufacturers and operators, including our customers. These companies may also
enter joint venture or strategic relationships with our competitors. If we are
not successful in increasing the use of our products by the leading wireless
infrastructure manufacturers, there would be a material adverse effect on our
business, financial condition and results of operations.
We Must Develop and Sell New Products in Order to Keep Up With Rapid
Technological Change
The markets in which we compete are characterized by:
. rapidly changing technology;
. evolving industry standards and communications protocols; and
. frequent improvements in products and services.
To succeed, we must improve current products and develop and introduce new
products that are competitive in terms of price, performance and quality.
These products must adequately address the requirements of wireless
infrastructure manufacturing customers and end-users.
To develop new products, we invest in the research and development of RF
power amplifiers for wireless communications networks. We target our research
and development efforts on major wireless network deployments worldwide, which
cover a broad range of frequency and transmission protocols. However, the
deployment of a wireless network may be delayed which could cause a particular
research or development effort to not generate a revenue producing product. In
addition, the new products we develop may not achieve market acceptance or may
not be manufacturable at competitive prices in sufficient volumes.
We also continue to improve our existing cellular and PCS lines of RF power
amplifier products. Any delays in the shipment of these products may cause
customer dissatisfaction and delay or loss of product revenues. In addition,
it is possible that a significant number of development projects will not
result in manufacturable new products or product improvements.
If we fail to develop new products or improve existing products in a timely
manner, there will be a material adverse effect on our business, financial
condition and results of operations.
We May Fail to Develop Products that are Sufficiently Manufacturable or of
Adequate Quality and Reliability
Manufacturing our products is a complex process and requires significant
time and expertise to meet customers' specifications. Successful manufacturing
is substantially dependent upon our ability to tune these products to meet
specifications in an efficient manner. In this regard, we depend on our staff
of trained technicians. If we cannot design our products to minimize the
manual tuning process or if we are unable to attract additional trained
technicians, or we lose a number of our trained technicians, it would have a
material adverse effect on our business, financial condition and results of
operations.
10
<PAGE>
We have had quality problems with our products in the past and may have
similar problems in the future. We have replaced components in some products in
accordance with our product warranties. We believe that our customers will
demand increasingly stringent product performance and reliability, particularly
in domestic markets. There can be no assurance that our product designs will
remain successful or will keep pace with technological developments, evolving
industry standards and new communications protocols. We may fail to adequately
improve product quality and meet the quality standards of customers. Design
problems could damage relationships with existing and prospective customers and
could limit our ability to market our products to large wireless infrastructure
manufacturers, many of which build their own, high quality RF power amplifiers
and have stringent quality control standards.
Protection of Our Intellectual Property is Limited; Risk of Third Party Claims
of Infringement
We rely upon trade secrets to protect our intellectual property. We execute
confidentiality and non-disclosure agreements with our employees and limit
access to and distribution of our proprietary information. During 1998, we were
granted our first U.S. patent for an aspect of our multi-carrier technology. In
addition, we have applied for several additional U.S. and international patents
for various aspects of our proprietary technology. These efforts allow us to
rely upon the knowledge and experience of our management and technical
personnel, to market our existing products and to develop new products. The
departure of any of our management and technical personnel, the breach of their
confidentiality and non-disclosure obligations to us or the failure to achieve
our intellectual property objectives may have a material adverse effect on our
business, financial condition and results of operations.
Our ability to compete successfully and achieve future revenue growth will
depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. We may fail to do so. In
addition, the laws of certain countries in which our products are or may be
sold may not protect our products and intellectual property rights to the same
extent as the laws of the United States.
As the number of patents, copyrights and other intellectual property rights
in our industry increases, and as the coverage of these rights and the
functionality of the products in the market further overlap, we believe that
companies in our industry may face more frequent infringement claims. Although
there are no pending or threatened intellectual property lawsuits against us,
we may face litigation or infringement claims in the future. Such claims could
result in substantial costs and diversion of our resources.
A third party claiming infringement may also obtain an injunction or other
equitable relief, which could effectively block the distribution or sale of
allegedly infringing products. Although we may seek licenses from third parties
covering intellectual property that we are allegedly infringing, we cannot
guarantee that any such licenses could be obtained on acceptable terms, if at
all.
Certain of our customers and other wireless communications infrastructure
equipment manufacturers may decide to protect their intellectual property by
deciding not to purchase RF power amplifiers from external sources. The
appearance of a close working relationship with a particular customer may
adversely affect our ability to establish or maintain a relationship with, or
sell products to, competitors of that particular customer. The failure of our
major customers to purchase products from us due to our relationship with other
customers could have a material adverse effect on our business, financial
condition and results of operations.
11
<PAGE>
Actual or Alleged Defects in Our Products May Create Liability to Those
Claiming Injury
Any of the following could have a material adverse effect on our business,
financial condition and results of operations:
. if systems or devices relying on or incorporating our products are
determined or alleged to create a health risk, causing us to be named as
a defendant, and held liable, in a product liability lawsuit;
. delays or prohibitions on the installation of wireless communications
networks due to alleged health or environmental risks; and
. our inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability lawsuits.
Government Regulation of the Communications Industry
The products that we manufacture are regulated. We must obtain regulatory
approvals to manufacture and sell our products and our customers must obtain
approvals to operate our products. The FCC has adopted regulations that impose
stringent RF emissions standards on the communications industry. These
regulations may require that we alter the manner in which radio signals are
transmitted or otherwise alter the equipment transmitting such signals. We are
also subject to regulatory requirements in international markets where
prominent local competitors may have the ability to influence regulations in
situations where we do not.
The enactment by governments of new laws or regulations or a change in the
interpretation of existing regulations could adversely affect the market for
our products. Recent deregulation of international communications industries
along with recent RF spectrum allocations made by the FCC have increased the
potential demand for our products. We cannot guarantee 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 us. 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. In the past, the
delays inherent in this governmental approval process have caused, and in the
future may cause, the cancellation, postponement or rescheduling of the
installation of communications systems by our customers. These delays could
have a material adverse effect on our business, financial condition and results
of operations.
Our Stock Price Has Been and May Continue to Be Volatile
Our Common Stock, and the stock market generally, have from time to time
experienced significant price and volume fluctuations. The fluctuations in the
stock market are often 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 our Common Stock. Our stock price may be affected by the
factors discussed above as well as:
. fluctuations in our results of operations or the operations of our
competitors;
. failure of such results of operations to meet the expectations of stock
market analysts and investors;
. sales of a significant number of shares of restricted securities in the
market;
. changes in stock market analysts' recommendations regarding us;
. political and economic instability in locations where our products are
used;
. changes in the wireless communications industry; and
. general market conditions.
12
<PAGE>
Risk of Litigation
We are subject to various legal proceedings from time to time as part of our
business. In July 1998, lawsuits were filed by certain of our shareholders
against us and certain of our present and former directors and officers. The
shareholders bringing these lawsuits claim to represent a class consisting of
all persons who purchased our Common Stock between June 4, 1997 and January 16,
1998. These lawsuits allege, among other things, that we (and our officers and
directors) violated federal securities laws by making misrepresentations
designed to artificially inflate our stock price and allow certain individuals
to sell their Common Stock at artificially inflated prices. We, and our
directors and officers, deny the allegations of wrongdoing and intend to
vigorously defend the lawsuits, although the ultimate outcome of these
proceedings is not currently determinable. Any such claims or litigation, or
other claims or litigation, could result in a decision adverse to us. A
decision adverse to us in any of these matters could have a material adverse
effect on our business, financial condition and results of operations. In
addition, litigation, regardless of its merits, could result in substantial
costs to us and divert management's attention from our operations.
Antitakeover Provisions Could Affect the Price of Our Common Stock
Our Amended and Restated Certificate of Incorporation and Bylaws contain
provisions which are designed to provide our board of directors with time to
consider whether a hostile takeover offer is in our best interest and the best
interests of our shareholders. These provisions, however, could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. Such provisions also could diminish the opportunities for a
holder of our Common Stock to participate in tender offers, including tender
offers at a price above the then-current price for our Common Stock. Such
provisions also may inhibit fluctuations in our stock price that could result
from takeover attempts.
These provisions include the following:
. our board of directors may issue up to five million shares of preferred
stock and determine the applicable powers, preferences and rights and
the qualifications, limitations or restrictions of such stock, including
voting rights, without any vote or further action by shareholders;
. shareholders cannot call special meetings; and
. nomination of a director or the taking of certain actions requires
advance notice.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which limits us from engaging in any merger, asset or stock
sale or other transaction resulting in a financial benefit to a shareholder
holding 15% or more of our voting shares.
Management Will Have Discretion to Allocate the Offering Proceeds
Approximately $22.5 million of the net proceeds of this offering will be used
for repayment of indebtedness. We expect that the remaining $27.7 million will
be used for general corporate purposes including the funding of working capital
requirements and the expansion of our sales and marketing activities.
Management will have broad discretion to allocate the remaining offering
proceeds. The amounts actually expended for each use listed above may vary
significantly depending upon future revenues, the amount of cash generated or
used by operations, the progress of our product development efforts,
technological advances, the status of competitive products and acquisition
opportunities. Pending such uses, we intend to invest the remainder of the net
proceeds in short-term, investment grade money-market instruments.
We Could be Liable for Violations of Environmental Laws and Regulations
We are subject to governmental regulations relating to hazardous substances
used to manufacture our products. The emissions of some of our products are
also subject to regulation by the FCC and
13
<PAGE>
similar government agencies. Authorities could impose fines, suspend
production, alter our manufacturing processes or stop our operations if we do
not comply with these regulations.
Corrective action may require expensive remediation equipment and other
expenses. Our failure to control the use, disposal, removal or storage of, or
to adequately restrict the discharge of, or assist in the cleanup of, hazardous
substances, could subject us to significant liabilities, including joint and
several liability under certain statutes. 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.
Fines and other punishments imposed in connection with environmental
violations, expenses related to remediation or compliance with environmental
regulations and delays in the installation of base stations due to
environmental violations could have a material adverse effect on our business,
financial condition and results of operations.
Our Business could be Adversely Impacted by Year 2000 Compliance Issues
During the next year, many software programs may not recognize calendar dates
beginning in the Year 2000. This problem could force computers or machines
which utilize date dependent software to either shut down or provide incorrect
information. To address this problem, we have examined our computer and
information systems, contacted our software and hardware providers, and, where
necessary, made upgrades to our systems.
Although we believe that our products are Year 2000 compliant, undetected
errors or defects may remain. Disruptions to our business or unexpected costs
may arise because of undetected errors or defects in the technology used in our
products, manufacturing processes or internal information systems, which are
comprised predominantly of third party software and hardware. If we, or any of
our key suppliers or customers, fail to mitigate internal and external Year
2000 risks, we may temporarily be unable to process transactions, manufacture
products, send invoices or engage in similar normal business activities or we
may experience a decline in sales, which could have a material adverse effect
on our business, financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
The information contained in this prospectus and in the other documents
referenced herein contains forward-looking statements that involve a number of
risks and uncertainties. Forward-looking statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "seeks," "pro forma" or "anticipates," or other variations
thereof (including their use in the negative), or by discussions of strategies,
plans or intentions. Such statements include but are not limited to statements
under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. A number of factors could cause results to differ
materially from those anticipated by such forward-looking statements, including
those discussed under "Risk Factors."
In addition, such forward-looking statements are necessarily dependent upon
assumptions and estimates that may prove to be incorrect. Although we believe
that the assumptions and estimates reflected in such forward-looking statements
are reasonable, we cannot guarantee that our plans, intentions or expectations
will be achieved. The information contained in this prospectus and in the other
documents referenced herein, including the section discussing risk factors,
identifies important factors that could cause such differences.
The cautionary statements made in this prospectus are intended to be
applicable to all related forward-looking statements wherever they appear in
this prospectus. We assume no obligation to update such forward-looking
statements or to update the reasons that actual results could differ materially
from those anticipated in such forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$26.75 per share are estimated to be $50,191,250 ($57,794,938 if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and other estimated offering expenses
payable by the Company.
The Company intends to use approximately $22.5 million of the net proceeds of
the offering to discharge indebtedness incurred in connection with the HP
Acquisition. As of February 22, 1999, this indebtedness consisted of
approximately:
. $16 million in a term loan bearing interest at an average rate of 6.765%
per annum. The term loan requires monthly payments of $500,000 and has a
maturity date of September 30, 2001; and
. $7 million in a purpose loan bearing interest at a rate of 6.806% per
annum with a maturity date of January 5, 2000.
We expect that the balance of the net proceeds will be used for general
corporate purposes, including the funding of working capital requirements and
the expansion of the Company's sales and marketing activities. The Company may
also use a portion of the remaining net proceeds for acquisitions of
complementary products, technologies or businesses. However, no plans or
agreements concerning any such acquisitions currently exist.
Pending such uses, the Company intends to invest the remainder of the net
proceeds from the offering in short-term, investment grade money-market
instruments. Management of the Company will have broad discretion concerning
the allocation and use of the remaining net proceeds of the offering to be
received by the Company.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock. The
Company currently anticipates that it will retain earnings to support
operations and to finance the growth and development of the Company's business
and does not anticipate paying cash dividends for the foreseeable future. In
addition, the Company's credit agreement prohibits the payment of cash
dividends without the lender's written consent.
15
<PAGE>
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 1997
First Quarter Ended March 30, 1997.............................. $25.000 $14.000
Second Quarter Ended June 29, 1997.............................. $23.875 $14.500
Third Quarter Ended September 28, 1997.......................... $45.250 $21.375
Fourth Quarter Ended December 28, 1997.......................... $49.000 $13.125
Fiscal Year 1998
First Quarter Ended March 29, 1998.............................. $20.500 $ 9.125
Second Quarter Ended June 28, 1998.............................. $22.938 $13.125
Third Quarter Ended September 27, 1998.......................... $19.250 $ 6.375
Fourth Quarter Ended January 3, 1999............................ $20.000 $ 5.625
Fiscal Year 1999
First Quarter (through March 8, 1999)........................... $29.719 $16.813
</TABLE>
On February 22, 1999, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $26.75 per share. As of February 5, 1999, the
Company had 78 holders of record of the Common Stock and the Company estimates
that it had approximately 10,000 total stockholders of the Company's Common
Stock holding their shares in street name.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of January 3, 1999 (i) the actual
capitalization of the Company; and (ii) the capitalization of the Company as
adjusted to reflect the receipt and use of net proceeds from the sale of
2,000,000 shares of Common Stock offered hereby at an assumed public offering
price of $26.75 per share:
<TABLE>
<CAPTION>
January 3, 1999
------------------------
Actual As Adjusted(2)
-------- --------------
(in thousands)
<S> <C> <C>
Long-term debt........................................ $ 17,621 $ 121
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, 17,955,889 shares issued and 17,249,676
shares outstanding, actual; 19,461,889 shares
issued and 19,249,676 shares outstanding, as
adjusted(1)(2)..................................... 65,027 107,199
Retained earnings................................... 28,729 28,729
Less treasury stock at cost......................... (22,686) (14,667)
-------- --------
Total shareholders' equity........................ 71,070 121,261
-------- --------
Total capitalization............................ $ 88,691 $121,382
======== ========
</TABLE>
- --------
(1) Excludes 2,715,102 shares of Common Stock issuable upon exercise of
outstanding stock options as of January 3, 1999, at a weighted average
exercise price of $9.72 per share. 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.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at an assumed public offering price of $26.75 per share in the
offering, after deducting the estimated underwriters' discount and
estimated offering expenses, and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Company's consolidated statements of operations data for the fiscal
years ended January 3, 1999, December 28, 1997 and December 29, 1996 and
balance sheet data as of January 3, 1999 and December 28, 1997 included herein
have been derived from the Consolidated Financial Statements audited by
Deloitte & Touche LLP, independent auditors. The information set forth below
is not necessarily indicative of the results of future operations and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
Jan. 3, Dec. 28, Dec. 29, Dec. 31, Dec. 31,
1999 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales................................. $100,231 $119,709 $60,331 $36,044 $22,861
Gross profit.............................. 34,175 48,682 25,561 13,331 8,395
Operating income (loss)................... (7,001) 23,257 12,435 7,564 4,874
Net income (loss)......................... $ (2,966) $ 16,191 $ 7,622 $ 4,480 $ 2,946
Basic earnings (loss) per share(/1/)...... $ (0.17) $ 0.95 $ 0.67 $ 0.50 --
Diluted earnings (loss) per share(/2/).... $ (0.17) $ 0.92 $ 0.52 $ 0.31 --
Basic weighted average common
shares(/1/).............................. 17,178 16,958 11,460 8,999 --
Diluted weighted average and common
shares(/2/).............................. 17,178 17,436 14,606 14,475 --
<CAPTION>
Jan. 3, Dec. 28, Dec. 29, Dec. 31, Dec. 31,
1999 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................. $ 13,307 $ 67,433 $32,386 $ 5,861 $ 3,030
Working capital........................... 35,210 67,512 33,243 9,640 3,486
Total assets.............................. 131,985 101,683 46,932 16,463 9,551
Long-term debt............................ 17,621 659 520 138 176
Series A Convertible Preferred Stock...... -- -- -- 14,498 --
Total shareholders' equity (deficit)...... $ 71,070 $ 75,480 $36,843 $(3,878) $ 4,142
</TABLE>
- --------
/(1)/ The 1995 shares outstanding for basic earnings per share only includes
the weighted average number of shares of Common Stock outstanding for the
year. The 1996 shares outstanding for basic earnings per share includes
the weighted average number of shares of Common Stock outstanding for the
year and the conversion of 3,375,900 shares of Series A Convertible
Preferred Stock into 5,063,850 shares of Common Stock for the period from
December 6, 1996 to December 29, 1996. Giving effect to the IPO,
conversion of the Series A Convertible Preferred Stock into shares of
Common Stock for all of 1996 and 1995 would have resulted in basic
earnings per share of $0.54 and $0.32 and weighted average shares
outstanding of 14,181,179 and 14,062,497, respectively.
/(2)/ The 1995 and 1996 shares outstanding give effect to the conversion of
3,375,900 shares of Series A Convertible Preferred Stock into 5,063,850
shares of Common Stock and the reversal of accrued dividends payable
thereon which occurred upon the completion of the Company's initial public
offering of Common Stock on December 6, 1996. See Note 1 of the Notes to
the Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes included elsewhere in this prospectus. The
discussion in this prospectus contains forward-looking statements that involve
risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in
this prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this prospectus. The Company's
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include those discussed in "Risk
Factors," as well as those discussed elsewhere herein. See "Risk Factors" and
"Forward-Looking Statements."
Overview
The Company designs, manufactures and markets ultra-linear RF power
amplifiers for use in the wireless communications market. In 1995, the Company
began supplying multi-carrier linear RF power amplifiers for installation in
base stations utilized in the deployment of two new digital cellular networks
utilizing CDMA technology in South Korea. These South Korean digital cellular
networks began operating during 1996 with two independent service providers
offering nationwide coverage. In 1996, Powerwave began development of a single
carrier RF power amplifier for use in PCS network base stations. During 1997,
the Company began supplying single carrier RF power amplifiers for use in the
deployment of three new digital PCS networks utilizing CDMA technology in
South Korea. These South Korean PCS networks began operating on October 1,
1997, with three independent service providers offering limited coverage
within South Korea. On October 9, 1998, the Company completed the HP
Acquisition for a total purchase price of approximately $65.9 million. The HP
Acquisition diversified the Company's product lines considerably, and the
Company now offers full lines of both single and multi-carrier RF power
amplifiers which cover all common digital and analog transmission protocols.
As part of the HP Acquisition, the Company significantly increased its sales
to Nortel and added Lucent as a customer. The Company's customers currently
include AT&T Wireless, BellSouth, Ericsson, Hyundai, LGIC, Lucent, Metawave
Communications Corporation ("Metawave"), Nokia, Nortel and Samsung.
The Company currently markets its products through independent sales
representatives as well as its own internal sales force. The Company operates
in one industry segment. For the purposes of Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information, the Company has provided a breakdown of its business utilizing
the management approach in Note 12 of the Notes to Consolidated Financial
Statements. Utilizing the management approach, the Company has broken down its
business based upon the RF frequency in which the product is utilized, i.e.,
cellular, PCS, LMR, WLL and other. A summary of the Company's sales by
geographic region is incorporated herein by reference from Note 12 of the
Notes to Consolidated Financial Statements.
19
<PAGE>
Results of Operations
The following table summarizes the Company's results of operations as a
percentage of net sales for the fiscal years ended January 3, 1999, December
28, 1997 and December 29, 1996.
<TABLE>
<CAPTION>
As a Percentage of Net Sales
------------------------------------
Fiscal Years Ended
------------------------------------
January 3, December 28, December 29,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales................. 100.0% 100.0% 100.0%
Cost of sales............. 65.9 59.3 57.6
----- ----- -----
Gross profit.............. 34.1 40.7 42.4
----- ----- -----
Operating expenses:
Sales and marketing..... 9.5 7.6 7.2
Research and
development............ 13.4 9.6 9.6
General and
administrative......... 5.8 4.1 5.0
In-process research and
development............ 12.4 -- --
----- ----- -----
Total operating expenses.. 41.1 21.3 21.8
----- ----- -----
Operating income (loss) .. (7.0) 19.4 20.6
Other income.............. 2.3 2.2 0.8
----- ----- -----
Income (loss) before
income taxes............. (4.7) 21.6 21.4
Provision (benefit) for
income taxes............. (1.7) 8.1 8.8
----- ----- -----
Net income (loss) ........ (3.0)% 13.5% 12.6%
===== ===== =====
</TABLE>
Years Ended January 3, 1999 and December 28, 1997
Net Sales
The Company's net sales are derived primarily from the sale of RF power
amplifiers for use in wireless communications networks. Sales decreased by
16.3% to $100.2 million for the year ended January 3, 1999 from $119.7 million
for the year ended December 28, 1997. The decrease in revenue was primarily
attributable to decreased sales of the Company's PCS products, as well as
reduced sales of its LMR RF power amplifiers. The decrease in PCS sales was
mainly due to the continuing economic crisis in South Korea, which has
significantly reduced South Korean wireless service operators' demand for the
Company's PCS and cellular products beginning in the first quarter of 1998. For
the year ended January 3, 1999, total sales to customers in South Korea
decreased by 69.6% to $30.2 million from $99.3 million for the year ended
December 28, 1997. Partially offsetting the sharp decline in sales to South
Korea, non-Korean based sales increased by 243.0% to $70.1 million for the year
ended January 3, 1999 from $20.4 million for the prior year.
During the fourth quarter of 1998, the Company completed the HP Acquisition
and recognized revenues from the sales of the products acquired, which
contributed to the significant increase in non-Korean based sales. For the year
ended January 3, 1999, total sales of cellular products (including both single
and multi-carrier RF power amplifiers and racks) accounted for approximately
77% of revenues or $77.3 million, compared to approximately 61% or $73.1
million for the year ended December 28, 1997. Sales of RF power amplifiers and
associated products for PCS networks (consisting mainly of single carrier RF
power amplifiers) accounted for approximately 19% of revenues or $18.8 million
for 1998, compared to approximately 34% or $40.4 million for 1997. Sales of LMR
RF power amplifiers accounted for approximately 3% of revenues or $3.1 million
for the year ended January 3, 1999, compared to approximately 5% of revenues or
$6.2 million for the year ended December 28, 1997. For 1998, sales of WLL RF
power amplifiers and other products accounted for $1.0 million or approximately
1% of sales, compared to $32,000 or less than 1% of sales for 1997.
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For 1997 and the first nine months of 1998, the majority of the Company's
single carrier PCS RF power amplifiers were being utilized in the deployment of
the new PCS networks being built in South Korea, and a majority of the
Company's cellular multi-carrier RF power amplifiers sold during 1997 were also
being utilized in the deployment of the digital cellular CDMA networks in South
Korea. During 1998, the percentage of the Company's RF power amplifiers sold
for use in cellular systems of wireless network operators located in both North
America and other international markets outside of Asia increased by
approximately 243% to $70.1 million, compared to $20.4 million for all of 1997.
Due to the economic and financial crisis that has impacted South Korea, and
Asia in general, the deployments of both the digital cellular CDMA networks and
the PCS networks in South Korea have been significantly delayed during 1998.
Given the continuing unstable economic environment within South Korea, and Asia
in general, the Company is unable to estimate the level of future deployments
of these networks or when such deployments can be expected to be completed. The
reduction and stoppage of these deployments during 1998 did have an adverse
effect on the Company's revenues and business with its South Korean customers
and its results of operations. The continued delay or cancellation of these
deployments could have an adverse effect on the Company's business, financial
condition and results of operations. For additional information see "Risk
Factors--A Significant Amount of Our Revenues Comes From a Few Customers; --Our
Success is Tied to Growth of the Wireless Services Market; and --There are Many
Risks Associated With International Operations."
Total international sales (excluding North American sales), accounted for
approximately 41% of revenues or $41.2 million for the year ended January 3,
1999, compared with approximately 84% or $101.0 million for the year ended
December 28, 1997. Total sales to customers in South Korea accounted for
approximately 30% of revenues or $30.2 million for the year ended January 3,
1999, compared to approximately 83% of revenues or $99.3 million for fiscal
year 1997. The decrease in sales to customers in South Korea is a result of the
ongoing economic crisis in South Korea, and Asia in general, which has reduced
South Korean wireless service operators' demand for the Company's products.
During fiscal 1998, the Company has experienced postponement, rescheduling and
cancellation of orders from its South Korean customers. At this time, the
Company is unable to predict when, if ever, its South Korean customers will
take delivery of their postponed and rescheduled orders. Due to these issues
and the overall economic crisis in Asia, the Company currently anticipates that
its percentage of revenues from South Korean sales will continue to decline.
See "Risk Factors--A Significant Amount of Our Revenues Comes From a Few
Customers; --Our Success is Tied to Growth of the Wireless Services Markets;
and--There are Many Risks Associated With International Operations."
Sales to customers in countries outside of South Korea, primarily in North
America, increased approximately 243% to $70.1 million for the year ended
January 3, 1999 from $20.4 million for fiscal year 1997. For fiscal 1998, sales
to four customers (in alphabetical order) BellSouth, LGIC, Nortel and Samsung
each accounted for more than 10% of the Company's sales, collectively
accounting for $68.7 million or approximately 69% of revenues for the year.
This compares to 1997 total sales to South Korean customers of $99.3 million or
approximately 83% of revenues with Hyundai, LGIC and Samsung each accounting
for more than 9% of revenues for the year. During fiscal 1997, no non-Korean
customer accounted for more than 6% of revenues. As part of the HP Acquisition,
the Company significantly increased its sales to Nortel and added Lucent as a
customer. For the fourth quarter of 1998, total sales to Nortel accounted for
approximately 52% of revenues and sales to Lucent accounted for over 10% of
revenues for the quarter. There can be no assurance that the Company will
continue to be successful in attracting new customers or retaining or
increasing business with existing customers. In addition, the Company believes
that a significant portion of its business with OEMs, such as Ericsson, Lucent
and Nortel, is dependent upon the deployment schedules of wireless network
operators who are purchasing infrastructure equipment from such OEMs and on
such OEMs' strategy concerning the outsourcing of RF power amplifiers. A number
of factors may cause delays in wireless infrastructure deployment schedules for
both North American and international deployments, including deployments in
Brazil, Asia, South America and other areas. Such factors include economic or
political problems in the wireless operator's
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operating region, delays in government approvals required for system deployment
and reduced subscriber demand for wireless services. Due to the possible
uncertainties associated with wireless infrastructure deployments, the Company
has experienced and expects to continue to experience significant fluctuations
in demand from its OEM customers. Such fluctuations could cause a significant
reduction in revenues which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--A Significant Amount of Our Revenues Comes From a Few Customers; --
There are Many Risks Associated With International Operations; --We Recently
Acquired HP's RF Power Amplifier Business and are Currently Integrating It With
Our Existing Business; and --Our Quarterly Results Fluctuate Significantly."
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test labor,
overhead and warranty costs. Gross profit margins for fiscal 1998 and 1997 were
34.1% and 40.7%, respectively. The decrease in gross margins during 1998 was a
result of several factors, including increased labor and overhead costs
associated with the significant reduction in sales to the Company's South
Korean customers which impacted the Company's total revenues during the first
three quarters and the increased labor and overhead costs associated with
operating the Folsom manufacturing facility which the Company acquired in
October 1998 as part of the HP Acquisition. The Company anticipates that, in
the near-term, it will continue to experience significant labor and overhead
costs due to its plans to transfer production from the Folsom manufacturing
facility to the Company's Irvine facility. The Company currently anticipates
that the production activities will be fully transferred in the second half of
fiscal 1999. These costs are currently anticipated to have a negative impact on
the Company's future gross margins. In addition, the Company has significantly
increased its sales of lower margin single carrier RF power amplifiers as a
result of the HP Acquisition. The Company currently expects that the sale of
single carrier amplifier products will continue to account for a significant
portion of its business and that such products will have a negative impact on
the Company's future gross margins. While the Company continues to strive for
manufacturing and engineering cost reductions to offset pricing pressures on
its products, there can be no assurance that these cost reduction or redesign
efforts will keep pace with price declines and cost increases. If the Company
is unable to obtain cost reductions through its manufacturing and or
engineering efforts, its gross margins and profitability will continue to be
adversely affected. For a discussion of the effects of declining average sales
prices on the Company's business, see "Risk Factors--Our Average Sales Prices
are Declining."
As part of the HP Acquisition, the Company completed an allocation of the
purchase price of the acquisition to both the tangible and intangible assets
and liabilities acquired in the acquisition. The purchase price allocation is
included in the Company's financial statements for the fourth quarter ended
January 3, 1999, and includes an allocation of $11.5 million to developed
technology acquired and $0.2 million to workforce. These amounts were
capitalized and will be amortized on a straight-line basis over five and ten
years, respectively, and included in cost of sales. See Note 16 of the Notes to
Consolidated Financial Statements for more information concerning the purchase
price allocation associated with the HP Acquisition.
As an additional part of the HP Acquisition, the Company assumed certain
specific liabilities from HP related to the acquired business, including
certain warranty obligations. During the fourth quarter of 1998, the Company
incurred approximately $0.2 million of warranty expenses which were offset
against specific liabilities assumed in the acquisition.
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. In addition, with
expected slowdowns in demand for wireless infrastructure equipment from the
Asian markets, pricing competition among suppliers to the remaining world
markets is expected to intensify. Due to these
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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. These lower sales prices have impacted 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 profit margins and
profitability, which could also result in decreased liquidity and adversely
affect the Company's business, financial condition and results of operations.
For a discussion of the impact of new products on the Company's business, see
"Risk Factors--We Recently Acquired HP's RF Power Amplifier Business and are
Currently Integrating It With Our Existing Business; and --We Must Develop and
Sell New Products in Order to Keep Up With Rapid Technological Change."
Operating Expenses
Sales and marketing expenses consist primarily of sales commissions,
salaries, other expenses for sales and marketing personnel, travel expenses,
charges for customer demonstration units, reserves for credit losses and trade
show expenses. Sales and marketing expenses increased by 5.3% to $9.5 million
for the year ended January 3, 1999 from $9.1 million for the year ended
December 28, 1997. As a percentage of sales, sales and marketing expenses were
9.5% and 7.6% for the years ended January 3, 1999 and December 28, 1997,
respectively. The increase in sales and marketing expenses was primarily
attributable to increases in sales commission costs and increased staffing
levels. In addition, as part of the purchase price allocation of the HP
Acquisition, an allocation of $2.0 million reflecting the value of the customer
list and $0.5 million reflecting the value of the non-compete agreement with HP
was capitalized on the Company's balance sheet. The customer list and non-
compete agreement are amortized over three and four years, respectively, and
included in sales and marketing expenses.
Research and development expenses include ongoing RF power amplifier design
and development expenses, as well as those design expenses associated with
reducing the cost and improving the manufacturability of existing RF power
amplifiers. Current programs include PCS, cellular and wireless local loop
products. Research and development expenses increased by 17.3% to $13.5 million
for the year ended January 3, 1999 from $11.5 million for the year ended
December 28, 1997. Research and development expenses as a percentage of sales
for the years ended January 3, 1999 and December 28, 1997 were 13.4% and 9.6%,
respectively. The increase in actual research and development expenses was
primarily due to increased staffing and associated engineering costs at the
Company's Irvine, California facility, related to continued new product
development and existing product enhancement efforts. In addition, as part of
the HP Acquisition, the Company added 35 additional engineering personnel who
are located in the Folsom facility. The Company anticipates that it will
continue operating at a higher expense level for research and development
because it intends to continue to emphasize investment in research and
development programs in future periods and continue to pursue several existing
programs acquired as part of the HP Acquisition.
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 18.0% to $5.8 million for the
year ended January 3, 1999 from $4.9 million for the year ended December 28,
1997. General and administrative expenses as a percentage of sales for the
years ended January 3, 1999 and December 28, 1997 were 5.8% and 4.1%,
respectively. The increase in general and administrative expenses is primarily
attributable to increased staffing costs. In addition, as part of the HP
Acquisition, the Company began incurring additional administration and
facilities costs related to the Folsom facility. Also, as part of the purchase
price allocation of the HP Acquisition, an allocation of approximately $4.6
million, reflecting the value of goodwill acquired, was capitalized on the
Company's balance sheet. This amount is amortized over ten years and included
in general and administrative expenses.
As part of the purchase price allocation of the HP Acquisition, the Company's
financial statements for the year ended January 3, 1999 include the one-time
charge of $12.4 million for the write-off of
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acquired in-process research and development expenses associated with the HP
Acquisition. The in-process research and development expenses arose from new
product projects that were under development at the date of the acquisition and
expected to eventually lead to new products but had not yet established
technological feasibility and for which no future alternative use was
identified. The valuation of the in-process research and development projects
was based upon the discounted expected future net cash flows of the products
over the products expected life, reflecting the estimated stage of completion
of the projects and the estimate of the costs to complete the projects.
New product development projects underway at HP at the time of the
acquisition included, among others, single carrier CDMA technology, ultra-
linear technology for use in multi-carrier RF power amplifiers and advanced
linear power module technology for use in next-generation wireless
communications. The Company estimated that these projects were approximately
75% complete at the date of the acquisition and estimated that the cost to
complete these projects will aggregate approximately $2.5 million and will be
incurred over a two-year period. The Company incurred approximately
$0.2 million as research and development expenses related to these projects
during the fourth quarter of 1998, which was less than originally planned due
to personnel constraints. However, the activity related to these projects is
expected to increase over the next several quarters.
Uncertainties that could impede progress of converting a development project
to a developed technology include the availability of financial resources to
complete the project, failure of the technology to function properly, continued
economic feasibility of developed technologies, customer acceptance, customer
demand and customer qualification of such new technology, and general
competitive conditions in the industry. There can be no assurance that the in-
process research and development projects will be successfully completed and
commercially introduced.
As an additional part of the HP Acquisition, the Company assumed certain
specific liabilities related to the acquired business, including certain
retention bonuses for contracted HP employees. During the fourth quarter of
1998, the Company paid insignificant amounts for these retention bonuses. These
retention bonuses will be paid over the period of the Folsom manufacturing
facility closure, which is expected to be completed in the second half of 1999.
As part of the purchase price allocation, the Company recorded liabilities
related to moving and relocation costs associated with the planned closure of
the Folsom manufacturing facility. During the fourth quarter of 1998, the
Company paid insignificant amounts related to these moving and relocation
costs. The Company currently expects to complete the closure of the Folsom
manufacturing facility in the second half of 1999.
Other Income
The Company earned other income, net, of $2.3 million in 1998 compared to
$2.6 million for 1997. Other income consists primarily of interest income, net
of any interest expense. As part of the HP Acquisition, the Company borrowed
$25.0 million under a secured credit facility. For the fourth quarter of 1998,
the Company had interest expense of approximately $0.5 million, which resulted
in total net other expense of approximately $0.1 million for the quarter.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was 36.5% and 37.4% for the years ended
January 3, 1999 and December 28, 1997, respectively. The decrease in the
Company's effective tax rate was due to tax benefits from international sales
and research and development tax credits.
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Years Ended December 28, 1997 and December 29, 1996
Net Sales
Sales increased by 98.4% to $119.7 million for the year ended December 28,
1997 from $60.3 million for the year ended December 29, 1996. The growth in
revenues was primarily attributable to shipments of the Company's new single
carrier PCS amplifier products (which began volume shipments in the second
quarter of fiscal 1997), as well as increased sales of the Company's cellular
multi-carrier RF power amplifiers. For 1997, the Company's PCS RF power
amplifiers were being utilized in the deployment of the new PCS networks being
built in South Korea and a majority of the Company's cellular RF power
amplifiers sold during the year were being utilized in the continued deployment
of the digital cellular CDMA networks in South Korea. Fiscal 1996 saw continued
growth in the demand for cellular RF power amplifiers by the Company's South
Korean customers as they continued deployment of the digital cellular CDMA
networks in South Korea.
For the year ended December 28, 1997, total sales of cellular products
(consisting primarily of multi-carrier RF power amplifiers and racks) accounted
for approximately 61% of revenues or $73.1 million, compared to approximately
80% or $48.0 million for fiscal 1996. Sales of RF power amplifiers and
associated products for PCS networks (consisting primarily of single carrier RF
power amplifiers) accounted for approximately 34% of revenues or $40.4 million
in 1997, compared to approximately 1% or $0.7 million for 1996. LMR and paging
RF power amplifiers accounted for approximately 5% of revenues or $6.2 million
for 1997, compared to approximately 11% or $6.5 million for 1996. Air-to-ground
RF power amplifiers accounted for no revenues during 1997 compared to
approximately 9% of revenues or $5.2 million for 1996.
Total international sales, primarily to three customers in South Korea,
accounted for approximately 86% of revenues for 1997, compared with
approximately 77% for 1996. Total sales to customers in South Korea for 1997
accounted for approximately 83% of revenues or $99.3 million, which was a 117%
increase over 1996 South Korean sales of $45.8 million or approximately 76% of
1996 total sales. This growth in 1997 South Korean revenues was largely due to
the ramp-up of products for deployment in the new PCS networks in South Korea
which began deployment during 1997. Breaking down the total sales to
South Korea for 1997, approximately 60% of South Korean sales or $59.4 million
were for cellular products, with the remaining 40% or $39.8 million for PCS
products. As a comparison, total sales of PCS products to South Korea in 1996
accounted for approximately 1% of South Korean sales or $0.5 million, with the
remaining 99% or $45.0 million attributable to the sale of cellular products.
Gross Profit
Gross profit margins for 1997 and 1996 were 40.7% and 42.4%, respectively.
The decrease in gross margins was primarily attributable to the introduction
and volume shipments of the new PCS products which had lower prices and gross
margins.
Operating Expenses
Sales and marketing expenses increased by 107.4% to $9.1 million for the year
ended December 28, 1997 from $4.4 million for the year ended December 29, 1996.
Sales and marketing expenses as a percentage of sales for the years ended
December 28, 1997 and December 29, 1996 were 7.6% and 7.2%, respectively. The
increase in sales and marketing expenses during 1997 was primarily attributable
to increases in the sales and marketing staff and increased sales commissions
related to increased product sales.
Research and development expenses increased by 99.0% to $11.5 million for the
year ended December 28, 1997 from $5.8 million for the year ended December 29,
1996. Research and development expenses as a percentage of sales were 9.6% in
1997 and 1996. The increase in actual research and development expenses during
1997 was primarily attributable to increased staffing and associated
engineering costs related to continued new product development.
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General and administrative expenses increased by 63.5% to $4.9 million for
the year ended December 28, 1997 from $3.0 million for the year ended December
29, 1996. General and administrative expenses as a percentage of sales for the
years ended December 28, 1997 and December 29, 1996 were 4.1% and 5.0%,
respectively. The increase in actual general and administrative expenses during
1997 was primarily attributable to increased staffing costs associated with
supporting the Company's increased revenues and personnel.
Other Income
The Company earned other income of $2.6 million in 1997, compared to $0.5
million for 1996. Other income consists primarily of interest income, net of
any interest expense. The increase in net interest income was attributable to
the larger cash balances the Company maintained during 1997, compared to the
cash balances maintained during 1996. The larger cash balances were due to the
Company's initial public offering in December 1996 and its secondary Common
Stock offering in June 1997, as well as cash flow generated from operations.
The larger cash balances were invested in short-term, investment grade money-
market instruments.
Provision for Income Taxes
The Company's effective tax rate was 37.4% and 41.0% for the years ending
December 28, 1997 and December 29, 1996, respectively. The decrease in the
Company's effective tax rate was due to tax benefits from increased
international sales.
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 January 3, 1999, the Company had working
capital of $35.2 million, including $13.3 million in cash and cash equivalents
as compared with working capital of $67.5 million at December 28, 1997, which
included $67.4 million in cash and cash equivalents. The Company utilized
approximately $33 million of its cash in payment of the purchase price of the
HP Acquisition. Net accounts receivable increased to $31.2 million at January
3, 1999 from $12.0 million at December 28, 1997. During 1998, the Company sold
a significantly larger percentage of its products to non-Korean customers.
These customers typically pay on longer payment terms than the Company's South
Korean customers have historically paid. In addition, due to the Asian economic
crisis, the Company has provided extended payment terms to its Korean
customers. During the fourth quarter of 1998, the Company significantly
increased its sales, especially to non-Korean customers. This increase, coupled
with typically longer payment terms than the Company experienced in 1997,
accounts for a significant portion of the increase in accounts receivable. Net
inventory increased to $28.6 million at January 3, 1999, from $8.8 million at
December 28, 1997. The increase in net inventory is primarily due to the
inclusion of the inventory purchased in the HP Acquisition, which totaled $16.5
million at October 9, 1998. The Company currently anticipates that its
inventory levels will remain high while it operates two manufacturing
facilities. The Company believes that it will be able to increase its inventory
turn rate once it completes consolidation of its manufacturing facilities.
Cash used in operations was approximately $8.7 million in 1998, compared with
cash provided by operations of $22.8 million and $11.2 million in 1997 and
1996, respectively. The negative cash flow from operations during 1998 was
primarily a result of an increase in accounts receivable and inventories, a
decrease in accrued expenses and other liabilities, offset by an increase in
accounts payable. The increase in cash generated from operations from 1997,
compared to 1996, was primarily a result of increased profitability, as well as
improved inventory and working capital management associated with the Company's
increased revenue base.
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Capital expenditures were approximately $4.9 million and $6.9 million in 1998
and 1997, respectively, of which approximately $0.8 million was financed
through capital leases in 1997 and none in 1998. The majority of capital
spending during both periods represents spending on electronic test equipment
utilized in the Company's manufacturing and research and development areas.
During the fourth quarter of 1998, the Company began making leasehold
improvements to its Irvine, California manufacturing facility to increase its
capacity. The Company anticipates that these improvements will be completed by
the end of the second quarter of 1999 and that the total cost of these
improvements will be approximately $2.0 million.
On April 28, 1998, the Company purchased $2.5 million of 13.75% Senior
Secured Bridge Notes due April 28, 2000 (the "Notes") from Metawave, a supplier
of "smart" antennas to the wireless communications market and a customer of the
Company, in a private offering. The total amount raised in the offering was
$29.0 million. The Notes initially accrue interest at a rate of 13.75% per
annum and interest is payable semi-annually. The Notes contain provisions to
increase the rate of interest during the life of the Notes if the Notes are not
repaid prior to maturity. The Notes are secured by certain assets of Metawave
and mature on April 28, 2000. The interest rate on the notes at January 3, 1999
was 13.75% per annum. For 1998, Metawave accounted for approximately 8% of the
Company's revenues.
Net cash provided by financing activities was $20.6 million for 1998,
compared with $19.2 million for 1997. The majority of cash provided by
financing activities for 1998 was from the $25.0 million bank borrowing to
finance the HP Acquisition, offset by the repurchase of 300,000 shares of the
Company's Common Stock at a total cost of $3.7 million. As of January 3, 1999,
the Company had repurchased a total of 810,000 shares of its Common Stock at a
total cost of approximately $12.5 million, under a stock repurchase program.
The Company is authorized to repurchase up to one million shares of its Common
Stock. Approximately 482,000 of the shares to be sold in this offering
constitute treasury shares repurchased under this program. The majority of the
cash provided by financing activities for 1997 resulted from the sale of
1,000,000 shares of Common Stock in the Company's secondary offering. Net
proceeds received by the Company were approximately $20.6 million. In addition,
the Company received net proceeds of $3.9 million from the sale of 360,000
shares of Common Stock in January 1997, which was associated with the Company's
December 1996 initial public offering of Common Stock. These proceeds were
offset by the repurchase of 510,000 shares of the Company's Common Stock at a
total cost of $8.8 million.
On August 21, 1997, the Company entered into a $10.0 million unsecured
revolving credit agreement. The Company was required to pay a commitment fee
equal to 0.1% per annum on the average daily unused portion of the facility.
The commitment fee was payable quarterly in arrears. The agreement was never
utilized by the Company and was terminated on September 30, 1998.
On August 31, 1998, the Company signed a definitive agreement with HP to
acquire HP's RF power amplifier business and its manufacturing and research and
development facility in Folsom, California. The HP Acquisition included certain
assets, liabilities, operations and business related to the design, manufacture
and marketing of RF power amplifiers for use in wireless communications. On
October 9, 1998, the Company completed the HP Acquisition, and the cash price
paid to HP was approximately $57.4 million. The Company also incurred
acquisition costs of approximately $1.1 million and assumed liabilities of
approximately $7.3 million. The Company financed the acquisition utilizing
$25.0 million of a new $35.0 million secured credit agreement. The Company
utilized its existing cash balances for the remainder of the cash purchase
price paid.
On September 30, 1998, in connection with the HP Acquisition, the Company
entered into a $35.0 million credit agreement secured by a pledge of all of the
Company's assets with two commercial banks. The credit agreement consists of
three credit facilities: an $18.0 million term loan (the "Term Loan"), a $7.0
million purpose loan associated with the Folsom manufacturing and research and
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development facility (the "Purpose Loan") and a $10.0 million revolving credit
agreement (the "Revolving Credit Facility"). The Company is required to pay a
commitment fee ranging from 0.25% to 0.50% per annum on the average daily
unused portion of the Revolving Credit Facility. The rate of the commitment fee
is based upon a debt leverage ratio for the Company. At January 3, 1999, the
commitment fee rate was 0.375% per annum. The Commitment fee is payable
quarterly in arrears. Each of the credit facilities allows for borrowings based
either upon the bank's prime rate (7.75% at January 3, 1999) plus a margin of
0.0% or 0.25% per annum, based upon a debt leverage ratio for the Company, or
the bank's LIBOR rate plus a margin of 1.50% to 2.25% per annum, based upon a
debt leverage ratio for the Company, all at the Company's option. The credit
agreement contains customary affirmative covenants covering certain financial
ratios, negative covenants including limitations on future indebtedness,
restricted payments, transactions with affiliates, liens, restrictions on the
payment of dividends without the bank's prior consent, mergers, transfers of
assets and conditions of borrowing. The Company was in compliance with all
covenants contained in the credit agreement at January 3, 1999, and the full
$10.0 million of the Revolving Credit Facility, which is based upon a
percentage of certain accounts receivable, was available to the Company. The
Term Loan is a three-year loan with equal monthly principal repayments of
$500,000 payable on the last business day of each month, with the final
principal payment due on September 30, 2001. At January 3, 1999, there was
$16.5 million outstanding under the Term Loan at a weighted average interest
rate of 7.12% per annum. The Purpose Loan is payable in full upon the earlier
of (i) January 5, 2000 or (ii) 10 days following the close of escrow for the
sale of the Company's Folsom manufacturing facility. At January 3, 1999, there
was $7.0 million outstanding under the Purpose Loan at an interest rate of
7.098% per annum. As of January 3, 1999, no amounts had been drawn under the
Revolving Credit Facility.
As part of the HP Acquisition, the Company acquired HP's manufacturing and
research and development facility in Folsom, California. Of the total purchase
price paid in the HP Acquisition, a net value of $8.1 million was allocated to
land, land improvements and buildings. The Company has begun the process of
transferring production from the Folsom manufacturing facility to the Company's
Irvine facility and expects to complete this transfer in the second half of
1999. The Company is currently seeking buyers for the Folsom facility, but is
unable to determine at this time whether a sale will be completed by the end of
fiscal 1999. As a result, the Company has included $8.1 million in long-term
assets as assets held for sale.
The Company had cash and cash equivalents of $13.3 million at January 3,
1999, compared with $67.4 million at December 28, 1997. 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 short-term, investment grade
money-market instruments.
The Company currently believes that its existing cash balances, funds
available under its secured Revolving Credit Facility and funds expected to be
generated from operations will provide the Company with sufficient funds to
finance its operations for at least the next 12 months. In the past, the
Company utilized both operating and capital lease financing for certain
equipment used in its manufacturing and research and development operations and
expects to continue to selectively do so in the future. The Company may in the
future 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 in the
future or that if available, such financing will be obtainable on terms
favorable to the Company or its stockholders when the Company may require it.
Disclosure About Foreign Currency Risk
Historically, a majority of the Company's revenues have been derived from
international sources, with the Company's customers in South Korea accounting
for the significant majority of such revenues.
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With the reduction in sales to customers in South Korea, the Company is
pursuing new customers in various domestic and international locations where
new deployments or upgrades to existing wireless communication networks are
planned. Such international locations include Europe and South America, where
there has been instability in several of the regions' currencies, including the
Brazilian Real. Although the Company currently invoices all of its customers in
U.S. Dollars, changes in the value of the U.S. Dollar versus the local currency
in which the Company's products are sold, along with the economic and political
conditions of such foreign countries, could adversely affect the Company's
business, financial condition and results of operations. In addition, the
weakening of an international customer's local currency and banking market may
negatively impact such customer's ability to meet their payment obligations to
the Company. Although the Company currently believes that its international
customers have the ability to meet all of their obligations to the Company,
there can be no assurance that they will continue to be able meet such
obligations. The Company regularly monitors the credit worthiness of its
international customers and makes credit decisions based on both prior sales
experience with such customers as well as current financial performance and
overall economic conditions. The Company may decide in the future to offer
certain foreign customers extended payment terms and/or sell certain products
or services in the local currency of such customers.
Certain countries in Asia, including South Korea, continue to experience
weaknesses in their currencies, banking systems and equity markets. These
weaknesses have adversely affected South Korean wireless service operators'
demand for the Company's products. In addition, Brazil has recently experienced
significant weakness in its currency and equity markets. Such weaknesses could
negatively impact demand for wireless services and thereby reduce demand for
the Company's products in Brazil. Such a reduction in demand for the Company's
products could have a negative impact on the Company's future sales and gross
margins. The Company's foreign customers currently pay for the Company's
products with U.S. Dollars. The recent strengthening of the U.S. Dollar as
compared to the Brazilian Real or the South Korean Won has effectively
increased the cost of the Company's products by as much as 100% or more for its
Brazilian and South Korean customers. The significant increase in the local
currency based cost of such products makes them less attractive to such
customers. Accordingly, changes in exchange rates, and in particular a
strengthening of the U.S. Dollar, may negatively impact the Company's future
sales and gross margins. For further discussion of the risks associated with
the Company's international sales, see "Risk Factors--There are Many Risks
Associated With International Operations."
Quantitative and Qualitative Disclosures About Market Risk
The Company's financial instruments include cash and long-term debt. At
January 3, 1999, the carrying values of the Company's financial instruments
approximated their fair values based on current market prices and rates.
It is the Company's policy not to enter into derivative financial
instruments. The Company does not currently have any significant foreign
currency exposure since it does not transact business in foreign currencies.
Due to this, the Company does not have significant overall currency exposure at
January 3, 1999.
European Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002.
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Beginning on January 1, 2002, euro-denominated bills and coins will be issued
for cash transactions. For a period of up to six months from this date, both
legacy currencies and the euro will be legal tender. On or before July 1, 2002,
the participating countries will withdraw all legacy currencies and exclusively
use the euro.
The Company's transactions are recorded in U.S. Dollars and the Company does
not currently anticipate future transactions being recorded in the euro. Based
on the lack of transactions recorded in the euro, the Company does not believe
that the euro will have a material effect on the financial position, results of
operations or cash flows of the Company. In addition, the Company has not
incurred and does not expect to incur any significant costs from the continued
implementation of the euro, including any currency risk, which could materially
affect the Company's business, financial condition or results of operations.
The Company has not experienced any significant operational disruptions to
date and does not currently expect the continued implementation of the euro to
cause any significant operational disruptions.
Year 2000 Compliance
In the next year, many companies will face a potentially serious information
systems (computer) problem because many software applications and operational
programs written in the past may not properly recognize calendar dates
beginning in the Year 2000. This problem could force computers or machines
which utilize date dependent software to either shut down or provide incorrect
data or information. The Company has examined its computer and information
systems and contacted its software and hardware providers to determine whether
the Company's software applications and computer and information systems are
compliant with the Year 2000. The Company has completed an upgrade to its
computer system and has been assured by its software and hardware providers
that its computer systems are fully compliant with the Year 2000. The Company
has also performed its own internal tests of its software and hardware to
confirm that they are Year 2000 compliant. It is not possible to quantify the
aggregate cost to the Company of such upgrades since they were part of the
software and hardware providers normal upgrades to the Company's systems. The
costs for upgrading the Company's information systems have been funded through
the Company's operating cash flows, and the Company estimates that it has spent
approximately $200,000 over the last two years for upgrades of its information
systems and services associated with such upgrades.
While the Company believes that its information systems are fully Year 2000
compliant, the Company intends to continue to review its information systems
for any possible problems, as well as monitor its key suppliers and customers
for any impact that the Year 2000 may have on their information systems which
could then impact the Company. The Company has contacted all of its key
suppliers and has been assured that such suppliers will not be impacted by the
Year 2000. During the remainder of 1999, the Company intends to contact all of
its significant customers to request verification that such customers are Year
2000 compliant. Embedded software sold with the Company's products is not date
dependent and therefore is Year 2000 compliant. In addition, the equipment
utilized by the Company in its manufacturing process is not date dependent.
During the remainder of 1999, the Company intends to conduct tests on its
manufacturing equipment to ensure that there are not any Year 2000 issues with
such equipment.
The Company does not believe that there will be significant issues or costs
associated with its products related to Year 2000 compliance; however, there
can be no assurance that such products do not contain undetected errors or
defects associated with Year 2000 date functions or that there exists
heretofore undetected aspects of the Company's manufacturing process which
could be impacted by the Year 2000. Although the Company is not currently aware
of any material operational issues or costs associated with preparing its
products, manufacturing processes or internal information systems for the
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Year 2000, there can be no assurance that the Company will not experience
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its products, manufacturing
processes or internal information systems, which are comprised predominantly of
third party software and hardware. The Company does not currently anticipate
that the Year 2000 programming issue will have a material impact on its
business, financial condition and results of operations.
Should the Company not be completely successful in mitigating internal and
external Year 2000 risks, the result could be a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, manufacture products,
send invoices or engage in similar normal business activities at the Company or
its vendors and suppliers. The Company believes that under a worse case
scenario, it could continue the majority of its normal business activities on a
manual basis. The Company does not currently have a contingency plan with
respect to potential Year 2000 failures of its suppliers or customers.
The Company has evaluated the information systems, equipment and software
included in the HP Acquisition for its Year 2000 compliance. The Company has
completed a transition of the computer information and operating systems to the
Company's existing systems so that the Folsom facility is now operating on a
Year 2000 compliant system. The Company is disposing of any computer equipment
acquired in the HP Acquisition which is not Year 2000 compliant. The Company is
upgrading the telephone system at the Folsom facility to a new Year 2000
compliant system. This is scheduled to be completed by the end of the first
quarter of 1999. The Company estimates that its costs for upgrading its Folsom
operations to be Year 2000 complaint are approximately $100,000. For further
discussion of the risks associated with the Year 2000, see "Risk Factors--Our
Business Could be Adversely Impacted by Year 2000 Compliance Issues."
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"), which the Company is required to adopt effective in its fiscal year
2000. SFAS No. 133 will require the Company to record all derivatives on the
balance sheet at fair value. The Company does not currently engage in hedging
activities but will continue to evaluate the effect of adopting SFAS No. 133.
The Company will adopt SFAS No. 133 in its fiscal year 2000.
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BUSINESS
Powerwave designs, manufactures and markets ultra-linear RF power amplifiers
for use in the wireless communications market. The Company's RF power
amplifiers are key components of wireless communications networks because they
amplify the radio signal from the base station to a handset while reducing
interference, or "noise." Stronger signals reduce the number of interrupted and
dropped calls. Less noise enables wireless service providers to deliver clearer
call connections.
Powerwave manufactures both single and multi-carrier RF power amplifiers for
a variety of frequency ranges and transmission protocols. Single carrier RF
power amplifiers typically amplify a specific call channel. Multi-carrier RF
power amplifiers are capable of amplifying several call channels at one time
and integrate the functions of several RF power amplifiers and cavity filters
within a single unit. The Company's products are currently being 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 including CDMA, TDMA, GSM, AMPS and TACS. The Company also produces
RF power amplifiers for the wireless local loop, or WLL, market and for the
land mobile radio, or LMR, market.
Worldwide deregulation of the wireless communications industry, increased
government allocation of wireless spectrum, technological advancements in
wireless communications and economies of scale for wireless service providers
have resulted in increased availability of wireless services and increased
competition among service providers. This competition has encouraged service
providers to increase call quality and to offer more affordable service plans,
such as single rate plans which incorporate lower per minute charges, free
national roaming and free long distance charges. The combination of improved
quality, availability and affordability has led to increased minutes of use by
existing subscribers and increased penetration of the available market for
wireless services.
According to International Data Corporation, the number of subscribers of
worldwide cellular and PCS services increased 32% from 195 million subscribers
in 1997 to 257 million subscribers in 1998, and is projected to exceed 550
million subscribers by 2002. This increased demand for service by consumers has
led service providers to increase the capacity and expand the coverage of their
wireless networks. Worldwide cellular and PCS infrastructure spending is
expected to exceed $12 billion each year through 2002, according to
International Data Corporation.
Powerwave believes that the increased demand for wireless services has
created a significant market opportunity for the Company to diversify its
customer base, its product lines and its geographic markets. On October 9,
1998, the Company completed the HP Acquisition for a total purchase price of
approximately $65.9 million. The product lines acquired from HP are single
carrier RF power amplifiers that cover a broad range of wireless transmission
protocols, including CDMA, TDMA and GSM. As part of the HP Acquisition, the
Company significantly increased its sales to Nortel and added Lucent as a
customer. The Company's customers also include AT&T Wireless, BellSouth,
Ericsson, Hyundai, LGIC, Metawave, Nokia and Samsung. The HP Acquisition
increased and diversified the Company's product lines. Powerwave now offers
full lines of both single and multi-carrier RF power amplifiers which cover all
common digital and analog transmission protocols. The Company believes that its
broader array of product lines will allow it to attract new customers, and more
fully address the diverse product demands of its current customers. The Company
also believes that the ability to offer a complete array of single and multi-
carrier RF power amplifiers to new and existing customers gives Powerwave a
competitive advantage over other manufacturers of RF power amplifiers.
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Business Strategy
The Company's strategy is to become the leading supplier of high performance
RF power amplifiers used in digital and analog wireless networks worldwide and
includes the following key elements:
. provide leading technology to the RF power amplifier industry through
research and development that continues to improve its products'
technical performance, to raise its productivity and to lower costs;
. leverage its position as a leading supplier of both single and multi-
carrier RF power amplifiers to increase its market share and expand its
relationships with existing customers;
. continue to expand its customer base of wireless network OEMs and
leading wireless network operators; and
. maintain its focus on the quality, reliability and manufacturability of
its RF power amplifier products.
Powerwave's focus on RF power amplifier technology and the experience it has
gained through the implementation of its products in both analog and digital
wireless networks has enabled the Company to develop substantial expertise in
both single and multi-carrier RF power amplifier technology. Powerwave intends
to continue to dedicate significant resources to the research and development
of new methods to improve RF power amplifier performance, including additional
methods to reduce noise and increase power in the RF amplification process. The
Company believes that its existing product lines, including the product lines
acquired from HP, will enable the Company to continue to expand its customer
base by offering a broad range of products to meet the diverse requirements of
OEMs and leading wireless network operators. The Company also intends to
leverage its comprehensive product lines to expand its relationship with its
existing customers and to add new customers. The Company has developed the
ability to manufacture both single and multi-carrier RF power amplifiers in a
standard, repeatable manner, which allows for increased production levels.
Powerwave also believes it is able to respond quickly and cost-effectively to
new transmission protocols and design specifications by obtaining components
from numerous leading technology companies. 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. Powerwave believes that its focus on the manufacturability of its RF power
amplifier designs should allow it to increase its manufacturing productivity
while reducing its product costs. Powerwave believes that its ability to offer
a broad range of products represents a competitive advantage over other
manufacturers of RF power amplifiers.
Products
Powerwave designs and manufactures both single and multi-carrier RF power
amplifiers which are sold into the cellular and PCS markets. The Company also
designs and manufactures single carrier RF power amplifiers which are sold into
the WLL and LMR markets.
Cellular Series. Powerwave offers both single and multi-carrier RF power
amplifiers for use in cellular networks, including ultra-linear multi-carrier
RF power amplifiers for CDMA, TDMA and GSM digital cellular systems positioned
between 800-960 MHz, as well as analog systems utilizing AMPS and TACS
protocols. Powerwave's ultra-linear multi-carrier RF power amplifiers utilize a
single feedforward loop, which allows greater operating efficiency and requires
less electrical current than competing multi-loop designs. The Company's RF
power amplifiers employ a microprocessor based feedforward loop design which
results in improved tracking between the pilot tone and the actual signal and
reduces interference.
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Powerwave offers various versions of its Cellular Series multi-carrier RF
power amplifiers providing 25, 40, 50, 60, 90 or 100 Watts (W) average power
with maximum distortion of up to -65dBc. Up to 4 units can be combined in
parallel utilizing the Company's fully redundant smart combiner racks for
various effective average power ratings.
In the Cellular Series Powerwave also offers single carrier RF power
amplifiers for GSM, CDMA and TDMA operating systems. Products are available in
a wide range of RF output levels. These products are available from complete
stand-alone units to highly integrated RF power amplifiers for tower-top
applications.
PCS Series. The PCS Series offers both single and multi-carrier RF power
amplifiers for use in PCS networks that operate in the international DCS-1800
frequency of 1.8 gigahertz (GHz) and the United States PCS band at 1.9GHz.
Typical system applications include CDMA, TDMA, and GSM protocols with output
power ranging from 5W to 90W. The PCS Series of single carrier RF power
amplifiers are available in a wide variety of configurations ranging from
complete stand-alone units to highly integrated RF power amplifiers for tower-
top applications.
WLL Series. The WLL Series is the Company's wireless local loop series of RF
power amplifiers offering a reliable means of transmitting wide band signals
at various power levels. They can be used to enhance capacity and increase the
coverage area of current wireless base stations or can be fully integrated
into new wireless local loop site deployment.
LMR Series. The LMR Series is the Company's standard single carrier analog
amplification product for LMR, paging, repeater and trunking applications.
These RF power 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 RF power amplifiers have
been designed for simple installation and maintenance and are fully modular
for serviceability in the field. The Company also provides broadband RF power
amplifiers for both digital and analog applications which can be used as
building blocks in larger amplification systems or used as stand-alone RF
power amplifiers.
The Company's multi-carrier RF power amplifiers range in price from $5,000
to $15,000 per amplifier, based upon the specification requirements. The
Company's single carrier RF power amplifiers range in price from $650 to
$5,000 per amplifier depending upon product type and specifications. The
Company also sells racks and cabinets to install and combine multiple RF power
amplifiers, ranging in price from $1,000 to $5,000, depending upon
specifications.
Customers
The Company intends to continue to diversify its customer base by expanding
relationships with OEMs of wireless networks and leading wireless network
operators. The Company sells its products to numerous OEMs worldwide,
including Ericsson, Hyundai, LGIC, Lucent, Metawave, Nokia, Nortel and
Samsung. The Company also sells its products to operators of wireless
networks, such as AT&T Wireless and BellSouth. As part of the HP Acquisition,
the Company significantly increased its sales to Nortel and added Lucent as a
customer.
During fiscal 1998, sales to BellSouth, LGIC, Nortel and Samsung accounted
for approximately 69% of total sales. Each of these customers individually
accounted for more than 10% of the Company's net sales for fiscal 1998.
Additionally, during the fourth quarter of 1998, total sales to Nortel
accounted for approximately 52% of revenues for that quarter. See "Risk
Factors--A Significant Amount of Our Revenues Comes From a Few Customers; and
- --Our Success is Tied to Growth of the Wireless Services Market."
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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. 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.
Powerwave'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 RF power amplifiers, are
lengthy, typically ranging from six to eighteen months. The Company's customers
typically conduct significant technical evaluations of the Company's products
before making purchase commitments. In addition, 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.
International sales (excluding North American sales) of the Company's
products amounted to approximately 41%, 84% and 77% of net sales for the years
ended January 3, 1999, December 28, 1997 and December 29, 1996, respectively.
Foreign sales of some of the Company's products may be 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 and regions, such as the economic downturn in the
South Korean and Brazilian markets during 1998. In addition, Powerwave'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 effectively increases the cost of the Company's products for
that customer, thereby making Powerwave's products less attractive to such
customers. See "Risk Factors--There are Many Risks Associated With
International Operations."
Product Development
Powerwave invests significant resources in 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 both new and existing products. With the completion of the HP Acquisition
during the fourth quarter of fiscal 1998, the Company added 35 people to its
research and development staff. The Company is also continuing to pursue
various development efforts which were in-process at the time of the HP
Acquisition. The Company's research and development staff consisted of 106
people as of January 3, 1999. Expenditures for research and development
amounted to approximately $13.5 million in 1998, $11.5 million in 1997 and $5.8
million in 1996. See "Risk Factors--We Must Develop and Sell New Products in
Order to Keep Up With Rapid Technological Change."
Competition
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, frequent new
product development and rapid product obsolescence, evolving industry standards
and significant price erosion over the life of a product. The Company's
products compete on the basis of the following key characteristics:
performance, functionality, reliability, pricing, quality, designs that can be
efficiently manufactured in large volumes,
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time-to-market delivery capabilities and compliance with industry standards.
While the Company believes that it competes favorably with respect to the
foregoing characteristics, there can be no assurance that it will be able to
continue to do so.
Currently, the Company's competitors include AML Communications, Inc., M/A-
COM, Inc. (a subsidiary of AMP, Inc.), Microwave Power Devices, Inc. and
Spectrian Corporation, in addition to the amplifier manufacturing operations of
the leading wireless infrastructure manufacturers such as Ericsson, Lucent,
Motorola, Nokia and Samsung. Some competitors have significantly greater
financial, technical, manufacturing, sales, marketing and other resources than
the Company and have achieved greater name recognition for their products.
There can be no assurance that the Company will be able to successfully
increase its market penetration or its overall share of the amplifier
marketplace. The Company's results of operations could be adversely impacted if
it is unable to effectively increase its share of the RF power amplifier
marketplace.
The Company's success depends in part upon the rate at which wireless
infrastructure manufacturers incorporate the Company's products into their
systems. A substantial portion of the present worldwide production of RF power
amplifiers is captive within the internal manufacturing operations of leading
wireless infrastructure manufacturers such as Ericsson, Lucent, Motorola, Nokia
and Samsung. These companies regularly evaluate whether to manufacture their
own RF power amplifiers rather than purchase them from the Company. These
companies could also directly compete with the Company by selling their RF
power amplifiers to other manufacturers and operators, including our customers.
These companies may also enter joint ventures or strategic relationships with
the Company's competitors. If the Company is not successful in increasing the
use of its products by the leading wireless infrastructure manufacturers, there
would be a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--The Market in Which We
Operate is Highly Competitive."
The Company has experienced significant price competition and expects price
competition in the sale of RF power amplifiers to increase. No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Certain of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
market downturn 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. See "Risk Factors--Our Average Sales Prices are
Declining."
Backlog
The Company's backlog of orders was approximately $73.7 million on January 3,
1999, compared to approximately $45.9 million on December 28, 1997. The Company
includes in its backlog all the 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 frequently subject to
changes in delivery schedules or to cancellation at the option of the customer
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 to backlog as
customer delivery schedules change and in response to changes in the Company's
production schedule. Accordingly, the Company stresses that 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
The Company's headquarters and main manufacturing facility are located in
Irvine, California. As part of the HP Acquisition, the Company acquired an
additional manufacturing and research and
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development facility located in Folsom, California and HP's production
equipment and manufacturing lines located in Malaysia. Since the HP
Acquisition, the Company closed the Malaysian manufacturing operations and
relocated the production equipment to its existing manufacturing facility in
Irvine, California. In addition, the Company has initiated the process of
transferring the existing manufacturing in the Folsom facility to its Irvine
facility. The Company anticipates that the transfer should be completed in the
second half of fiscal 1999. The Company's manufacturing process involves the
assembly of numerous individual components and precise fine-tuning by
production technicians. 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 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. Also, as part of the HP Acquisition,
the Company currently sources certain components directly from HP, under a one-
year supply agreement. The Company is attempting to replace such HP components
with components sourced from different suppliers. If the Company is unable to
re-source such components or such new components do not perform properly, such
inability to re-source such components could have an adverse affect on the
Company's business, financial condition and results of operations. In addition,
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 of products. Such delays could have an
adverse affect on the Company's operating results and financial condition. See
"Risk Factors--We Recently Acquired HP's RF Power Amplifier Business and are
Currently Integrating It With Our Existing Business; and --We Depend on Single
Sources for Key Components."
Intellectual Property
The Company relies upon trade secrets to protect its intellectual property.
Powerwave executes confidentiality and non-disclosure agreements with its
employees and limits access to and distribution of its proprietary information.
During 1998, the Company was granted its first U.S. patent for an aspect of its
multi-carrier technology. In addition, Powerwave has applied for several
additional U.S. and international patents for various aspects of its
proprietary technology. These efforts allow the Company to rely 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
departure of any of the Company's management and technical personnel, the
breach of their confidentiality and non-disclosure obligations to the Company
or the failure to achieve the Company's intellectual property objectives may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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 Powerwave'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, financial condition and results of operations. 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 functionality
of the products in the market further overlap, the Company believes that the
companies in our industry may increasingly become the subject of infringement
claims.
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The Company may in the future be notified that it is infringing upon certain
patent or other intellectual property rights of others. Although there are no
pending or threatened intellectual property lawsuits against the Company, the
Company may become the subject of litigation or infringement claims in the
future. Such 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 distribution or sale of allegedly
infringing products. The Company may seek licenses 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, financial condition and results of operations.
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 purchase RF power
amplifiers from external sources. While the Company takes measures to ensure
the confidentiality of intellectual property disclosed to the Company by its
customers or developed by the Company for such customers, the appearance of a
close working relationship with a particular customer may adversely affect the
Company's ability to establish or maintain a relationship with, or sell
products to, competitors of the particular customer. If the Company's major
customers decide not to purchase products from the Company due to the Company's
relationship to other customers, the Company's business, financial condition
and results of operations could be materially adversely affected. See "Risk
Factors--Protection of Our Intellectual Property is Limited; Risk of Third
Party Claims of Infringement."
Employees
As of January 3, 1999, the Company had 461 full and part-time employees,
including 106 in research and development, 24 in sales and marketing and 40 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.
Properties
The Company's Irvine, California headquarters and manufacturing facility
occupy a 105,000 square foot building under a lease expiring in 2006. The
Company believes that its current facilities provide adequate expansion
capabilities for its operations.
As part of the HP Acquisition, the Company acquired HP's manufacturing and
research and development facility located in Folsom, California. The facility
is approximately 88,000 square feet. The Company has begun the process of
transferring its manufacturing lines to its Irvine facility and has begun the
process of marketing the Folsom manufacturing facility for sale to third
parties. The Company plans to maintain a research and development facility in
the Folsom area.
Legal Proceedings
The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. On July 16, 1998, a lawsuit was filed in the United States District
Court for the Central District of California, Southern Division, by a
shareholder of the Company, against the Company and certain of its present and
former directors and officers. A similar suit was filed on July 29, 1998. The
shareholder in each suit purports to represent a class consisting of all
persons who purchased Common Stock of the Company between June 4, 1997 and
January 16, 1998. These lawsuits allege, among other things, that the
defendants violated federal securities laws by making alleged
misrepresentations which the plaintiffs claim were designed to artificially
inflate the Company's stock price and enable the individual defendants to sell
their stock at
38
<PAGE>
artificially inflated prices. The Company, its directors and officers deny the
allegations of wrongdoing in the complaints and intend to vigorously defend
against the claims made in the lawsuits. The ultimate outcome of these legal
proceedings is not presently determinable.
The Company is not currently a party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Risk of Litigation."
39
<PAGE>
MANAGEMENT
Directors and Officers
The following table sets forth certain information regarding the Company's
directors and officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John L. Clendenin(2).... 64 Chairman of the Board
Bruce C. Edwards........ 45 President, Chief Executive Officer and Director
Stephen C. Cooper....... 50 Executive Vice President, Operations
Kevin T. Michaels....... 40 Vice President, Finance, Chief Financial Officer and Secretary
Anthony J. Zuanich...... 55 Senior Vice President, Sales and Marketing
Gregory M. Avis(1)...... 40 Director
Alfonso G. Cordero...... 58 Director, Chairman Emeritus
David L. George(1)...... 45 Director
Eugene L. Goda(2)....... 63 Director
Andrew J. Sukawaty(2)... 43 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
John L. Clendenin has been non-executive Chairman of the Company's Board of
Directors since January 3, 1999, and has been a member of the Company's Board
of Directors since May 1998. Mr. Clendenin is a Chairman Emeritus of BellSouth
Corporation, a telecommunications holding company. He served as Chairman of the
Board of BellSouth until December 31, 1997 and as President and Chief Executive
Officer from 1984 until his retirement at the end of 1996. Prior to BellSouth,
Mr. Clendenin was President of Southern Bell from April 1981 to December 1983.
He also serves on the Board of Directors of Coca-Cola Enterprises, Inc.,
Equifax Inc., National Service Industries, Inc., RJR Nabisco Holdings Corp.,
The Kroger Company, Springs Industries, Inc., The Home Depot, Inc. and Wachovia
Corporation.
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., HMT Technology Corporation and Metawave Communications
Corporation.
Stephen C. Cooper joined the Company in February 1999 as Executive Vice
President, Operations. Prior to joining the Company, Mr. Cooper worked for
Hewlett Packard Company for the past 25 years in a variety of management
positions in the United States and Asia. Most recently, Mr. Cooper was the
operations manager for the Hewlett Packard RF power amplifier business in
Folsom, California, which was acquired by Powerwave in October 1998.
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.
Anthony J. Zuanich joined the Company in June 1998 as Senior Vice President,
Sales and Marketing. Prior to joining the Company, Mr. Zuanich was employed at
Gregory Associates as Senior Vice President, Global Sales and Marketing from
July 1995 to December 1997. From December 1973 to October 1994, Mr. Zuanich
held various executive positions with Triad Systems Corporation, an integrated
computer systems manufacturer.
40
<PAGE>
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 Extended Systems, Inc. and Splash Technology
Holdings, Inc.
Alfonso G. Cordero is one of the founders of the Company and 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 from January 1996
to January 1999 served as Chairman of the Company. Mr. Cordero is currently
Chairman Emeritus of the Company and continues to serve as a non-employee
director of the Company. Mr. Cordero also serves on the Board of Directors of
ComSpace Corporation, formerly known as Unique Technologies International,
L.L.C.
David L. George has been a member of the Company's Board of Directors since
November 1995. Mr. George is a founder and has served as Executive Vice
President and Chief Technical Officer of ComSpace Corporation, formerly known
as Unique Technologies International, L.L.C. since February 1994. Mr. George
also serves on the Board of Directors of ComSpace Corporation. 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. Since June 1997, Mr. Goda has served as Chairman of the Board,
President and Chief Executive Officer of Objectshare Inc., formerly known as
Park Place Digitalk, a software company. From October 1991 to October 1995, Mr.
Goda served as Chief Executive Officer of Simulation Sciences, Inc., a software
company. From July 1989 to September 1991, he served as Chief Executive Officer
of Meridian Software Systems.
Andrew J. Sukawaty has been a member of the Company's Board of Directors
since May 1998. Mr. Sukawaty has served as Chief Executive Officer of Sprint
PCS since September 1996. Since November 1998, Mr. Sukawaty has also served as
President and Chief Executive Officer of the PCS Group of Sprint Corporation.
Prior to joining Sprint PCS, Mr. Sukawaty was Chief Executive Officer of NTL
Limited, a British diversified broadcast transmission and communications
company, since 1994. From 1989 to 1994, he was Chief Operating Officer of
Mercury One-2-One, a PCS service provider in the United Kingdom. Prior to 1989,
Mr. Sukawaty held various positions with US WEST, Inc., a telecommunications
holding company.
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors have been elected and qualified.
Limitation of Liability and Indemnification Matters
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.
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.
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
41
<PAGE>
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. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. The Company
believes that its Certificate of Incorporation and Bylaw provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
42
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their Representatives, BT Alex. Brown Incorporated, Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher Wessels"),
Donaldson, Lufkin & Jenrette Securities Corporation and Warburg Dillon Read
LLC, have severally agreed to purchase from the Company 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
Underwriter shares
----------- ---------
<S> <C>
BT Alex. Brown Incorporated........................................
Dain Rauscher Wessels..............................................
Donaldson, Lufkin & Jenrette Securities Corporation................
Warburg Dillon Read LLC............................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all the shares of Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock directly to the
public at the 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 of the shares, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to the total number of shares of Common Stock
offered hereby, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,000,000 shares are being offered.
The following table summarizes the compensation to be paid to the
Underwriters by the Company and the expenses payable by the Company.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
paid by the Company...................... $ $ $
</TABLE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
43
<PAGE>
The Company's officers, directors and certain stockholders, with the
exception of Alfonso Cordero, a director and principal stockholder of the
Company, have agreed not to offer, sell, or otherwise dispose of any Common
Stock for a period of 90 days after the date of this prospectus without the
prior written consent of BT Alex. Brown Incorporated. Mr. Cordero has agreed
not to offer, sell or otherwise dispose of any Common Stock for a period of 90
days after the date of this prospectus without the prior written consent of BT
Alex. Brown, except for 250,000 shares of Common Stock held by Mr. Cordero,
which may be offered, sold, or otherwise disposed of by Mr. Cordero during the
90-day period after the date of this prospectus without obtaining the prior
written consent of BT Alex. Brown. Such consent may be given at any time
without any public notice. The Company has entered into a similar agreement,
except that it may issue, and grant options or warrants to purchase, Common
Stock or any securities convertible into, exercisable for or exchangeable for
shares of Common Stock, pursuant to the exercise of outstanding options and
warrants and the Company's issuance of options and stock granted under the
Company's existing stock option and purchase plans.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in transactions, including stabilizing
bids, syndicate covering transactions and the imposition of penalty bids, which
may have the effect of stabilizing or maintaining the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of the Common Stock on
behalf of the Underwriters for the purpose of fixing or maintaining the price
of the Common Stock. A "syndicate covering transaction" is the bid for or the
purchase of the Common Stock on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the Representatives to reclaim the
selling concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended. During the business day prior to
the pricing of the offering before the commencement of offers or sales of the
Common Stock, passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm orders to any account over which they
exercise discretionary authority.
The Company estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $500,000.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company 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.
44
<PAGE>
EXPERTS
The Consolidated Financial Statements included herein and the Consolidated
Financial Statements and related financial statement schedule incorporated in
this prospectus by reference from the Company's Annual Report on Form 10-K for
the year ended January 3, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are included herein and
incorporated by reference herein, and have been so included and incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The Statement of Tangible Assets Sold and Liabilities Assumed of the Hewlett-
Packard Company Radio Frequency Power Amplifier Product Line as of October 9,
1998 and the related Statements of Revenues and Direct Expenses for each of the
three years in the period ending October 31, 1997 incorporated in this
prospectus by reference from the Company's Form 8-K/A, dated December 28, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, as
stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the following documents herein:
(a) the Annual Report of the Company on Form 10-K for the fiscal year
ended January 3, 1999;
(b) the Current Report of the Company on Form 8-K dated October 26, 1998,
as amended;
(c) the Company's registration statement on Form 8-A dated October 9,
1996, as amended; and
(d) all documents subsequently filed by the Company with the Securities
Exchange Commission (the "Commission") pursuant to sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") prior to the termination of this offering.
ADDITIONAL INFORMATION
A Registration Statement on Form S-3, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Commission. This prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules.
A copy of the Registration Statement may be inspected by anyone without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp 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 World Wide Web site at the following address:
http://www.sec.gov.
45
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
as amended, and in accordance therewith files reports, proxy statements and
other information with 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 Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and through the Commission's World
Wide Web site at the following address: http://www.sec.gov.
46
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets--January 3, 1999 and December 28, 1997....... F-3
Consolidated Statements of Operations--Three years ended January 3,
1999.................................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)--Three years
ended January 3, 1999................................................... F-5
Consolidated Statements of Cash Flows--Three years ended January 3,
1999.................................................................... 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. (the Company) as of January 3, 1999 and December 28, 1997,
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
January 3, 1999. 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 Powerwave Technologies, Inc. as of
January 3, 1999 and December 28, 1997, and the results of its operations and
its cash flows for each of the three years in the period ended January 3, 1999,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
January 19, 1999
F-2
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 13,307 $ 67,433
Accounts receivable, net of allowance for doubtful
accounts of $1,270 and $769 at January 3, 1999 and
December 28, 1997, respectively..................... 31,212 11,967
Inventories, net..................................... 28,583 8,844
Prepaid expenses and other current assets............ 1,633 1,222
Deferred tax assets.................................. 3,303 3,083
-------- --------
Total current assets............................... 78,038 92,549
Property and equipment................................. 26,286 11,020
Less accumulated depreciation and amortization......... (5,838) (2,643)
-------- --------
Net property and equipment........................... 20,448 8,377
-------- --------
Assets held for sale, net.............................. 8,122 --
Intangible assets, net................................. 17,916 --
Deferred tax assets.................................... 4,254 --
Other non-current assets............................... 3,207 757
-------- --------
Total assets....................................... $131,985 $101,683
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 18,667 $ 9,607
Accrued expenses and other liabilities............... 13,918 10,249
Current portion of long-term debt.................... 6,528 507
Income taxes payable................................. 3,715 4,674
-------- --------
Total current liabilities.......................... 42,828 25,037
Deferred tax liabilities............................... -- 289
Long-term debt, net of current portion................. 17,621 659
Other non-current liabilities.......................... 466 218
-------- --------
Total liabilities.................................. 60,915 26,203
-------- --------
Shareholders' Equity:
Preferred Stock, $.0001 par value, 5,000 shares
authorized and no shares outstanding................ -- --
Common Stock, $.0001 par value, 40,000 shares
authorized, 17,956 shares issued and 17,250 shares
outstanding at January 3, 1999, and 17,774 shares
issued and 17,264 shares outstanding at December 28,
1997................................................ 65,027 64,801
Retained earnings.................................... 28,729 31,695
Less treasury stock at cost.......................... (22,686) (21,016)
-------- --------
Total shareholders' equity......................... 71,070 75,480
-------- --------
Total liabilities and shareholders' equity......... $131,985 $101,683
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
------------------------------------
January 3, December 28, December 29,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................. $100,231 $119,709 $60,331
Cost of sales............................. 66,056 71,027 34,770
-------- -------- -------
Gross profit.............................. 34,175 48,682 25,561
Operating expenses:
Sales and marketing..................... 9,533 9,053 4,365
Research and development................ 13,472 11,483 5,771
General and administrative.............. 5,771 4,889 2,990
In-process research and development..... 12,400 -- --
-------- -------- -------
Total operating expenses.............. 41,176 25,425 13,126
-------- -------- -------
Operating income (loss)................... (7,001) 23,257 12,435
Other income, net......................... 2,330 2,601 483
-------- -------- -------
Income (loss) before income taxes......... (4,671) 25,858 12,918
Provision (benefit) for income taxes...... (1,705) 9,667 5,296
-------- -------- -------
Net income (loss)......................... $ (2,966) $ 16,191 $ 7,622
======== ======== =======
Basic earnings (loss) per share........... $ (0.17) $ 0.95 $ 0.67
======== ======== =======
Diluted earnings (loss) per share......... $ (0.17) $ 0.92 $ 0.52
======== ======== =======
Basic weighted average common shares...... 17,178 16,958 11,460
======== ======== =======
Diluted weighted average common shares.... 17,178 17,436 14,606
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Total
--------------- ---------------- Retained Shareholders'
Shares Amount Shares Amount Earnings Equity (Deficit)
------ ------- ------ -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... 8,886 $ 471 5,064 $(12,231) $ 7,882 $(3,878)
Issuance of Common Stock
related to the exercise
of stock options....... 113 300 -- -- -- 300
Issuance of Common Stock
related to the IPO,
net.................... 1,800 18,301 -- -- -- 18,301
Conversion of Preferred
Stock to Common Stock.. 5,064 14,498 -- -- -- 14,498
Net income.............. -- -- -- -- 7,622 7,622
------ ------- ----- -------- ------- -------
Balance at December 29,
1996................... 15,863 33,570 5,064 (12,231) 15,504 36,843
Issuance of Common Stock
related to the exercise
of stock options....... 510 1,639 -- -- -- 1,639
Tax benefit related to
stock option
exercises.............. -- 4,459 -- -- -- 4,459
Compensation expense
related to stock option
grants................. -- 39 -- -- -- 39
Issuance of Common Stock
related to the Employee
Stock Purchase Plan.... 41 400 -- -- -- 400
Tax benefit related to
the sale of shares
purchased under the
Employee Stock Purchase
Plan................... -- 200 -- -- -- 200
Exercise of over-
allotment, related to
the IPO, net........... 360 3,884 -- -- -- 3,884
Issuance of Common Stock
related to the
secondary offering,
net.................... 1,000 20,610 -- -- -- 20,610
Repurchases of Common
Stock.................. (510) -- 510 (8,785) -- (8,785)
Net income.............. -- -- -- -- 16,191 16,191
------ ------- ----- -------- ------- -------
Balance at December 28,
1997................... 17,264 $64,801 5,574 $(21,016) $31,695 $75,480
Issuance of Common Stock
related to the exercise
of stock options....... 229 (728) (70) 1,392 -- 664
Tax benefit related to
stock option
exercises.............. -- 893 -- -- -- 893
Compensation expense
related to stock option
grants................. -- 33 -- -- -- 33
Issuance of Common Stock
related to the Employee
Stock Purchase Plan.... 57 (27) (34) 679 -- 652
Tax benefit related to
the sale of shares
purchased under the
Employee Stock Purchase
Plan................... -- 55 -- -- -- 55
Repurchases of Common
Stock.................. (300) -- 300 (3,741) -- (3,741)
Net loss................ -- -- -- -- (2,966) (2,966)
------ ------- ----- -------- ------- -------
Balance at January 3,
1999................... 17,250 $65,027 5,770 $(22,686) $28,729 $71,070
====== ======= ===== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
------------------------------------
January 3, December 28, December 29,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ (2,966) $16,191 $ 7,622
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization.......... 4,106 1,683 657
Write off of in-process research and
development........................... 12,400 -- --
Change in provision for doubtful
accounts.............................. 501 284 363
Change in provision for inventory
reserves.............................. (73) 1,117 609
Deferred income taxes.................. (4,763) (1,107) (655)
Compensation costs related to stock
options............................... 33 39 --
Changes in current assets and
liabilities (net of effects of the
acquisition):
Accounts receivable.................... (19,746) (8,926) (584)
Inventories............................ (3,163) (5,253) (593)
Income tax refund receivable........... -- -- 610
Prepaid expenses and other current
assets................................ (411) (894) (313)
Accounts payable....................... 9,060 6,018 81
Accrued expenses and other
liabilities........................... (3,982) 6,370 1,798
Income taxes payable................... (11) 7,675 1,658
Other non-current assets................. 50 (648) (57)
Other non-current liabilities............ 248 218 --
-------- ------- -------
Net cash provided by (used in)
operating activities................ (8,717) 22,767 11,196
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....... (4,933) (6,902) (3,792)
Cash paid for acquisition and related
costs................................... (58,534) -- --
Purchase of long-term investments........ (2,500) -- --
-------- ------- -------
Net cash used in investing
activities.......................... (65,967) (6,902) (3,792)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt.................................... 25,000 -- --
Principal payments on long-term debt..... (2,017) (413) (134)
Proceeds from sale of property and
equipment............................... -- 1,847 704
Decrease in amounts due to
shareholders............................ -- -- (50)
Issuance of Common Stock................. 652 24,894 18,301
Repurchase of Common Stock............... (3,741) (8,785) --
Proceeds from exercise of stock
options................................. 664 1,639 300
-------- ------- -------
Net cash provided by financing
activities.......................... 20,558 19,182 19,121
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (54,126) 35,047 26,525
CASH AND CASH EQUIVALENTS, beginning...... 67,433 32,386 5,861
-------- ------- -------
CASH AND CASH EQUIVALENTS, end............ $ 13,307 $67,433 $32,386
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest............................... $ 218 $ 100 $ 18
======== ======= =======
Income taxes........................... $ 3,069 $ 3,100 $ 3,809
======== ======= =======
NON CASH ITEMS:
Acquisition of property and equipment
through capital lease................... $ -- $ 805 $ 704
======== ======= =======
Conversion of Preferred Stock to Common
Stock................................... $ -- $ -- $14,498
======== ======= =======
Tax benefit related to stock option
exercises............................... $ 893 $ 4,459 $ --
======== ======= =======
Tax benefit related to sale of shares
purchased under the Employee Stock
Purchase Plan........................... $ 55 $ 200 $ --
======== ======= =======
DETAIL OF HP BUSINESS ACQUIRED IN PURCHASE
BUSINESS COMBINATION:
Tangible assets acquired................. $ 34,711
Intangible assets acquired............... 31,133
Cash paid for acquisition and related
costs................................... (58,534)
--------
Liabilities assumed...................... $ 7,310
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 1. Nature of Operations
Powerwave Technologies, Inc. ("Powerwave" or the "Company") is a Delaware
corporation engaged in the design, manufacture and marketing of radio frequency
("RF") power amplifiers and related equipment for use in the wireless
communications market. The Company manufactures both single and multi-carrier
RF power amplifiers for a variety of frequency ranges and a wide range of
digital and analog transmission protocols. The Company's products are currently
being utilized in both cellular and personal communication services ("PCS")
base stations in both digital and analog-based networks. The Company also
produces RF power amplifiers for the wireless local loop ("WLL") and land
mobile radio ("LMR") markets.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
year 1996 ended on December 29, 1996, fiscal year 1997 ended on December 28,
1997 and fiscal year 1998 ended on January 3, 1999. Fiscal year 1999 will end
on January 2, 2000.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, time deposits,
commercial paper, 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.
Securities with maturity dates 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.
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.
F-7
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. The Company depreciates these
assets using the straight-line method over the estimated useful lives of the
various classes of assets, as follows:
<TABLE>
<S> <C>
Machinery and equipment.................................... 2 to 5 years
Office furniture and equipment............................. 3 to 5 years
Leasehold improvements..................................... Life of lease
Property under capital leases.............................. 3 to 5 years
</TABLE>
Assets Held for Sale
Assets held for sale include the land, land improvements, building and
building improvements acquired in the HP Acquisition (Note 16), and are
recorded at net realizable value, net of estimated selling costs.
Goodwill
Goodwill arising from the HP Acquisition (Notes 5 and 16) is amortized over
ten years on a straight-line basis. The Company annually evaluates the
carrying value of goodwill for any impairment of value based on an
undiscounted cash flow analysis. At January 3, 1999, the Company believes
there has been no impairment of the value of goodwill.
Other Intangible Assets
Other intangible assets arising from the HP Acquisition (Notes 5 and 16) are
amortized on a straight-line basis over periods ranging from three to ten
years.
Long-Lived Assets
The Company accounts for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standard ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. In accordance with SFAS No. 121, long-lived assets
to be held are reviewed for events or changes in circumstances which indicate
that their carrying value may not be recoverable. The Company periodically
reviews the carrying value of long-lived assets to determine whether or not an
impairment to such value has occurred based on an undiscounted cash flow
analysis. As of January 3, 1999, no such impairment was noted.
Accounting for Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires disclosure
of the 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. The Company has chosen,
under the provisions of SFAS No. 123, to continue to account for employee
stock-based transactions under Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. The Company has disclosed in
Note 9 to the financial statements pro forma basic and diluted net income
(loss) and earnings (loss) per share as if the Company had applied this method
of accounting.
F-8
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that the Company recognize
deferred tax liabilities and assets based on the differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences
are expected to reverse. Deferred income tax benefits result from the
recognition of temporary differences between financial statement and income
tax reporting of income and expenses.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
The Company also offers certain of 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.
Warranties
The Company offers warranties of various lengths depending on the product
and negotiated terms of purchase agreements with its customers. An estimate
for warranty related costs based on historical experience is recorded at the
time of sale.
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 and
footnotes have been restated to reflect the stock split for all periods
presented.
Earnings (Loss) Per Share and Pro Forma Earnings (Loss) Per Share
In accordance with SFAS No. 128, Earnings per Share, basic earnings per
share and pro forma basic earnings per share amounts are based upon the
weighted average number of common shares outstanding and the pro forma
conversion of preferred stock into common stock up to the date of such
conversion. Diluted earnings per share and pro forma diluted earnings per
share amounts are based upon the weighted average number of common and
potential common shares for each period presented and the pro forma conversion
of preferred stock into common stock up to the date of such conversion.
Potential common shares include stock options using the treasury stock method.
Outstanding stock options are excluded from the calculation of diluted
earnings per share for the year ended January 3, 1999, as they are anti-
dilutive.
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.
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
F-9
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
discounts, the Company purchases certain customized components for its RF
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, financial condition
and results of operations until alternative sources could be developed.
New Accounting Pronouncements
The Company has adopted SFAS No. 130, Reporting Comprehensive Income. For
the years ended January 3, 1999, December 28, 1997 and December 29, 1996, the
Company has no reportable differences between net income (loss) and
comprehensive income (loss). Therefore, statements of comprehensive income
(loss) have not been presented.
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. In accordance with SFAS No. 131, the
Company has disclosed in Note 12 certain information about operating segments
and certain information about the Company's products, geographic areas to
which the Company sells its products, and major customers.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which the Company is required to adopt effective in its fiscal year 2000. SFAS
No. 133 will require the Company to record all derivatives on the balance
sheet at fair value. The Company does not currently engage in hedging
activities but will continue to evaluate the effects of adopting SFAS No. 133.
The Company will adopt SFAS No. 133 in its fiscal year 2000.
Note 3. Inventories
Inventories, net consist of the following:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
Parts and components............................... $14,728 $3,167
Work-in-process.................................... 7,444 3,950
Finished goods..................................... 6,411 1,727
------- ------
Total.............................................. $28,583 $8,844
======= ======
</TABLE>
Note 4. Net Property and Equipment
Net property and equipment consist of the following:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
Machinery and equipment........................... $20,105 $ 7,776
Office furniture and equipment.................... 3,010 1,832
Leasehold improvements............................ 2,437 1,313
Construction in progress.......................... 734 99
------- -------
26,286 11,020
Less accumulated depreciation and amortization.... (5,838) (2,643)
------- -------
Net property and equipment........................ $20,448 $ 8,377
======= =======
</TABLE>
F-10
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in property and equipment are assets under capital lease of $1,508
and $1,570 at January 3, 1999 and December 28, 1997, respectively. Accumulated
amortization of assets under capital lease was $627 and $371 at January 3, 1999
and December 28, 1997, respectively.
In 1997 the Company entered into sale-leaseback transactions for certain
equipment. In 1997 the Company received proceeds of $1,831 for equipment that
it subsequently leased back under capital and operating leases. The amounts
leased back under capital and operating leases in 1997 were $805 and $1,026
respectively. No amounts were sold and leased back during 1998.
Note 5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
January 3,
1999
----------
<S> <C>
Developed technology, net of accumulated amortization of $543... $10,957
Goodwill, net of accumulated amortization of $107............... 4,445
Customer list, net of accumulated amortization of $157.......... 1,843
Non-compete agreement, net of accumulated amortization of $24... 476
Workforce, net of accumulated amortization of $5................ 195
-------
$17,916
=======
Amortization periods are as follows (in years):
Developed technology............................................ 5
Goodwill........................................................ 10
Customer list................................................... 3
Non-compete agreement........................................... 4
Workforce....................................................... 10
</TABLE>
Note 6. Financing Arrangements
On August 21, 1997, the Company entered into a $10.0 million unsecured
revolving credit agreement. The Company was required to pay a commitment fee
equal to 0.1% per annum on the average daily unused portion of the facility.
The commitment fee was payable quarterly in arrears. The Company never borrowed
any funds under this agreement. On July 28, 1998, the Company amended the
credit agreement to extend the termination date of the agreement from July 31,
1998 to September 30, 1998. The agreement was terminated on September 30, 1998.
On September 30, 1998 in connection with the HP Acquisition, the Company
entered into a $35.0 million credit agreement secured by a pledge of all of the
Company's assets with two commercial banks. The credit agreement consists of
three credit facilities: an $18.0 million term loan (the "Term Loan"), a $7.0
million purpose loan associated with the Folsom manufacturing and research and
development facility (the "Purpose Loan") and a $10.0 million revolving credit
agreement (the "Revolving Credit Facility"). The Company is required to pay a
commitment fee ranging from 0.25% to 0.50% per annum on the average daily
unused portion of the Revolving Credit Facility. The rate of the commitment fee
is based upon a debt leverage ratio for the Company. At January 3, 1999, the
commitment fee rate was 0.375% per annum. The Commitment fee is payable
quarterly in arrears. Each of the credit facilities allows for borrowings based
either upon the bank's prime rate (7.75% at January 3, 1999) plus a margin of
0% or 0.25% per annum, based upon a debt leverage ratio for the Company, or
F-11
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the bank's LIBOR rate plus a margin of 1.50% to 2.25% per annum, based upon a
debt leverage ratio for the Company, all at the Company's option. The credit
agreement contains customary affirmative covenants covering certain financial
ratios, negative covenants including limitations on future indebtedness,
restricted payments, transactions with affiliates, liens, restrictions on the
payment of dividends without the Bank's prior consent, mergers, transfers of
assets and conditions of borrowing.
The Term Loan is a three-year loan with equal monthly principal repayments
of $0.5 million payable on the last business day of each month, with the final
principal payment due on September 30, 2001. At January 3, 1999, there was
$16.5 million outstanding under the Term Loan at a weighted average interest
rate of 7.12% per annum.
The $7.0 million Purpose Loan is payable in full upon the earlier of (i)
January 5, 2000 or (ii) 10 days following the close of escrow for the sale of
the Company's Folsom manufacturing facility. At January 3, 1999, there was
$7.0 million outstanding under the Purpose Loan at an interest rate of 7.098%
per annum.
As of January 3, 1999, no amounts had been drawn under the $10.0 million
Revolving Credit Facility. The Company was in compliance with all covenants
contained in the credit agreement at January 3, 1999, and the full $10.0
million of the Revolving Credit Facility, which is based upon a percentage of
certain eligible accounts receivable, was available to the Company.
The debt repayment schedules for the Term Loan and Purpose Loan and
commitments under Capital Leases at January 3, 1999 are as follows:
<TABLE>
<CAPTION>
Repayments Commitments
---------------- -----------
Term Purpose Capital
Loan Loan Leases Total
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Fiscal Year:
1999............................... $ 6,000 $ -- $ 566 $ 6,566
2000............................... 6,000 7,000 128 13,128
2001............................... 4,500 -- -- 4,500
2002............................... -- -- -- --
2003............................... -- -- -- --
Thereafter......................... -- -- -- --
------- ------ ----- -------
Total principal repayments........... 16,500 7,000 694 24,194
Less amounts representing interest... -- -- (45) (45)
------- ------ ----- -------
Present value of future minimum
payments............................ 16,500 7,000 649 24,149
------- ------ ----- -------
Less current portion................. (6,000) -- (528) (6,528)
------- ------ ----- -------
$10,500 $7,000 $ 121 $17,621
======= ====== ===== =======
</TABLE>
F-12
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Income Taxes
The provision (benefit) for income taxes for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 2,982 $ 8,865 $4,664
State............................................ 76 1,910 1,288
------- ------- ------
Total current provision.......................... 3,058 10,775 5,952
Deferred:
Federal.......................................... (3,760) (835) (572)
State............................................ (1,003) (273) (84)
------- ------- ------
Total deferred benefit........................... (4,763) (1,108) (656)
------- ------- ------
Provision (benefit) for income taxes............... $(1,705) $ 9,667 $5,296
======= ======= ======
The difference between income taxes provided in the financial statements and
as required by the federal statutory rate of 35% for the fiscal years ended
January 3, 1999, December 28, 1997 and December 29, 1996 is as follows:
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Taxes at federal statutory rate.................... $(1,635) $ 9,051 $4,521
State taxes, net................................... (602) 1,064 783
Other.............................................. 532 (448) (8)
------- ------- ------
Provision (benefit) for income taxes............... $(1,705) $ 9,667 $5,296
======= ======= ======
</TABLE>
The Company's net deferred tax asset was comprised of the following major
components:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
Depreciation of property............................. $(1,094) $ (289)
Accruals and reserves................................ 1,966 1,820
Costs capitalized into inventories................... 1,540 1,147
State taxes.......................................... (308) 116
Amortization of intangibles.......................... 5,453 --
------- ------
Net deferred tax asset............................... $ 7,557 $2,794
======= ======
</TABLE>
Note 8. Profit-Sharing and Pension Plans
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. There were no profit-sharing contributions authorized for the year
ended January 3, 1999. For the years ended December 28, 1997 and December 29,
1996, profit-sharing contributions were $870 and $595, respectively.
The 401(k) pension plan provided for employer matching participant
contributions up to a maximum of 20% of each participant's annual contribution
for the year ended January 3, 1999. Employee contributions are limited to 15%
of base salary. Employer matching contributions for the years ended January 3,
1999, December 28, 1997 and December 29, 1996 were $157, $83 and $22,
respectively.
F-13
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Stock Option Plans
1995 Stock Option Plan--The Company's 1995 Stock Option Plan (the "1995
Plan"), as amended, permits 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 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
January 3, 1999, 836,085 options have been exercised under the 1995 Plan and
there were 1,101,802 options outstanding under the 1995 Plan at a weighted
average exercise price of $5.07.
1996 Stock Incentive Plan--The Company's 1996 Stock Incentive Plan (the
"1996 Plan"), became effective December 5, 1996, and was amended in August of
1998 to increase the number of shares of Common Stock available for issuance
under the plan from 1,500,000 to 3,000,000. The 1996 Plan also covers 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. As
of January 3, 1999, all of the options granted under the 1996 Plan have been
nonstatutory options. 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 Compensation Committee of 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. As of
January 3, 1999, 15,312 options have been exercised under the 1996 Plan. There
were 1,503,300 options outstanding under the 1996 Plan as of January 3, 1999
at a weighted average exercise price of $12.58.
1996 Director Stock Option Plan--The Company's 1996 Director Stock Option
Plan (the "Director Plan"), became effective December 5, 1996, and was amended
in August of 1998 to increase the number of shares of Common Stock available
for issuance under the plan from 200,000 to 400,000. The Director Plan
provides that each member of the Company's Board of Directors who is not an
employee or paid consultant of the Company automatically will be eligible to
receive options to purchase stock under the Director Plan. Pursuant to the
terms of the Director Plan, each director elected after December 5, 1996 will
be granted an initial option under the plan covering 30,000 shares of Common
Stock, which option
F-14
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shall vest at the rate of 25% on the first anniversary of the grant date and
the remaining 75% shall vest in equal monthly installments over the following
three years. 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
110,000 options outstanding under the Director Plan as of January 3, 1999 at a
weighted average exercise price of $17.19.
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. 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. During fiscal 1998,
the second and third purchases under the Purchase Plan occurred on January 30,
1998 and July 31, 1998 respectively. A total of 23,456 shares were purchased in
the second purchase at $11.63 per share and 33,944 shares were purchased in the
third offering at $11.16 per share. At January 3, 1999 there were rights to
purchase approximately 30,000 shares outstanding under the Purchase Plan and
there were 401,718 shares available for purchase under the plan.
The following table summarizes activity under the Company's 1995 Plan, 1996
Plan and Director Plan:
<TABLE>
<CAPTION>
Number of Options
Number of Price Per Exercisable as of
Shares Share Fiscal Year End
--------- ------------- -----------------
<S> <C> <C> <C>
Balance at December 29, 1996......... 1,919,252 $ 2.47-$11.50 262,490
=======
Granted............................ 435,050 $14.50-$40.56
Exercised.......................... (510,334) $ 2.47-$11.50
Canceled........................... (145,354) $ 2.47-$33.00
---------
Balance at December 28, 1997......... 1,698,614 $ 2.47-$40.56 436,256
=======
Granted............................ 1,724,050 $ 6.56-$19.56
Exercised.......................... (228,563) $ 2.47-$16.25
Canceled........................... (478,999) $ 2.47-$40.56
---------
Balance at January 3, 1999........... 2,715,102 $ 2.47-$31.75 737,109
========= =======
</TABLE>
At January 3, 1999, 1,772,116 options were available for grant under all of
the Company's option plans.
F-15
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding At January 3, 1999
-------------------------------------------
Weighted
Weighted Weighted Average Options Average
Range of Options Average Remaining Exercisable Exercise
Exercise Prices Outstanding Exercise Price Contractual Life at January 3, 1999 Price
--------------- ----------- -------------- ---------------- ------------------ --------
(years)
<S> <C> <C> <C> <C> <C>
$ 2.47-$ 4.67........... 963,789 $ 3.66 7.23 604,481 $ 3.61
$ 6.56-$13.44........... 594,700 $ 8.97 9.14 36,164 $11.35
$13.75-$14.50........... 757,750 $13.83 9.15 33,513 $14.08
$14.56-$31.75........... 398,863 $17.67 8.07 62,951 $17.37
--------- -------
Total................. 2,715,102 $ 9.72 8.31 737,109 $ 5.64
========= =======
</TABLE>
The price at which options were granted during 1995 and 1996 prior to the
Company's IPO were based upon an independent appraisal of the value of the
Company. The Company is recording compensation expense of approximately $122
relating to the difference between estimated fair market value and the actual
value of 28,125 options granted in September 1996 over the vesting term of
such options. The first vesting of these options occurred during the third
quarter of fiscal 1997. The Company recorded a total of $33 and $39 as
compensation expense during fiscal 1998 and 1997, respectively. All options
granted after the Company's IPO are priced at an exercise price equal to the
market price of the Company's Common Stock on the date of grant.
The weighted average fair value of options granted during 1998 was $8.03 per
share. The estimated weighted average fair value of options granted during
1997 was $13.81 per share and during 1996 was $2.44. Pursuant to SFAS No. 123,
the Company has elected to continue using the intrinsic value method of
accounting for stock-based awards granted to employees and directors in
accordance with APB 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 fair
value method of SFAS No. 123, the Company's net income (loss) and basic and
diluted earnings (loss) per share for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 would have been reduced or increased
to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income (loss) before taxes
As reported...................................... $(4,671) $25,858 $12,918
Less: Net expense per SFAS No. 123................. (4,631) (2,563) (1,384)
------- ------- -------
Pro forma operating income (loss) before taxes..... (9,302) 23,295 11,534
Less: Pro forma provision (benefit) for income
taxes............................................. (3,395) 8,709 4,729
------- ------- -------
Pro forma net income (loss)........................ $(5,907) $14,586 $ 6,805
======= ======= =======
Net income (loss) as reported...................... $(2,966) $16,191 $ 7,622
======= ======= =======
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Basic earnings (loss) per share:
As reported...................................... $ (0.17) $ 0.95 $ 0.67
Pro forma........................................ $ (0.34) $ 0.86 $ 0.59
Diluted earnings (loss) per share:
As reported...................................... $ (0.17) $ 0.92 $ 0.52
Pro forma........................................ $ (0.34) $ 0.84 $ 0.47
Basic weighted average common shares............... 17,178 16,958 11,460
======= ======= =======
Diluted weighted average common shares............. 17,178 17,436 14,606
======= ======= =======
</TABLE>
F-16
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of options granted under the Company's stock option plans
during 1998, 1997 and 1996 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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average risk-free interest rates.................. 4.88% 5.52% 6.03%
Expected years from vest date to exercise date............. 0.4 0.5 1.0
Expected stock volatility.................................. 100% 89% 83%
Dividend yield............................................. None None None
</TABLE>
Note 10. Commitments and Contingencies
The Company leases its 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 at January 3, 1999 are as
follows:
<TABLE>
<CAPTION>
Commitment to Operating
shareholders leases Total
------------- --------- ------
<S> <C> <C> <C>
Fiscal Year:
1999....................................... $ 736 $1,019 $1,755
2000....................................... 758 132 890
2001....................................... 781 7 788
2002....................................... 804 -- 804
2003....................................... 829 -- 829
Thereafter................................. 2,216 -- 2,216
------ ------ ------
Total future minimum lease payments.......... $6,124 $1,158 $7,282
====== ====== ======
</TABLE>
Total rent expense was $2,616, $2,503 and $2,109 for the years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively.
The Company is subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. On July 16, 1998, a lawsuit was filed in the United States District
Court for the Central District of California, Southern Division, by a
shareholder of the Company, against the Company and certain of its present and
former directors and officers. A similar suit was filed on July 29, 1998. The
shareholder in each suit purports to represent a class consisting of all
persons who purchased Common Stock of the Company between June 4, 1997 and
January 16, 1998. These lawsuits allege, among other things, that the
defendants violated federal securities laws by making alleged
misrepresentations which the plaintiffs claim were designed to artificially
inflate the Company's stock price and enable the individual defendants to sell
their stock at artificially inflated prices. The Company, its directors and
officers deny the allegations of wrongdoing in the complaints and intend to
vigorously defend against the claims made in the lawsuits. The ultimate outcome
of these suits or any potential loss is not presently determinable.
The Company is not currently a party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the business, financial condition or
results of operations of the Company.
F-17
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. Earnings (Loss) Per Share
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Basic:
Basic weighted average common shares............. 17,178 16,958 11,460
Net income (loss)................................ $(2,966) $16,191 $ 7,622
------- ------- -------
Basic earnings (loss) per share.................. $ (0.17) $ 0.95 $ 0.67
======= ======= =======
Diluted:
Basic weighted average common shares............. 17,178 16,958 11,460
Potential common shares.......................... -- 478 3,146
------- ------- -------
Diluted weighted average common shares........... 17,178 17,436 14,606
Net income (loss)................................ $(2,966) $16,191 $ 7,622
------- ------- -------
Diluted earnings (loss) per share................ $ (0.17) $ 0.92 $ 0.52
======= ======= =======
</TABLE>
Note 12. Segments
Utilizing the management approach, the Company has broken down its business
based upon the RF frequency in which the product is utilized in, i.e.,
cellular, PCS, LMR and WLL and other (note that for 1996 other includes sales
of air/ground RF power amplifiers). The Company does not allocate operating
expenses to these segments, nor does it allocate specific assets to these
segments. Therefore, segment information reported includes only net sales, cost
of sales and gross profit (loss).
Business Segments
<TABLE>
<CAPTION>
WLL and
Cellular PCS LMR Other Total
-------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
1998
Net sales......................... $77,355 $18,835 $3,071 $ 970 $100,231
Cost of sales..................... 45,543 15,885 3,786 842 66,056
------- ------- ------ ------ --------
Gross profit (loss)............... $31,812 $ 2,950 $ (715) $ 128 $ 34,175
======= ======= ====== ====== ========
1997
Net sales......................... $73,065 $40,385 $6,227 $ 32 $119,709
Cost of sales..................... 36,746 29,639 4,481 161 71,027
------- ------- ------ ------ --------
Gross profit (loss)............... $36,319 $10,746 $1,746 $ (129) $ 48,682
======= ======= ====== ====== ========
1996
Net sales......................... $47,961 $ 663 $6,543 $5,164 $ 60,331
Cost of sales..................... 26,576 819 4,371 3,004 34,770
------- ------- ------ ------ --------
Gross profit (loss)............... $21,385 $ (156) $2,172 $2,160 $ 25,561
======= ======= ====== ====== ========
</TABLE>
F-18
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following schedule presents an analysis of the Company's net sales based
upon the country to which a product was shipped. North American sales include
sales to the United States, Canada and Mexico. International sales include
sales to all other foreign countries.
<TABLE>
<CAPTION>
North American International Total
-------------- ------------- --------
<S> <C> <C> <C>
Sales for the year ended January 3,
1999................................ $59,012 $ 41,219 $100,231
Sales for the year ended December 28,
1997................................ $18,708 $101,001 $119,709
Sales for the year ended December 29,
1996................................ $13,739 $ 46,592 $ 60,331
</TABLE>
For the fiscal years ended January 3, 1999, December 28, 1997 and December
29, 1996, sales to the Company's South Korean customers accounted for $30.1
million, $99.3 million and $45.8 million, respectively.
The Company's product sales have historically been concentrated in a small
number of customers. During the years ended January 3, 1999, December 28, 1997
and December 29, 1996 sales to four customers (three customers for year ended
December 28, 1997) totaled $68.7 million, $99.3 million and $50.3 million,
respectively.
Note 13. Royalty Agreement
The Company has a royalty agreement related to the sale of air-to-ground RF
power amplifiers which requires payment of a 10% commission on certain licensed
products. The Company had no sales of the licensed product during fiscal 1998
or 1997. Therefore, the Company did not have any royalty commitments beyond
December 1996. Total royalty expense was $284 for the year December 29, 1996.
For the year ended December 29, 1996, sales of the related product represented
5% of net sales.
Note 14. Other Information
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
Accrued warranty costs............................. $ 6,408 $ 1,741
Accrued sales returns.............................. 345 359
Accrued payroll and employee benefits.............. 1,570 2,624
Other accrued expenses............................. 5,595 3,661
Amounts due for settlement of Common Stock
repurchases....................................... -- 1,864
------- -------
$13,918 $10,249
======= =======
</TABLE>
Note 15. Related Party Transactions
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 $714, $704 and $365 for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996, respectively.
A member of the Board of Directors of the Company is Executive Vice President
and Director of ComSpace Corporation, formerly known as Unique Technologies
International, L.L.C., an affiliate of Unique Wireless Developments, L.L.C. The
former Chairman (now Chairman Emeritus) of the Company is also a member of the
Board of Directors of ComSpace Corporation. During fiscal 1997 and 1996
ComSpace Corporation has been a customer of the Company and purchased products
from the Company on terms which management believes were no less favorable to
the Company than could otherwise be obtained from unaffiliated third parties.
Sales to ComSpace were zero in fiscal 1998, and less than $35 per year in
fiscal 1997 and 1996.
F-19
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 28, 1998, the Company purchased $2.5 million of 13.75% Senior
Secured Bridge Notes due April 28, 2000 (the "Notes") from Metawave
Communications Corporation in a private offering. The total amount raised in
the offering was $29.0 million. The Notes initially accrue interest at a rate
of 13.75% per annum and interest is payable semi-annually. The Notes contain
provisions to increase the rate of interest during the life of the Notes if the
Notes are not repaid prior to maturity. The Notes are secured by certain assets
of Metawave Communications Corporation and mature on April 28, 2000. The
interest rate on the notes at January 3, 1999 was 13.75% per annum. The Notes
and accrued interest receivable are included in other non-current assets in the
accompanying consolidated financial statements. For 1998, Metawave
Communications Corporation accounted for approximately 8% of the Company's
revenues. The President of the Company joined the Board of Directors of
Metawave Communications Corporation with the Company's purchase of the Notes.
Note 16. The HP Acquisition
On August 31, 1998, the Company signed a definitive agreement to acquire
Hewlett-Packard Company's ("HP") RF power amplifier business and its
manufacturing and research and development facility in Folsom, California for
approximately $59 million (the "HP Acquisition"). This business was part of
HP's Wireless Infrastructure Division and focused on the design and manufacture
of RF power amplifiers for wireless communications, including cellular, PCS and
WLL. The HP Acquisition included certain assets, liabilities, operations and
business related to the design, manufacture and marketing of RF power
amplifiers for use in wireless communications. Powerwave purchased all
intellectual property rights to the products as well as in-process research and
development activities. The Company also assumed certain existing orders for
the products acquired. The products acquired cover a broad range of wireless
transmission protocols, including CDMA, TDMA and GSM. Powerwave completed the
purchase on October 9, 1998 for a total purchase price of approximately $65.9
million, of which approximately $57.4 million was paid to HP in cash and the
balance related to acquisition costs and assumed liabilities. Powerwave
financed the acquisition utilizing borrowings of $25 million under a new
$35 million secured credit facility which was dated as of September 30, 1998.
The Company utilized its existing cash balances for the remainder of the cash
purchase price paid. This acquisition was accounted for in the fourth quarter
of fiscal 1998.
The HP Acquisition was accounted for as a purchase and, accordingly the total
purchase price was allocated to the assets acquired and liabilities assumed at
their estimated fair values in accordance with Accounting Principles Board
Opinion No. 16. The purchase price was allocated to tangible assets acquired of
approximately $34.7 million, developed technology of $11.5 million, in-process
research and development of $12.4 million, other intangible assets of $2.7
million and goodwill of approximately $4.6 million. The Company's financial
statements for the year ended January 3, 1999 include a charge of $12.4 million
for the write-off of acquired in-process research and development expenses
associated with the HP Acquisition. The in-process research and development
expenses arose from new product projects that were under development at the
date of the acquisition and expected to eventually lead to new products but had
not yet established technological feasibility and for which no future
alternative use was identified. The valuation of the in-process research and
development projects was based upon the discounted expected future net cash
flows of the products over the products expected life, reflecting the estimated
stage of completion of the projects and the estimate of the costs to complete
the projects.
New product development projects underway at HP at the time of the
acquisition included, among others, single carrier CDMA technology, ultra-
linear technology for use in multi-carrier RF power amplifiers and advanced
linear power module technology for use in next generation wireless
communications. The Company estimated that these projects were approximately
75% complete at the date of the acquisition and estimated that the cost to
complete these projects will aggregate
F-20
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $2.5 million and will be incurred over a two-year period. The
Company incurred approximately $0.2 million of research and development
expenses during the fourth quarter of 1998 related to these projects, which was
less than originally planned due to personnel constraints. However, the
activity related to these projects is expected to increase over the next
several quarters.
Uncertainties that could impede progress of converting a development project
to a developed technology include the availability of financial resources to
complete the project, failure of the technology to function properly, continued
economic feasibility of developed technologies, customer acceptance, customer
demand and customer qualification of such new technology, and general
competitive conditions in the industry. There can be no assurance that the in-
process research and development projects will be successfully completed and
commercially introduced.
As part of the HP Acquisition, the Company assumed certain specific
liabilities from HP related to the acquired business, including certain
warranty obligations. During the fourth quarter of 1998, the Company incurred
approximately $0.2 million of warranty expenses which were offset against
specific liabilities assumed in the acquisition. Also, the Company assumed
certain specific liabilities related to the acquired business, including
certain retention bonuses for contracted HP employees. During the fourth
quarter of 1998, the Company paid insignificant amounts for these retention
bonuses which were offset against specific liabilities assumed in the
acquisition. These retention bonuses will be paid over the period of the Folsom
manufacturing facility closure, which is expected to be completed in the second
half of 1999.
As part of the purchase price allocation, the Company recorded liabilities
related to moving and relocation costs associated with the planned closure of
the Folsom manufacturing facility. During the fourth quarter of 1998, the
Company paid insignificant amounts related to these moving and relocation
costs. The Company currently expects to complete the closure of the Folsom
manufacturing facility in the second half of 1999.
The Company's financial statements for the year ended January 3, 1999 reflect
the one-time charge of $12.4 million related to the allocation of a portion of
the purchase price to in-process research and development expenses associated
with the HP Acquisition. The Company's financial statements for the year ended
January 3, 1999 reflect the purchase price allocation as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
--------------
<S> <C>
Purchase Price Allocation
Property, plant and equipment............................... $18,211
Inventory................................................... 16,500
In-process research and development......................... 12,400
Developed technology........................................ 11,500
Customer list............................................... 2,000
Non-compete agreement....................................... 500
Workforce................................................... 200
Goodwill.................................................... 4,553
-------
$65,864
=======
</TABLE>
F-21
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited proforma condensed consolidated results of operations
assumes that the HP Acquisition had occurred on the first day of the Company's
fiscal year ended December 28, 1997. The proforma condensed consolidated
results of operations is presented for information purposes only. It is based
on historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operations of the combined enterprise.
<TABLE>
<CAPTION>
Years ended
-----------------------
January 3, December 28,
1999 1997
---------- ------------
(in thousands, except
per share amounts)
<S> <C> <C>
Net sales............................................ $165,324 $186,909
Net income (loss).................................... $ (8,793) $ 11,852
Earnings (loss) per share
Basic.............................................. $ (.51) $ .70
Diluted............................................ $ (.51) $ .68
</TABLE>
F-22
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 17. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------
March 29, June 28, Sept. 27, January 3,
1998 1998 1998 1999
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
(in thousands, except per share
Fiscal 1998: amounts)
Net sales............................ $22,650 $21,099 $16,456 $ 40,026
Cost of sales........................ 13,795 12,567 10,697 28,997
------- ------- ------- --------
Gross profit......................... 8,855 8,532 5,759 11,029
Operating expenses:
Sales and marketing................ 2,031 2,164 2,147 3,191
Research and development........... 2,957 2,950 2,938 4,627
General and administrative......... 1,236 1,204 1,329 2,002
In-process research and
development....................... -- -- -- 12,400
------- ------- ------- --------
Total operating expenses............. 6,224 6,318 6,414 22,220
------- ------- ------- --------
Operating income (loss).............. 2,631 2,214 (655) (11,191)
Other income (loss).................. 845 745 845 (105)
------- ------- ------- --------
Income (loss) before income taxes.... 3,476 2,959 190 (11,296)
Provision (benefit) for income
taxes............................... 1,269 1,080 69 (4,123)
------- ------- ------- --------
Net income (loss).................... $ 2,207 $ 1,879 $ 121 $ (7,173)
======= ======= ======= ========
Basic earnings (loss) per share...... $ 0.13 $ 0.11 $ 0.01 $ (0.42)
Diluted earnings (loss) per share.... $ 0.13 $ 0.11 $ 0.01 $ (0.42)
Basic weighted average common
shares.............................. 17,136 17,140 17,188 17,248
Diluted weighted average common
shares.............................. 17,353 17,466 17,347 17,248
<CAPTION>
Quarters Ended
---------------------------------------
March 30, June 29, Sept. 28, Dec. 28,
1997 1997 1997 1997
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
(in thousands, except per share
Fiscal 1997: amounts)
Net sales............................ $20,243 $27,360 $34,349 $ 37,757
Cost of sales........................ 11,528 16,857 20,565 22,077
------- ------- ------- --------
Gross profit......................... 8,715 10,503 13,784 15,680
Operating expenses:
Sales and marketing................ 1,581 2,141 2,341 2,990
Research and development........... 2,211 2,385 3,342 3,545
General and administrative......... 943 1,019 1,361 1,566
------- ------- ------- --------
Total operating expenses............. 4,735 5,545 7,044 8,101
------- ------- ------- --------
Operating income..................... 3,980 4,958 6,740 7,579
Other income......................... 473 571 720 837
------- ------- ------- --------
Income before income taxes........... 4,453 5,529 7,460 8,416
Provision for income taxes........... 1,692 2,101 2,760 3,114
------- ------- ------- --------
Net income........................... $ 2,761 $ 3,428 $ 4,700 $ 5,302
======= ======= ======= ========
Basic earnings per share............. $ 0.17 $ 0.21 $ 0.27 $ 0.30
Diluted earnings per share........... $ 0.17 $ 0.20 $ 0.26 $ 0.29
Basic weighted average common
shares.............................. 16,219 16,275 17,649 17,690
Diluted weighted average common
shares.............................. 16,728 16,856 18,072 18,039
</TABLE>
F-23
<PAGE>
===============================================================================
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date
of this prospectus. This prospectus is not an offer to sell or a solicitation
of an offer to buy these shares of the common stock in any circumstances under
which the offer or solicitation is unlawful.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
The Offering............................................................. 3
Summary Consolidated Financial Data...................................... 3
Risk Factors............................................................. 4
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 32
Management............................................................... 40
Underwriting............................................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 45
Incorporation by Reference............................................... 45
Additional Information................................................... 45
Available Information.................................................... 46
Index to Consolidated Financial Statements............................... F-1
</TABLE>
===============================================================================
===============================================================================
2,000,000 Shares
[LOGO OF POWERWAVE TECHNOLOGIES]
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Donaldson, Lufkin & Jenrette
Warburg Dillon Read LLC
, 1999
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. 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.......................................... $ 16,704
NASD Filing Fee............................................... 6,509
Nasdaq National Market listing fee............................ 17,500
Printing expenses............................................. 125,000
Legal fees and expenses ...................................... 125,000
Accounting fees and expenses ................................. 100,000
Blue sky fees and expenses.................................... 5,000
Transfer agent and registrar fees............................. 1,500
Miscellaneous ................................................ 102,787
--------
Total........................................................ $500,000
========
</TABLE>
Item 15. 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 stockholders 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 an all expenses, judgments, fines, penalties and
amounts paid in settlement, to the fullest extent permitted by law.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Stradling Yocca Carlson & Rauth
21.1 Subsidiaries of Powerwave Technologies, Inc.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.7 Consent of Stradling Yocca Carlson & Rauth (see Exhibit 5.1)
24.1 Power of Attorney*
</TABLE>
- --------
* Previously filed.
Item 17. Undertakings
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.
The Company hereby undertakes that for purposes of determining any liability
under the Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on the 9th day of March, 1999.
POWERWAVE TECHNOLOGIES, INC.
By /s/ Bruce C. Edwards
----------------------------------
Bruce C. Edwards
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce C. Edwards President, Chief Executive March 9, 1999
- ------------------------------------- Officer and Director
Bruce C. Edwards (Principal Executive
Officer)
/s/ Kevin T. Michaels Vice President, Finance and March 9, 1999
- ------------------------------------- Chief Financial Officer
Kevin T. Michaels (Principal Financial and
Principal Accounting
Officer)
* Director March 9, 1999
- -------------------------------------
Alfonso G. Cordero
* Chairman of the Board of March 9, 1999
- ------------------------------------- Directors
John L. Clendenin
* Director March 9, 1999
- -------------------------------------
Gregory M. Avis
* Director March 9, 1999
- -------------------------------------
Eugene L. Goda
* Director March 9, 1999
- -------------------------------------
David L. George
* Director March 9, 1999
- -------------------------------------
Andrew J. Sukawaty
* By: /s/ Bruce C. Edwards
-------------------------------
Bruce C. Edwards
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT 1.1
2,000,000 Shares
POWERWAVE TECHNOLOGIES, INC.
Common Stock
($.0001 Par Value)
UNDERWRITING AGREEMENT
----------------------
____________, 1999
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Warburg Dillon Read LLC
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
1 South Street
Baltimore, Maryland 21202
Gentlemen:
Powerwave Technologies, Inc., a Delaware corporation (the "Company")
proposes 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 2,000,000 shares of the Company's Common
Stock, $.0001 par value (the "Firm Shares"). 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. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 300,000 additional shares of the
Company's Common Stock (the "Option Shares").
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several
<PAGE>
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.
---------------------------------------------
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-3 (File No. 333-72781)
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. The Company has complied with the
conditions for the use of Form S-3. 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." Any reference herein to the Registration Statement, any
Preliminary Prospectus or to the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein, and, in the case
of any reference herein to any Prospectus, also shall be deemed to include
any documents incorporated by reference therein, and any supplements or
amendments thereto, filed with the Commission after the date of filing of
the Prospectus under Rules 424(b) or 430A, and prior to the termination of
the offering of the Shares by the Underwriters.
2
<PAGE>
(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 seven 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 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 each of
the Subsidiaries are 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 have
been duly authorized and validly issued and are fully paid and non-
assessable; 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 documents
incorporated by reference in the Prospectus, at the time filed with the
Commission, conformed, in all respects to the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") or the Act, as
applicable, and the rules and regulations of the Commission thereunder.
3
<PAGE>
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 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 or
incorporated by reference 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 or incorporated by reference 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, or incorporated
by reference in, 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 any of its Subsidiaries (a) 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
4
<PAGE>
the Subsidiaries taken as a whole or (b) 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.
(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 any 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
5
<PAGE>
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 any Subsidiary 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 any Subsidiary 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 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 the Company's
knowledge, neither the Company nor any 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. The Company acknowledges that the
Underwriters may engage in passive market making transactions in the Shares
on the Nasdaq National Market in accordance with Rule 103 of Regulation M
under the Exchange Act.
(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.
6
<PAGE>
(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.
(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
7
<PAGE>
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 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 effect on the Company's and the Subsidiaries business,
taken as a whole; and neither the Company nor any 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.
8
<PAGE>
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, the
Company 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.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by wire transfer of same-day funds to an
account specified by the Company 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 BT Alex. Brown
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 are 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.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase
the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. 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
the Prospectus, by you, as Representatives of the several Underwriters, to
the Company 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. 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
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
being purchased, adjusted by you in such manner as to avoid fractional
shares.
9
<PAGE>
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. 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 wire transfer of same-day funds to an
account specified by the Company against delivery of certificates therefor at
the offices of BT Alex. Brown Incorporated, 1 South Street, Baltimore, Maryland.
3. Offering by the Underwriters.
----------------------------
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.
------------------------
(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, (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 and (c) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (a) when the
Registration Statement or any post-effective amendment thereto shall have become
10
<PAGE>
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, 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), including documents incorporated by reference therein,
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 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 either (a) prepare and file with the Commission an
appropriate amendment to the
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Registration Statement or supplement to the Prospectus or (b) prepare and file
with the Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in 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 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 BT Alex. Brown 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 of the Company
to furnish to you, with the exception of Mr. Alfonso Cordero, a director and
principal stockholder of the Company, 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 BT Alex. Brown Incorporated, such person will not, directly or
indirectly offer, sell, pledge, contract to sell (including any short sale),
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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. Mr. Cordero has agreed
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 90 days after the effective date of the Registration Statement without
the prior written consent of BT Alex. Brown Incorporated, except for 250,000
shares of Common Stock held by Mr. Cordero, which may be offered, sold, or
otherwise disposed of by Mr. Cordero during the 90-day period of the effective
date of the Registration Statement without obtaining the prior written consent
of BT Alex. Brown Incorporated.
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus.
(xii) 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.
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) 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.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company 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; 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 Company. However, if this Agreement is
not consummated or is terminated, the Company shall not
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be required to pay for any of the Underwriters expenses (other than those
related to qualification under NASD regulations 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)(1) hereof, or by
reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on its 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 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 the 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 contained
herein, and to the performance by the Company of its 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 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 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, 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
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power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; Milcom International, Incorporated,
Powerwave Services, Inc., Powerwave Europe, Inc. and Powerwave France, Inc.
(collectively, the "Domestic Subsidiaries") have been duly organized and are
validly existing as corporations in good standing under the laws of the State of
Delaware, 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 Domestic 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 Domestic Subsidiaries
taken as a whole; and the outstanding shares of capital stock of the Domestic
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 Domestic 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
Domestic 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 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 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 shares of Common Stock or other securities of
the Company included in the Registration Statement or the right, as
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<PAGE>
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 and document incorporated by reference therein comply as
to form in all material respects with the requirements of the Act or the
Exchange Act, as applicable, 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 or incorporated by
reference therein). To the best of such counsel's knowledge, the conditions for
the use of Form S-3, set forth in the General Instructions thereto, have been
satisfied.
(vi) Such counsel does not know of any contracts or documents
required to be filed as exhibits to or incorporated by reference in the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed, incorporated by reference 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.
(vii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or the Domestic
Subsidiaries except as set forth in the Prospectus.
(viii) 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 breach of any of the terms or provisions of, or
constitute a default under, the Charter or Bylaws of the Company or the Domestic
Subsidiaries, or any agreement or instrument known to such counsel to which the
Company or any of the Domestic Subsidiaries is a party or by which the Company
or any of the Domestic Subsidiaries may be bound.
(ix) This Agreement has been duly authorized, executed and delivered
by the Company.
(x) 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.
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<PAGE>
(xi) 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.
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, provided that 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 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
17
<PAGE>
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) You shall have received, on each of the date 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.
(e) 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 Registration 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 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
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(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
(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.
(f) The Company 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.
(g) The Firm Shares and Option Shares, if any, have been approved for
additional listing by The Nasdaq National Market.
(h) 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 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 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 Company 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.
---------------
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(a) The Company agrees 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 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 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. This indemnity agreement will be in addition to any
liability which the Company 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, and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities to which the
20
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Company or any such director, officer 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, 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 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
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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 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 the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law 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 the Company on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
22
<PAGE>
The Company 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 and (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. 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 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, or the Company, its
directors or officers or any persons controlling the Company, (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 any person
controlling any Underwriter or the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
23
<PAGE>
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),
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 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, 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 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.
-------
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 BT Alex.
Brown Incorporated, 101 California Street, 48th Floor, San Francisco,
California 94111, Attention: Tony Meneghetti, with a copy to BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland 21202, Attention: General
Counsel; if to the Company, to Powerwave Technologies, Inc., 2026 McGaw
Avenue, Irvine, California 92614, Attention: Chief Executive Officer; with
a copy to
24
<PAGE>
Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600,
Newport Beach, California, 92660, Attention: Nick E. Yocca, Esq.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company 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.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company 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
25
<PAGE>
from any Underwriter shall be deemed a successor or assign merely because
of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company 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 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.
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.
26
<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 Company and the several
Underwriters in accordance with its terms.
Very truly yours,
POWERWAVE TECHNOLOGIES, INC.
By: _____________________________________
Bruce C. Edwards
President and Chief Executive Officer
27
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WARBURG DILLON READ LLC
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By: _____________________________________
Authorized Officer
28
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Warburg Dillon Read LLC
TOTAL 2,000,000
=========
</TABLE>
Schedule I
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF STRADLING YOCCA CARLSON & RAUTH]
March 9, 1999
Powerwave Technologies, Inc.
2026 McGaw Avenue
Irvine, California 92614
Re: Registration Statement on Form S-3; Registration No. 333-72781
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3,
Registration No. 333-72781, filed by Powerwave Technologies, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission on
February 23, 1999 (as amended by Amendment No. 1 thereto filed on March 9,
1999, as such may be amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 2,300,000 shares of Common Stock, $.0001 par value per share, of the Company
(the "Common Stock"). Said shares of Common Stock, which include 300,000 shares
which will be subject to an over-allotment option to be granted to the
underwriters by the Company, 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 2,300,000 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,
/s/ Stradling Yocca Carlson & Rauth
STRADLING YOCCA CARLSON & RAUTH
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF POWERWAVE TECHNOLOGIES, INC.
Milcom International, Incorporated
Powerwave Services, Inc.
Powerwave Europe, Inc.
Powerwave France, Inc.
Milcom International VI, Inc.
Powerwave de Mexico S.A. de C.V.
Powerwave do Brasil Ltda.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in and incorporation by reference in Amendment No. 1 to
Registration Statement No. 333-72781 of Powerwave Technologies, Inc. on
Form S-3 of our report dated January 19, 1999, appearing in the Prospectus,
which is part of this Registration Statement, and appearing in the Annual
Report on Form 10-K of Powerwave Technologies, Inc. for the year ended January
3, 1999, and to the references to us under the headings "Selected Consolidated
Financial Data" and "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 9, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
December 21, 1998, which appears in the Powerwave Technologies Inc. Form 8K/A
dated December 28, 1998. We also consent to the references to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
March 4, 1999
