<PAGE>
As filed with the Securities and Exchange Commission on April 6, 2000
Registration No. 333-30568
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
METAWAVE COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 3663 91-1673152
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
10735 Willows Road NE
Redmond, WA 98052
(425) 702-5600
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
----------------
ROBERT H. HUNSBERGER
President and Chief Executive Officer
10735 Willows Road NE
Redmond, WA 98052
(425) 702-5600
(Name, address including zip code and telephone number including area code, of
agent for service)
Copies to:
<TABLE>
<S> <C>
WILLIAM W. ERICSON PATRICK J. SCHULTHEIS
JOHN W. ROBERTSON ROBERT G. DAY
KIRK D. SCHUMACHER ALLISON L. BERRY
Venture Law Group Wilson Sonsini Goodrich & Rosati
A Professional Corporation Professional Corporation
4750 Carillon Point 650 Page Mill Road
Kirkland, WA 98033-7355 Palo Alto, CA 94304-1050
(425) 739-8700 (650) 493-9300
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Maximum
Offering Proposed
Title Of Each Class Of Amount Price Maximum
Securities To Be to be per Aggregate Amount Of
Registered Registered(1) share(2) Offering Price(2) Registration Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.0001................ 7,187,500 $13.00 $93,437,500 $24,668
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</TABLE>
(1) Includes 937,500 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
(3) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
Preliminary Prospectus Dated April 6, 2000
PROSPECTUS
6,250,000 Shares
[LOGO OF METAWAVE COMMUNICATIONS CORPORATION]
Common Stock
-----------
This is Metawave Communications Corporation's initial public offering.
We expect the public offering price to be between $11.00 and $13.00 per
share. Currently, no public market exists for the shares. We have applied to
have our common stock quoted on the Nasdaq National Market under the symbol
"MTWV."
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 7 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to Metawave.............. $ $
</TABLE>
The underwriters may also purchase up to an additional 937,500 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares will be ready for delivery on or about , 2000.
-----------
Merrill Lynch & Co. Salomon Smith Barney
U.S. Bancorp Piper Jaffray
------------
The date of this prospectus is , 2000.
<PAGE>
Stylized Metawave logo.
Text on top: Metawave provides smart antenna solutions that
increase the capacity of wireless networks.
Line art depiction of SpotLight Smart Antenna
System
Graphic of radio frequency spectrum
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 27
Management............................................................... 40
Certain Relationships and Related Party Transactions..................... 50
Principal Stockholders................................................... 52
Description of Securities................................................ 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 62
Experts.................................................................. 62
Where You Can Find Additional Information................................ 62
Index to Financial Statements............................................ F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
<PAGE>
PROSPECTUS SUMMARY
The summary highlights selected information contained elsewhere in the
prospectus. You should read the entire prospectus, including "Risk Factors" and
the financial data and related notes before making an investment decision.
Metawave Communications Corporation
We provide smart antenna systems to wireless network operators facing
capacity constraints in the wireless communications industry. Our SpotLight
smart antenna systems consist of antennas that improve the reception and
transmission of radio signals dynamically through the use of our proprietary
software. We believe that wireless operators can increase overall network
capacity, improve or maintain network quality, reduce network operating costs
and better manage network infrastructure by implementing our SpotLight systems.
As the demand for wireless services continues to grow, we will develop systems
based on our proprietary technologies that address the associated network
capacity problems faced by wireless network operators.
The recent increase in demand for wireless services has been driven by an
increased number of subscribers, lower prices and expanded availability of
existing services. In addition to these factors, the emergence of new data and
Internet-oriented wireless services is expected to contribute to the continued
increase in subscriber usage. For example, wireless subscriber usage in the
United States is expected to grow at a compound annual growth rate of 20.9%
through 2003, according to The Strategis Group. The growth rate in wireless
subscriber usage is not necessarily indicative of our growth rate.
This rapid growth in demand for wireless services and wireless usage has
strained the capacity of wireless networks given the fixed amount of radio
frequency spectrum allocated to wireless network operators. To address the
challenge of increasing capacity while maintaining signal quality, wireless
network operators generally have deployed more efficient digital technologies
or have built additional cell sites, which contain the transmitting and
receiving equipment used by wireless network operators to connect the wireless
network to subscribers' mobile phones. However, the high costs and technical
difficulties associated with building new cell sites, as well as the inherent
capacity limitations of digital technologies, have created the need for a cost-
effective solution to manage available spectrum.
As of December 31, 1999 we had sold 121 SpotLight systems to a variety of
customers worldwide, including the following customers who accounted for more
that ten percent of our revenues in 1999: ALLTEL Communications Inc., which
accounted for 44.8% of our revenues, Grupo IUSACELL S.A. de C.V. of Mexico,
which accounted for 26.0% of our revenues; and Southwestco Wireless Inc., which
accounted for 20.9% of our revenues.
We have developed cost-effective smart antenna systems for expanding network
capacity while improving or maintaining overall network performance. These
systems are our primary product and have accounted for substantially all of our
revenues to date. Our SpotLight systems are designed to be compatible with base
station equipment for Code Division Multiple Access, or CDMA, and Global System
for Mobile Communications, or GSM, technologies, as well as analog
technologies. We have not completed any commercial sales of our SpotLight GSM
system. Our SpotLight systems provide solutions to wireless network operators
with the following benefits:
Cost-Effective Capacity Expansion. Our SpotLight systems enable wireless
network operators to increase the capacity of their existing networks and
therefore reduce the need to build and maintain expensive new cell sites. Our
SpotLight 2000 system has improved CDMA capacity in cell sites from 30% to 50%,
depending on network configuration. In addition, in a recent field trial, our
SpotLight GSM system demonstrated that GSM network capacity can be increased by
up to 100% without increasing the number of GSM cell sites. Adding SpotLight
systems in selected cell sites can increase overall network capacity.
3
<PAGE>
Improved Network Performance. Our SpotLight systems allow wireless network
operators to increase capacity while maintaining or improving the level of
service and signal quality. Our SpotLight 2000 systems efficiently allocate
existing network resources to better match subscriber usage. We expect our
SpotLight GSM systems to provide better signal reception and reduced
interference.
Compatibility with Standards and Equipment. We design our SpotLight systems
to be compatible with most of the widely deployed wireless standards operating
at 800 MHz and 900 MHz and related installed base station equipment in order to
allow wireless network operators' to continue to use their existing equipment
and technology.
Our objective is to provide smart antenna systems to the wireless
communications market worldwide. To accomplish this objective we intend to:
. Continue to focus on delivering solutions that address the capacity
constraints of wireless network operators;
. Expand our presence and penetration of our current CDMA customers by
leveraging the performance and service of our existing system
deployments;
. Target additional large multi-system 800 MHz CDMA and 900 MHz GSM
wireless network operators around the world that serve substantial
concentrations of customers and have the greatest market share in their
respective markets; and
. Use our technology leadership and intellectual property to develop and
provide new capacity solutions to the existing and emerging wireless
communications markets, including Personal Communications System, or PCS,
operating at 1800 MHz and 1900 MHz.
We have had a history of significant losses and we expect to continue
generate substantial losses in 2000 and beyond, even if our revenues increase.
Our net loss in 1999 was $42.4 million as compared to our revenues of $22.6
million in 1999. Our accumulated deficit was $120.6 million at December 31,
1999. In our limited operating history, we have never achieved profitability.
We anticipate that a significant portion of the proceeds of this offering will
be used to offset our operating losses.
Our principal executive offices are located at 10735 Willows Road NE,
Redmond, Washington 98052, and our telephone number is (425) 702-5600. We were
originally incorporated in the state of Washington in January 1995 and
reincorporated in the state of Delaware in July 1995. Our Web site is
www.metawave.com. The information on this Web site does not constitute part of
this prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Metawave........... 6,250,000 shares
Shares outstanding after the offering...... 36,613,817 shares
Use of proceeds............................ We intend to use the net
proceeds for general corporate
purposes, including working
capital and capital
expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..... MTWV
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at December 31, 1999.
This number excludes outstanding or available options and outstanding warrants
to purchase an aggregate of 4,133,229 shares. See "Capitalization."
Unless otherwise indicated, the information in this prospectus, including
the outstanding share information below is based on the number of shares
outstanding as of December 31, 1999 and assumes:
. the conversion of 32,027,203 outstanding shares of preferred stock into
an aggregate of 27,972,907 shares of common stock, for further details
please see "Capitalization";
. a 2-for-3 reverse split of our common stock;
. no exercise of the underwriters' over-allotment option;
. no exercise of outstanding warrants; and
. no exercise of outstanding options under our stock option plans.
5
<PAGE>
Summary Consolidated Financial Data
The summary consolidated financial data below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Metawave and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................ $ 1,450 $ 15,991 $ 22,596
Gross profit (loss)............................. (278) (2,037) 360
Total operating expenses........................ 22,228 35,728 39,599
Loss from operations............................ (22,506) (37,765) (39,239)
Other income (expense), net..................... 402 (6,563) (3,174)
-------- -------- --------
Net loss........................................ $(22,104) $(44,328) $(42,413)
======== ======== ========
Basic and diluted net loss per share............ $ (12.18) $ (21.88) $ (18.98)
Shares used in computation of basic and diluted
net loss per share............................. 1,815 2,026 2,235
Pro forma basic and diluted net loss per share.. $ (1.90)
Shares used in computation of pro forma net
loss per share................................. 22,375
</TABLE>
The "pro forma" column below gives effect to the conversion of all
outstanding shares of preferred stock upon completion of this offering.
The "pro forma as adjusted" column below gives effect to the sale of the
shares of common stock in this offering at an assumed initial public offering
price of $12.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses. Please see "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................... $ 20,165 $ 20,165 $ 88,915
Working capital............................. 22,759 22,759 91,509
Total assets................................ 40,946 40,946 109,696
Long-term obligations, net of current
portion.................................... 2,503 2,503 2,503
Convertible and redeemable preferred stock
and warrants............................... 144,102 -- --
Common stock and warrants................... 3,573 147,675 216,425
Accumulated deficit......................... (120,640) (120,640) (120,640)
Stockholders' equity (deficit).............. (117,954) 26,148 94,898
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below, as well as other
information contained in this prospectus, before making a decision to buy our
common stock.
Risks Related to Our Business
We have a limited operating history which makes it difficult for you to
evaluate our business and your investment.
We were incorporated in 1995 and were in the development stage until late
1997, when we commenced shipment for commercial sale of our first SpotLight
smart antenna system. We therefore have a limited operating history upon which
an investor may evaluate our operations and future prospects. The revenue and
profit potential of our business is unproven and our limited operating history
makes our future operating results difficult to predict because the market for
smart antenna systems is so new and wireless technologies change so rapidly.
Because our smart antenna systems were introduced relatively recently, we are
unable to predict with any degree of certainty whether our smart antenna
systems will achieve widespread market acceptance. In view of our limited
operating history, an investment in our common stock must be considered in
light of the risks and uncertainties that may be encountered by early stage
companies in the wireless communications equipment market. In addition, period-
to-period comparisons of operating results may not be meaningful and operating
results from prior periods may not be indicative of future performance.
We have incurred net losses and negative cash flow for our entire history, we
expect to incur future net losses and we may never achieve profitability.
We have never achieved profitability and as of December 31, 1999, we had an
accumulated net deficit of approximately $120.6 million. We intend to continue
to make significant investments in our operations, particularly to support
product development, to increase manufacturing capacity and to market new smart
antenna systems. Accordingly, we expect to continue to generate substantial
losses in 2000 and beyond, even if revenues increase. To achieve profitability,
we must, among other things:
. successfully scale our current operations;
. introduce new smart antenna systems;
. implement and execute our business and marketing strategies;
. develop and enhance our brand;
. adapt to changes in the marketplace;
. respond to competitive developments in the wireless communications
industry; and
. continue to attract, integrate, retain and motivate qualified personnel.
We might not be successful in achieving any or all of these objectives. Failure
to achieve any or all of these objectives could materially and adversely affect
our business, operating results and financial position causing our stock price
to decline. We cannot be certain that we can achieve sufficient revenues to
achieve profitability, or if we do, that we could remain profitable.
7
<PAGE>
We expect our quarterly revenues and operating results to fluctuate and these
fluctuations may cause the price of our stock to decline.
We base our operating expenses on anticipated revenue trends and a high
percentage of our expenses are fixed in the short term. As a result, any delay
in generating or recognizing revenues could cause our operating results to fall
below the expectations of securities analysts and investors, which would likely
cause our stock price to decline. Factors that may cause our quarterly results
to fluctuate include:
. gain or loss by us of significant customers;
. our ability to increase sales to our existing customers;
. delays in customer orders;
. delays in installing our smart antenna systems;
. our ability to reduce manufacturing costs of our smart antenna systems;
. our ability to introduce new smart antenna systems;
. market acceptance of any new smart antenna systems;
. introduction and enhancement of competitive or substitute products by our
competitors;
. limitations in our manufacturing capacity; and
. delays or changes in regulatory environments.
We depend on a limited number of wireless network operators for substantially
all of our revenues, so the loss of a customer or a delay in an order from a
customer could impair our operating results.
We derive our revenues from sales of our SpotLight 2000 system to a limited
number of wireless network operators. Due to the highly concentrated nature of
the wireless industry and industry consolidation, we believe that the number of
potential customers for future systems will be limited. Five customers have
accounted for substantially all of our system sales to date. The U.S. wireless
operations of three of our customers--AirTouch, Bell Atlantic and GTE--are
expected to be consolidated into one entity in 2000. On July 28, 1998, Bell
Atlantic and GTE announced a merger and on September 21, 1999, Bell Atlantic
and Vodaphone AirTouch plc, the parent company of AirTouch announced an
agreement to merge their U.S. wireless operations. Bell Atlantic owns 47.2% of
IUSACELL and Southwestco is a subsidiary of Bell Atlantic. Failure by us to
capture a significant percentage of the wireless network operators as customers
could cause our operating results to be significantly less than anticipated and
lead to a decline in our stock price. Moreover, due to this customer
concentration, the loss, or reduced demand from, any customer could cause our
sales to fall significantly.
Because our contracts with new customers are subject to satisfying performance
criteria, the timing of purchases is difficult to predict and as a result our
revenue is unpredictable.
We believe that the purchase of our SpotLight systems is typically a
strategic decision that requires approval at senior levels of customers'
organizations, significant technical evaluation and a substantial commitment of
customers' personnel, financial and other resources. Our contracts with new
customers typically contain conditional acceptance provisions for the initial
system sales and we delay recognition of revenue until all conditions are
satisfied, which causes our sales cycle to last up to 18 months and to vary
substantially from customer to customer. This variability makes predicting our
revenues difficult. Typically, performance of our systems must be accepted in
an initial cell site or cluster of cell sites in a field trial prior to
completing any additional sales to a particular wireless network operator. This
makes the sales process associated with the purchase of our systems complex,
lengthy and subject to a number of significant risks. We may incur substantial
expenses and expend significant management and personnel resources in the
process of a field trial. If we do not satisfy conditions in these contracts or
if satisfaction of these conditions were delayed for any reason, revenues in
any particular period could fall significantly below our expectations.
8
<PAGE>
Any delay in customer acceptance or shipment could delay our recognition of
revenues which could cause our stock price to decline.
Delays in shipment or customer acceptance of our antenna systems can happen
for a variety of reasons, including:
. an unanticipated shipment rescheduling;
. cancellation or deferral by a customer;
. competitive or economic factors;
. unexpected manufacturing, installation or other difficulties;
. unavailability or delays in deliveries of components, subassemblies or
services by suppliers; or
. the failure to receive an anticipated order.
Our customers are typically large organizations and make equipment purchases on
their own schedules. We have no influence on their internal budgetary
decisions. Additionally, since orders must ordinarily be shipped within 90 days
of receipt of a purchase order, our inability to ship orders on a timely basis
because of our limited capacity could damage relationships with customers and
result in cancellation of orders or lost orders. Any delay in system shipment
could cause revenues and operating results in a particular period to fall below
our expectations as well as below the expectations of public market analysts or
investors. If this occurs, the trading price of our common stock would likely
decline.
Our future revenues depend on the sale of our SpotLight systems and if our
SpotLight systems fail to achieve market acceptance of our SpotLight systems,
our revenues will fail to meet expectations.
Our future success depends upon the degree to which our smart antenna
systems are accepted. We believe that substantially all of our revenues in the
foreseeable future will be derived from sales of our SpotLight systems. If our
SpotLight systems fail to achieve broad market acceptance among our customers
and potential customers, our revenues could fall below our and analysts'
expectations which could cause our stock price to decline. In light of the
relatively recent introduction of our SpotLight systems, in particular our
SpotLight GSM system which recently completed its first field trial, and the
rapidly evolving nature of the wireless communications industry, we cannot
predict with any degree of assurance whether our current or future smart
antenna systems will achieve broad market acceptance. We have not yet completed
any commercial sales of our SpotLight GSM system. We must demonstrate that our
systems provide a cost-effective spectrum management solution that expands
wireless network operators' capacity within each operator's unique network
configuration and specifications. If our smart antenna systems do not achieve
widespread acceptance with wireless network operators, we will be unable to
increase our revenues as expected.
Our smart antenna systems are complex and may have errors or defects that are
detected only after deployments in complex networks, which may lead to loss of
customers and revenues and increased costs.
Our smart antenna systems are highly complex and are designed to be deployed
in complex networks. Although our systems are tested during manufacturing and
prior to deployment, they can only be fully tested when deployed in networks.
Consequently, our customers may discover errors after the systems have been
fully deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, we could experience:
. costs associated with the remediation of any problems;
. loss of or delay in revenues;
. loss of customers;
. failure to achieve market acceptance and loss of market share;
9
<PAGE>
. diversion of deployment resources;
. increased service and warranty costs;
. legal actions by our customers; and
. increased insurance costs.
Our limited experience in installing our systems may result in excessive costs
and delays which could cause us to lose customers.
Because we are one of the first companies to sell and deploy smart antenna
systems, there is little, if any, established field service expertise for the
installation of smart antenna systems in general or for the SpotLight systems
in particular. It is difficult to attract and maintain qualified field service
personnel and to train them to install our SpotLight systems. Failure to have
adequate numbers of trained field service personnel would adversely affect our
ability to competently install our systems on a timely basis, which may
adversely affect our customers and their business. In addition to our own
personnel, we have used and will continue to use subcontractors for some
installation and field service tasks. We may not be able to find sufficient
subcontractors with adequate experience and expertise and we may not be able to
retain their services on acceptable terms, if at all.
If we are unable to reduce our installation and optimization costs, we may not
be able to achieve profitability.
We charge a fixed fee to install and optimize our SpotLight systems. To
date, our costs to install and optimize our systems have significantly exceeded
the revenues associated with this work. Our smart antenna systems must be
installed, integrated and optimized with existing equipment installed in our
customers' cell sites. This process can be lengthy, causing delays in a
customer's commercial deployment of our systems. These delays may be the result
of factors outside of our control, including:
. zoning restrictions on installing additional equipment in a cell site;
. difficulties associated with the topography of the intended coverage area
of a cell site, such as the presence of water and hillsides;
. inability to easily access cell sites; and
. lack of experienced field service crews, particularly for international
deployments.
Failure to perform these field service tasks at a profit would adversely affect
our overall profitability. Additionally, our inability to correct field service
problems, whether or not in our control, may also harm our reputation and
competitive position in the industry.
We have limited manufacturing experience and facilities which may affect our
ability to expand our business.
Our manufacturing operations consist primarily of supplier and commodity
management and assembling finished goods from components and subassemblies
purchased from outside suppliers. We configure each SpotLight system to be
compatible with customer equipment, and our ability to achieve manufacturing
efficiencies by assembling systems before orders are received, therefore, is
limited. We intend to expand our manufacturing capacity, but due to our limited
experience with large scale operations, we may not be able to develop
internally the management structure or facilities needed to increase this
capacity.
Our current manufacturing facilities consist of a single facility in
Redmond, Washington. If our facilities or the facilities of our suppliers were
incapable of operating, even temporarily, or were unable to operate at or near
full capacity for any extended period, we would be unable to meet customers'
delivery expectations. In connection with our capacity expansion, we intend to
manufacture our SpotLight GSM systems in Taipei,
10
<PAGE>
Taiwan and may seek to develop one or more additional manufacturing facilities.
The addition of any facility will likely increase the complexity of our
operations and the risk of inefficient management of our manufacturing
operations. Our manufacturing facilities are vulnerable to damage or
interruption from earthquakes and other natural disasters, power loss,
sabotage, intentional acts of vandalism and similar events. We do not have a
formal disaster recovery plan, and we may not carry sufficient business
interruption insurance to compensate us for losses that could occur.
Our inability to adequately subcontract our excess manufacturing needs may
cause delays in shipment of our systems and lost revenues.
We intend, in certain instances, to subcontract additional assembly
processes. If we are not able to successfully identify subcontractors with
adequate experience or fail to control the quality of systems produced by these
subcontractors, it may harm our reputation or cause our customers to decrease
spending on our systems. Additionally, we may not be able to contract with
third parties for additional manufacturing capacity on acceptable terms, which
may cause us to delay shipments of systems and consequently lose revenue.
Our reliance on a limited number of suppliers for our smart antenna systems
could impair our ability to manufacture and deliver our systems on a timely
basis.
Some parts and components used in our smart antenna systems are presently
available only from sole sources including linear power amplifiers supplied by
Powerwave Technologies, Inc. and integrated duplexer low-noise amplifiers
supplied by Filtronics Comtek, Ltd. Some other parts and components used in our
systems are available from a limited number of sources. Our reliance on these
sole or limited source suppliers involves certain risks and uncertainties,
including the possibility of a shortage or the discontinuation of certain key
components. Any reduced availability of these parts or components when required
could materially impair our ability to manufacture and deliver our systems on a
timely basis and result in the cancellation of orders, which could
significantly harm our business and operating results.
The long lead time of some of our components could impair our ability to timely
deliver our systems if we do not accurately predict future demand or maintain
an inventory.
The purchase of some key components involves long lead times and, in the
event of unanticipated increases in demand for our smart antenna systems, we
may be unable to obtain such components in sufficient quantities to meet our
customers' requirements. We do not have guaranteed supply arrangements with any
of these suppliers, do not maintain an extensive inventory of parts or
components and customarily purchase sole or limited source parts and components
pursuant to purchase orders. Business disruptions, quality issues, production
shortfalls or financial difficulties of a sole or limited source supplier could
materially and adversely affect us by increasing product costs, or eliminating
or delaying the availability of such parts or components. In such event, our
inability to develop alternative sources of supply quickly and on a cost-
effective basis could materially impair our ability to manufacture and deliver
our systems on a timely basis and could significantly affect our revenues.
Our success is dependent on continuing to hire and retain qualified personnel,
and if we are not successful in attracting and retaining these personnel, we
may not be able to operate our business.
The success of our business depends upon the continued contributions of each
of our key technical and senior management personnel each of whom would be
difficult to replace. We have not entered into employment agreements with any
of our employees other than severance arrangements with Robert H. Hunsberger,
Richard P. Henderson, Dr. Douglas O. Reudink, Victor K. Liang, Stuart W.
Fuhlendorf and Andrew Merrill. Except for Dr. Reudink, our founder and Chief
Technical Officer, we have not entered into any non-competition agreements with
any of our employees. We do not maintain key-man life insurance on any of our
key technical or senior management personnel. In addition, we anticipate that
we will need additional
11
<PAGE>
management personnel, if we are to be successful in increasing production
capacity and the scale of our operations as well as operating as a public
company.
To effectively manage our recent growth as well as any future growth, we
will need to attract and retain qualified engineering, financial,
manufacturing, quality assurance, sales, marketing and customer support
personnel. Competition for such personnel, particularly qualified engineers, is
intense in our market. We have experienced difficulties in recruiting
sufficient numbers of qualified engineers in the past and we expect to continue
to experience difficulties in the future. There may be only a limited number of
persons with the requisite skills to serve in these positions, particularly in
the market where we are located, and it may be increasingly difficult for us to
hire such personnel over time. As our product development efforts relate to
wireless standards that are widely deployed in foreign countries, such as GSM,
we may be required to recruit foreign engineers who have expertise in such
standards. Current U.S. immigration laws restrict our ability to hire foreign
employees, which could impair our product development efforts. The loss of any
key employee, the failure of any key employee to perform in his or her current
position, our inability to attract and retain skilled employees as needed or
the inability of our officers and key employees to expand, train and manage our
employee base could limit our ability to expand and become profitable.
Our management resources may become strained due to the rapid expansion of our
operations.
The growth of our operations has placed, and is expected to continue to
place, a significant strain on our financial and management resources as well
as our system design, manufacturing, sales and customer support capabilities.
From January 1, 1997 to December 31, 1999, we expanded from 107 to 248
employees. Most of our executive officers have no prior experience as executive
officers of publicly traded companies. Our new employees include a number of
key managerial, technical and operations personnel who have not yet been fully
integrated into our operations, including our Chief Financial Officer, who was
hired in March 2000, and we expect to add additional key personnel in the near
future. We have sales offices in Redmond, Washington and Allen, Texas, and
overseas locations, including Taipei, Taiwan, Shanghai, China and Sao Paulo,
Brazil. As we expand our operations to multiple domestic and international
locations, management of our operations has become and will continue to become
increasingly complex, difficult and expensive. In order to manage growth
effectively and increase or maintain profitability, we must implement and
improve our operational, financial and management information systems,
procedures and controls on a timely basis.
Because we need to expand manufacturing capacity and sales, we require
substantial working capital which we may not be able to acquire.
We require substantial working capital to fund our business. Our future
capital requirements will depend upon many factors, including the success or
failure of our efforts to expand our production, sales and marketing efforts,
the status of competitive products, and the requirements of our efforts to
develop new smart antenna systems and system enhancements. We believe that
current capital resources, together with the estimated net proceeds from this
offering, are adequate to fund our operations for at least 12 months.
Thereafter, we may be required to raise additional capital to maintain growth
or expand capacity which may not be available to us on acceptable terms, if at
all. We maintain a line of credit with Imperial Bank with customary commercial
rates and restrictions, which we have currently renewed and increased. Any
inability to obtain needed financing by us could constrain our ability to meet
current obligations or continue growing.
Our substantial sales of our SpotLight systems in international markets subject
us to various risks and costs which may harm our business.
We anticipate that international sales of our SpotLight systems in Asia,
Latin America and other international markets will continue to account for a
significant portion of our revenues for the foreseeable future. Risks and
associated costs inherent in our international business activities include:
. difficulties obtaining foreign regulatory approval for our smart antenna
systems;
. unexpected changes in regulatory requirements relating to the
telecommunications industry;
12
<PAGE>
. greater difficulties collecting delinquent or unpaid accounts;
. lack of suitable export financing for our SpotLight systems;
. dependence upon independent sales representatives and other indirect
channels of distribution of our SpotLight systems;
. political and economic instability in the regions where we sell our
SpotLight systems; and
. enforceability of contracts with foreign customers and distributors
governed by foreign laws.
As more of our international sales are derived from sales in Asia, an
increasing portion of our revenues could be subject to the economic and
political risks associated with that region.
We expect to begin to derive revenues from the sale of our SpotLight GSM
systems in 2000 in Asia in general and the greater China market in particular.
Changes in political or economic conditions in the region could adversely
affect our operations, in particular any deterioration of political relations
between the United States and the People's Republic of China or the People's
Republic of China and Taiwan could negatively affect our business. If economic
growth rates decline in Asia in general and the greater China market in
particular, expenditures for telecommunications equipment and infrastructure
improvements could decrease, which would negatively affect our business and our
operating results.
We may engage in future acquisitions that dilute our stockholders, cause us to
incur debt or assume contingent liabilities and subject us to other risks.
We may make acquisitions of businesses, products or technologies in the
future. Since we have not made any material acquisitions in the past, no
assurance can be given as to our ability to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and our failure to do so could significantly affect our business and
operating results. Moreover, we may not be able to locate suitable acquisition
opportunities and this inability could impair our ability to grow as quickly as
possible or obtain access to technology that may be important to the
development of our business. Further, acquisitions entail numerous operational
risks, including:
. difficulties in assimilating operations;
. potential loss of key employees, technologies, products and the
information systems of the acquired companies;
. diversion of management's attention from other business concerns; and
. risks of entering geographic and business markets in which we have no or
limited prior experience.
Our limited ability to protect our intellectual property may affect our ability
to compete and we could lose customers.
We rely on a combination of patent, trade secret, copyright and trademark
protection, nondisclosure agreements and other measures to protect our
proprietary rights. We also enter into confidentiality or license agreements
with our employees, consultants, and corporate partners, and control access to
and distribution of our proprietary information. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our intellectual property or technology. If our methods of
protecting our intellectual property are not adequate, our competitors may
misappropriate our technology and we could lose customers to these competitors.
Claims that we infringe third party intellectual property rights could result
in significant expense and restrictions on our ability to sell our systems in
particular markets.
From time to time, third parties have asserted patents, copyrights and other
intellectual property rights with regard to wireless and other technologies
that are important to our ability to develop smart antenna
13
<PAGE>
systems. We expect that we will increasingly be subject to infringement claims
as the number of products and competitors in the spectrum management market
grows and the functionality of products overlaps. Infringement claims could
result in costly litigation or require us to obtain a license to intellectual
property rights of such parties. See "Business--Intellectual Property" for more
information regarding risks relating to protecting our intellectual property
rights and risks relating to claims of infringement of other intellectual
property rights.
Our systems and the business our customers are subject to significant
government regulation which may cause uncertainty in the compliance of our
systems and delay in the purchase of our systems.
Many of our smart antenna systems are required to comply with numerous
domestic and international government regulations and standards, which vary by
market. As standards for products continue to evolve, we will need to modify
our systems or develop and support new versions of our systems to meet emerging
industry standards, comply with government regulations and satisfy the
requirements necessary to obtain approvals. Compliance with government
regulations and industry standards can each be a lengthy process, taking from
several months to longer than a year. It may be difficult for us to obtain
additional necessary regulatory approvals or comply with new industry standards
in a timely manner, if at all. Our inability to obtain regulatory approval and
meet established standards in a timely manner could delay or prevent entrance
into or force our departure from markets, which would harm our sales.
In addition, our customers' operations are subject to extensive government
regulations. To the extent that our customers are delayed in deploying their
wireless systems as a result of existing or new standards or regulations, we
could experience delays in orders. Any delay could contribute to fluctuations
in our results of operations. See "Business--Government Regulation" for more
information regarding the governmental control and approval of our business.
Risks Related to the Wireless Industry
We depend on the capital spending patterns of wireless network operators, and
if capital spending is decreased or delayed it may result in lower than
expected revenues.
Since we rely on wireless network operators to purchase our smart antenna
systems, any substantial decrease or delay in capital spending patterns in the
industry would negatively affect our revenues which could cause our stock price
to decline. The demand for our smart antenna systems depends to a significant
degree upon the magnitude and timing of capital spending by these operators for
constructing, rebuilding or upgrading their systems. The capital spending
patterns of wireless network operators depend on a variety of factors outside
our control, including access to financing, the status of federal, local and
foreign government regulation and deregulation, changing standards for wireless
technology, overall demand for analog and digital wireless services,
competitive pressures and general economic conditions. In addition, capital
spending patterns in the wireless industry can be subject to some degree of
seasonality, with lower levels of spending in the first calendar quarter, based
on annual budget cycles.
We must reduce our costs and introduce new systems in order to achieve and
maintain profitability.
We anticipate that average selling prices for our smart antenna systems will
need to decrease in the future in response to competitive pricing pressures and
new product introductions by competitors. To achieve profitability we will need
to reduce our manufacturing costs. If the price of base station equipment
continues to decrease, the addition of new cell sites may be viewed as a more
cost-effective alternative for wireless network operators seeking increased
capacity. In order to compete, we must lower average selling prices. To lower
average selling prices without adversely affecting gross profits, we will have
to reduce the manufacturing costs of our smart antenna systems through
engineering improvements and economies of scale in production and purchasing.
We may not be able to achieve cost savings at a rate needed to keep pace with
competitive pricing pressures. If we are unable to reduce costs sufficiently to
offset the expected declining average selling prices, we may not achieve
profitability. Further, if we cannot provide our distribution partners with
sufficient financial
14
<PAGE>
incentive to distribute our systems without adversely affecting our
profitability, our distribution strategy would be harmed which could result in
the loss of current and potential customers.
If we do not respond quickly to changing customer needs and product
introductions by our competition, our sales will decline and our products may
become obsolete.
The market for our current smart antenna systems and planned future systems
is subject to rapid technological change, frequent new system introductions and
enhancements, product obsolescence, changes in customer requirements and
evolving industry standards. To be competitive, we must successfully develop,
introduce and sell new smart antenna systems or system enhancements that
respond to changing customer requirements on a timely and cost-effective basis.
Our future success will depend on our ability to develop new smart antenna
systems and system enhancements designed to:
. operate with different digital technologies and in some cases across
other principal manufacturers' base stations;
. achieve market acceptance of our present and future smart antenna
systems; and
. keep pace with the development and introduction of competitive products
by competitors.
We have in the past experienced and may in the future experience delays in
development and introduction of smart antenna systems and system enhancements.
We may be required to obtain licenses to intellectual property rights held by
third parties to develop new smart antenna systems or system enhancements and
there can be no assurance that such licenses will be available on acceptable
terms, if at all. If we fail to timely and cost-effectively develop new smart
antenna systems or system enhancements that respond to new technologies and
customer needs, the demand for our smart antenna systems may fall and we could
lose revenues.
If we fail to obtain cooperation from base station manufacturers, our smart
antenna systems may no longer be compatible with customers' equipment and we
may not be able to sell our smart antenna systems.
Our product strategy relies on ensuring the compatibility of our systems
with base stations sold by wireless equipment manufacturers. If base station
manufacturers change or modify their equipment so that our smart antenna
systems are no longer compatible, we would need to redesign our systems to meet
any changed technology or modified equipment. This may involve substantial
costs and potentially a prolonged development stage for new systems.
Consequently, we may need to rely on the cooperation of customers or base
station manufacturers to ensure that our smart antenna systems remain
compatible if base station equipment is modified. As our systems are designed
to reduce the need to purchase incremental base stations for capacity expansion
of wireless networks, obtaining cooperation from base station manufacturers may
prove difficult. If we are unable to obtain this cooperation and as a result
cannot make our systems compatible with base station equipment, we may not be
able to sell our smart antenna systems.
Intense competition in the wireless infrastructure equipment market may lead to
reduced prices, revenues and market shares causing the price of our stock to
decline.
The market for spectrum management solutions is relatively new but we expect
it to become increasingly competitive. This market is part of the broader
market for wireless infrastructure equipment which is dominated by a number of
large companies including Lucent, Motorola, Ericsson, Nortel, Nokia, Siemens,
Alcatel and others. Our smart antenna systems compete with other solutions to
expand network capacity. These alternative solutions include other smart
antenna systems, adding base stations for capacity, deploying efficient digital
technologies and various enhancements to digital technologies. We believe that
the principal competitive factor is the cost-effective delivery of increased
capacity to wireless network operators. If our systems are not the
15
<PAGE>
most cost-effective solution, our ability to attract and retain customers would
be harmed. We believe that base station manufacturers, which provide wireless
network capacity through sales of additional base stations or the development
of competitive technologies, represent the most significant competitive threat
to us. For more information on the competitive risks facing us, please see
"Business--Competition."
The failure of the wireless communications services industry to grow at the
rates currently anticipated would seriously harm our business, results of
operation and financial condition.
Our future operating results will depend upon the continued growth and
increased availability and acceptance of wireless communications services.
There can be no assurance that the volume and variety of wireless services or
the markets for and acceptance of such services will grow, or that such growth
will create a demand for our systems. If the wireless communications market
fails to grow, or grows more slowly than anticipated, our sales will be lower
than expected, which would seriously harm our business.
The wireless communications industry has developed different technologies
and standards based on the type of service provided and geographical region.
There is uncertainty as to whether all existing wireless technologies will
continue to achieve market acceptance in the future. If a digital technology
for which we develop a smart antenna system is not widely adopted, the
potential size of the market for this system would be limited, and we may not
recover the cost of development. Further, we may not be able to redirect our
development efforts toward those digital wireless technologies that do sustain
market acceptance in a timely manner, which would impede our ability to achieve
or sustain profitability once achieved.
Risks Related to this Offering
Our existing stockholders have significant control of our management and
affairs, which they could exercise against your best interests.
Following the completion of this offering, our officers and directors,
together with entities that may be deemed affiliates of or related to such
persons or entities, will beneficially own approximately 42.50% of our
outstanding common stock. As a result, these stockholders, acting together, may
be able to control our management and affairs and matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control of Metawave and might affect the
market price of our common stock.
Technology company stock prices have been volatile and you may be unable to
sell your shares at or above the offering price.
The stock markets have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity
securities of many wireless communication companies. These fluctuations often
have been unrelated or disproportionate to the operating performance of those
companies and the wireless communications industry. The market price of our
common stock could be subject to wide fluctuations in response to many risk
factors listed in this section, and others beyond our control, including:
. changes in financial estimates of our operating results or the operating
results of other wireless communication companies by securities
analysts;
. fluctuations in the valuation of companies perceived by investors to be
comparable to us;
. performance of similar companies; and
. share price and volume fluctuations attributable to inconsistent trading
volume levels of our shares.
16
<PAGE>
Because our initial public offering price will be substantially higher than the
book value per share of our outstanding common stock, new investors will incur
immediate and substantial dilution in the amount of $9.41 per share.
Immediately after this offering, the initial public offering price will be
substantially higher than the book value per share based on the total value of
our assets less our total liabilities. Therefore, if you purchase common stock
in this offering, you will experience immediate and substantial dilution of
approximately $9.41 per share in the price you pay for the common stock as
compared to its book value. Furthermore, investors purchasing common stock in
this offering will own only 17.1% of our shares outstanding even though they
will have contributed 34.7% of the total consideration received by us in
connection with our sales of common stock. To the extent outstanding options to
purchase common stock are exercised, there will be further dilution.
Following this offering, a substantial number of our shares of common stock
will become available for sale in the public market, which could cause the
market price of our stock to decline.
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price acceptable to
us. Upon completion of this offering, we will have 36,613,817 outstanding
shares of common stock based upon shares outstanding as of December 31, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after December 31, 1999. Of these shares, the 6,250,000
shares sold in this offering will be freely transferable without restriction
under the Securities Act, unless held by "affiliates" of Metawave as that term
is used in the Securities Act and the Regulations promulgated thereunder. The
remaining shares of common stock outstanding after this offering will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
Date of Availability of Sale of Shares
---------------------------- ----------
<S> <C>
Upon the closing of this offering............................... 469,142
91 days after the date of this prospectus....................... 411,112
181 days after the date of this prospectus...................... 29,505,874
Periodically thereafter upon the expiration of one-year holding
periods........................................................ 22,310
</TABLE>
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
the wireless communications industry. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by us and described in the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
We estimate our net proceeds from the sale of 6,250,000 shares of our common
stock offered in this offering to be approximately $68.8 million, or
approximately $79.2 million if the underwriters' over-allotment option is
exercised in full, based on an assumed initial public offering price of $12.00
per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses.
We intend to use the net proceeds for general corporate purposes, including
working capital to fund anticipated operating losses. We expect to use
approximately $2.8 million of the net proceeds in 2000 for capital expenditures
primarily associated with expanding our manufacturing facilities and acquiring
additional testing equipment. In addition, we plan to use approximately
$22.6 million of the net proceeds in 2000 to fund research and development
activities. We may, when and if the opportunity arises, use a portion of the
proceeds to acquire or invest in complimentary businesses, products or
technologies; however, we currently have no commitments or agreements and are
not involved in any negotiations with respect to any transactions of this
nature. Pending such uses, we intend to invest such funds in short-term,
investment grade, interest-bearing obligations.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock or
other securities. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future. The terms of our
credit agreement with Imperial Bank restrict our ability to pay dividends and
in the future the terms of other credit agreements may impose restrictions or
limitations on the payment of dividends.
18
<PAGE>
CAPITALIZATION
The actual column in the following table sets forth our actual
capitalization as of December 31, 1999.
The pro forma column in the following table gives effect to:
. The conversion on a 0.66667 to one basis of an aggregate of 8,240,743
outstanding shares of Series A and Series B preferred stock into
5,493,821 shares of common stock upon completion of this offering;
. The conversion on a 0.87190-to-one basis of an aggregate of 2,491,880
outstanding shares of Series C preferred stock into 2,172,677 shares of
common stock upon completion of this offering;
. The conversion on a 0.96096-to-one basis of an aggregate of 3,018,429
outstanding shares of Series D preferred stock into 2,900,577 shares of
common stock upon completion of this offering; and
. The conversion on a 0.95238-to-one basis of an aggregate of 18,276,151
outstanding shares of Series E preferred stock into 17,405,832 shares of
common stock upon completion of this offering.
The pro forma as adjusted column gives effect to the sale by us of the
6,250,000 shares of common stock offered hereby at an assumed initial public
offering price of $12.00 per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us, and
the change in the authorized number of shares following completion of this
offering.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term obligations........................ $ 2,503 $ 2,503 $ 2,503
Convertible and redeemable preferred stock... 143,945 -- --
Convertible and redeemable preferred stock
warrants.................................... 157 -- --
Stockholders' equity (deficit):
Preferred stock, actual--37,000,000 shares
authorized, 32,027,203 shares which have
been designated as convertible and
redeemable; pro forma and pro forma as
adjusted--10,000,000 shares authorized,
none outstanding........................... -- -- --
Common stock, actual--50,000,000 shares
authorized, 2,390,910 shares issued and
outstanding; pro forma--50,000,000 shares
authorized, 30,363,817 shares issued and
outstanding; pro forma as adjusted--
150,000,000 shares authorized, 36,613,817
shares issued and outstanding.............. 3,573 147,675 216,425
Deferred stock compensation.................. (906) (906) (906)
Accumulated other comprehensive income....... 19 19 19
Accumulated deficit.......................... (120,640) (120,640) (120,640)
--------- --------- ---------
Total stockholders' equity (deficit)....... (117,954) 26,148 94,898
--------- --------- ---------
Total capitalization....................... $ 28,651 $ 28,651 $ 97,401
========= ========= =========
</TABLE>
The information in the table excludes as of December 31, 1999:
. 2,885,294 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $5.25 per share;
. 90,870 shares of common stock issuable upon the conversion of preferred
stock after the exercise of outstanding preferred stock warrants at a
weighted average exercise price of $6.20 per share on an as if converted
basis;
. 20,833 shares issuable upon exercise of an outstanding common stock
warrant at an exercise price of $6.75 per share; and
. an aggregate of 1,136,232 shares available for future issuance of stock
options under our stock plans.
19
<PAGE>
DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
approximately $26.1 million, or $0.86 per share of common stock. Pro forma net
tangible book value represents total tangible assets less total liabilities
divided by the pro forma number of shares of common stock outstanding, assuming
the conversion of convertible and redeemable preferred stock to common stock
and the conversion of preferred stock warrants to common stock warrants.
Without taking into account any other changes in the pro forma net tangible
book value after December 31, 1999, other than to give effect to the receipt by
us of the net proceeds from the sale of the 6,250,000 shares of common stock
offered hereby at an assumed initial public offering price of $12.00 per share,
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, the pro forma net tangible book
value at December 31, 1999 would have been approximately $94.9 million, or
$2.59 per share. This represents an immediate increase in net tangible book
value of $1.73 per share to existing stockholders and an immediate dilution of
$9.41 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $12.00
Pro forma net tangible book value per share as of December 31,
1999............................................................ $0.86
Increase per share attributable to new investors................. 1.73
-----
Pro forma net tangible book value per share after the offering.... 2.59
------
Dilution per share to new investors............................... $ 9.41
======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing
stockholders and new investors (before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 30,363,817 82.9% $141,190,477 65.3% $ 4.65
New investors................. 6,250,000 17.1% $ 75,000,000 34.7% $12.00
---------- ----- ------------ -----
Total..................... 36,613,817 100.0% $216,190,477 100.0%
========== ===== ============ =====
</TABLE>
The information presented with respect to existing stockholders excludes as
of December 31, 1999:
. 2,885,294 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $5.25 per share;
. 90,870 shares of common stock issuable upon the conversion of preferred
stock after the exercise of 123,880 outstanding preferred stock warrants
at a weighted average exercise price of $6.20 per share on an as if
converted basis;
. 20,833 shares issuable upon exercise of an outstanding common stock
warrant at an exercise price of $6.75 per share; and
. an aggregate of 1,136,232 shares available for future issuance under our
stock plans.
To the extent that any of the options or warrants are exercised, or
additional options are issued and exercised, there will be further dilution to
new investors. For additional information about our capitalization and the
options and warrants described above, see "Description of Securities" and notes
4 and 5 of Notes to Consolidated Financial Statements.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our consolidated financial statements and notes to our consolidated financial
statements and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are included elsewhere in this
prospectus. The consolidated statements of operations data for the years ended
December 31, 1997, 1998 and 1999, and the balance sheet data at December 31,
1998 and 1999, are derived from audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of operations
data for the period from inception to December 31, 1995 and for the year ended
December 31, 1996 and the balance sheet data as of December 31, 1995, 1996 and
1997 are derived from audited consolidated financial statements not included in
this prospectus. See note 1 and 9 of Notes to Consolidated Financial Statements
for an explanation of the number of shares used to compute shares used in
calculation of basic and diluted net loss per share. The "pro forma"
consolidated balance sheet data gives effect to the conversion of all
outstanding shares of preferred stock upon completion of this offering.
<TABLE>
<CAPTION>
Period from
January 19, 1995
(inception) to Year ended December 31,
December 31, --------------------------------------
1995 1996 1997 1998 1999
---------------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ -- $ 1,291 $ 1,450 $ 15,991 $ 22,596
Cost of revenues........ -- 1,097 1,728 18,028 22,236
------- -------- -------- -------- --------
Gross profit (loss)..... -- 194 (278) (2,037) 360
Operating expenses:
Research and
development........... 883 7,186 13,083 18,495 22,787
Sales and marketing.... 84 1,704 5,383 11,346 11,080
General and
administrative........ 168 2,434 3,762 5,887 5,732
------- -------- -------- -------- --------
Total operating
expenses............ 1,135 11,324 22,228 35,728 39,599
------- -------- -------- -------- --------
Loss from operations.... (1,135) (11,130) (22,506) (37,765) (39,239)
Other income (expense),
net.................... 135 335 402 (6,563) (3,174)
------- -------- -------- -------- --------
Net loss................ $(1,000) $(10,795) $(22,104) $(44,328) $(42,413)
======= ======== ======== ======== ========
Basic and diluted net
loss per share......... $ (0.55) $ (5.89) $ (12.18) $ (21.88) $ (18.98)
======= ======== ======== ======== ========
Shares used in
computation of basic
and diluted net loss
per share.............. 1,833 1,833 1,815 2,026 2,235
======= ======== ======== ======== ========
Pro forma basic and
diluted net loss per
share.................. $ (1.90)
========
Shares used in
computation of pro
forma net loss per
share.................. 22,375
========
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
------------------------------------------- 1999
1995 1996 1997 1998 1999 Pro forma
------ ------- ------- ------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $1,422 $19,092 $13,334 $10,763 $ 20,165 $ 20,165
Working capital......... 4,280 17,722 15,677 (17,135) 22,759 22,759
Total assets............ 6,135 21,747 22,575 32,510 40,946 40,946
Long term obligations,
net of current
portion................ 96 1,757 2,978 4,413 2,503 2,503
Convertible and
redeemable preferred
stock and warrants..... 5,500 30,100 49,410 61,595 144,102 --
Common stock and
warrants............... 10 10 1,968 2,179 3,573 147,675
Accumulated deficit..... (1,000) (11,795) (33,899) (78,227) (120,640) (120,640)
Stockholders' equity
(deficit).............. (990) (11,785) (33,136) (76,596) (117,954) 26,148
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We provide smart antenna systems that address the capacity constraints faced
by wireless network operators. From inception in January 1995 through December
31, 1997, our operating activities related primarily to conducting research and
development, building market awareness, recruiting management and technical
personnel and building an operating infrastructure. Shipment for commercial
sale of our initial SpotLight system began late in the fourth quarter of 1997
and we first recognized revenues for the sale of our SpotLight system in the
first quarter of 1998. Since the beginning of 1998, our operating activities
have been focused on increasing sales, new product development and expanding
manufacturing capacity. Since inception, we have incurred significant losses
and as of December 31, 1999, had an accumulated deficit of $120.6 million.
Our revenues are derived primarily from sales of our SpotLight systems,
which includes the sale of hardware and the licensing of software, and from
related installation and optimization services. We believe that substantially
all of our revenues in the foreseeable future will be derived from sales of our
SpotLight systems. Our sales cycles can be lengthy and the related contracts
typically include performance specifications and customer acceptance conditions
in connection with the sale of each system to a new customer.
Revenues. We generate revenues through the sale of our smart antenna systems
and related installation and optimization services. Our systems revenues are
recognized when title to the system and risk of loss is transferred to the
customer and all customer acceptance conditions, if any, have been satisfied,
and collection probable. Services revenues, generally for installation and
optimization, are recognized when the services have been performed and all
customer acceptance conditions, if any, have been satisfied. Our maintenance
contract revenues are recognized ratably over the term of the agreement
(typically one year). Any billings in excess of our revenues are classified as
deferred revenue and related systems are recorded as inventory.
Our contract terms including pricing and acceptance criteria, if any,
typically vary depending upon the order. Consequently, our revenues may vary
from quarter to quarter depending on the length of the sales cycle and the
applicable contract terms. To date, our international sales have been
denominated in U.S. dollars. However, in the future, a portion of our
international sales may be denominated in foreign currencies. Sales to ALLTEL,
IUSACELL, and Southwestco represent substantially all our revenues for the year
ended December 31, 1999, and we expect a limited number of customers will
account for a substantial percentage of revenues for the foreseeable future.
Cost of Revenues. Our cost of revenues typically consists of material
components, system assembly and testing, and overhead expenses. Our gross
margins are generally higher for hardware revenues than for service revenues.
We anticipate that our overall gross margins will fluctuate from period-to-
period as a result of shifts in product mix, the proportion of direct and
indirect sales, anticipated decreases in average selling prices and our ability
to reduce costs.
Research and Development. Our research and development expense consists
principally of salaries, related personnel expenses, consultant fees and
prototype expenses related to the design, development, testing and enhancement
of our SpotLight systems. As of December 31, 1999, all of our research and
development costs had been expensed as incurred. We believe that continued
investment in research and development is critical to achieving our strategic
product development and cost reduction objectives and, as a result, expect this
expense to continue to increase significantly in absolute dollars in the
future.
Sales and Marketing. Our sales and marketing expense consists of salaries,
sales commissions and related expenses for personnel engaged in marketing,
sales and field service support for new installations and installed base, as
well as promotional expenditures. We believe that these expenses will increase
in absolute dollars as the marketing campaigns for our SpotLight 2000 and
SpotLight GSM systems expand and we increase our sales personnel.
22
<PAGE>
General and Administrative. Our general and administrative expense consists
primarily of salaries and personnel related expenses, recruiting and relocation
expenses, professional and consulting fees, and other general corporate
expenses. We expect this expense to increase as we add personnel and incur
additional costs related to our operation as a public company.
Stock compensation expense. We have recorded stock-based compensation
expense of $3.0 million related to stock options granted below fair market
value for accounting purposes through December 31, 1999. Of this amount, we
amortized approximately $2.1 million through that same period. This amount
represents the difference between the exercise price of these stock option
grants and the deemed fair value of the common stock at the time of grant. The
remaining $906,000 will be amortized over the remaining vesting period of the
options, generally four years. As a result, the amortization of stock-based
compensation will impact our reported results of operations through fiscal
2002. The stock-based compensation expense has been allocated to research and
development expense, sales and marketing expense and general and administrative
expense, as appropriate.
Recent Development
Net revenue for the quarter ended March 31, 2000 was $9.3 million, of which
56.6% was from international sales.
Results of Operations
Years Ended December 31, 1999 and 1998
Revenues. Revenues were $22.6 million in 1999 and $16.0 million in 1998, an
increase of 41.3%. This increase was primarily due to increased unit sales of
our SpotLight systems, increased revenues per unit sold and the introduction of
a new version of our SpotLight 2000 CDMA system in July 1999. International
sales of our systems accounted for 26.0% of revenues in 1999 and 23.5% in 1998.
Cost of Revenues. Our cost of revenues was $22.2 million in 1999 and $18.0
million in 1998, an increase of 23.3%. The increase in cost of revenues was
primarily the result of increased units sold and change in product mix from
analog systems to our SpotLight 2000 CDMA system. Also, in 1999 we began to
include in cost of revenues the personnel expenses related to field
installation and engineering services. This change was made to properly align
direct costs and overhead with revenues.
Our cost of revenues and gross profit may be affected by the mix of systems
sold, the mix of distribution channels used by us, the mix of services
provided, and the average order size. We expect to realize higher gross margins
on direct channel sales relative to indirect channel sales. If sales through
indirect channels increase as a percentage of total revenues our gross margins
will likely decrease.
Research and Development. Research and development expense was $22.8 million
in 1999 and $18.5 million in 1998, an increase of 23.2%. The increase was
primarily due to increased personnel related to the development and testing of
our SpotLight GSM system and our SpotLight 2000 CDMA system.
Sales and Marketing. Sales and marketing expense was $11.1 million in 1999
and $11.3 million in 1998, a decrease of 2.3%. The decrease was primarily due
to including in cost of revenues the personnel of expenses associated with
field installation and engineering services.
General and Administrative. General and administrative expense was $5.7
million in 1999 and $5.9 million in 1998, a decrease of 2.6%. The decrease was
primarily due to the reduction of administrative personnel and reductions in
outside professional services.
Other Income (Expense), Net. Our total other income (expense), net amounted
to an expense of $3.2 million in 1999 compared to an expense of $6.6 million in
1998. The decreased expense was primarily the result of reduced interest
expense as a result of the repayment of our $29.0 million Senior Secured Bridge
Notes bearing interest at 13.75% in April 1999. Gross other income increased by
$271,000 from 1998 to 1999 due to income from short-term investments in 1999
made with the proceeds from the Series E preferred stock financing.
23
<PAGE>
Years Ended December 31, 1998 and 1997
Revenues. Revenues were $16.0 million in 1998 and $1.5 million in 1997. This
increase reflected our first full year of revenues resulting from the
commercial deployment of our SpotLight systems. Our revenues for 1997 consisted
primarily of services provided by the Network Services division which was
discontinued and sold in March 1998.
Cost of Revenues. Our cost of revenues was $18.0 million in 1998 and $1.7
million in 1997. The increase was primarily related to costs associated with
introducing our analog system and the first version of our SpotLight CDMA
system.
Research and Development. Research and development expense was $18.5 in 1998
and $13.1 million in 1997, an increase of 41.4%. The increase was primarily
attributable to increased personnel related to the introduction of our analog
system, development of the first version of our SpotLight CDMA system, and
start up costs related to the development of our GSM system.
Sales and Marketing. Sales and marketing expense was $11.3 million in 1998
and $5.4 million in 1997, an increase of 110.8%. The increase was primarily
attributable to expansion of our direct sales force, marketing and service
support staff. Also in 1998, we increased expenses associated with initial
field trials, marketing communications, and training and documentation.
General and Administrative. General and administrative expense was $5.9
million in 1998 and $3.8 million in 1998, an increase of 56.5%. The increase
reflected the addition of administrative staff, new facilities in Redmond,
Washington and Allen, Texas, increased outside professional services associated
with financings and expenses associated with the implementation of our
enterprise resource planning system.
Other Income (Expense), Net. Our total other income (expense), net amounted
to an expense of $6.6 million in 1998 compared to income of $402,000 in 1997.
The increased interest expense was primarily the result of issuing the $29.0
million Senior Secured Bridge Notes in May 1998, bearing interest at 13.75% per
annum.
Selected Quarterly Results of Operations
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for the eight quarters ended December 31, 1999.
This unaudited information has been prepared substantially on the same basis as
the annual audited financial statements appearing elsewhere in this prospectus,
and includes all necessary adjustments that we consider necessary to present
fairly the financial information for the periods presented. The quarterly data
should be read in conjunction with the audited consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues................ $ 2,538 $ 3,963 $ 6,557 $ 2,933 $ 6,834 $ 1,553 $ 5,725 $ 8,484
Cost of revenues........ 2,910 3,486 6,374 5,258 7,059 1,860 5,768 7,549
------- ------- -------- -------- -------- -------- ------- --------
Gross profit............ (372) 477 183 (2,325) (225) (307) (43) 935
Operating expenses:
Research and
development........... 3,575 4,450 5,525 4,945 5,392 5,651 5,301 6,443
Sales and marketing.... 1,996 2,091 3,347 3,912 2,694 2,722 2,434 3,230
General and
administrative........ 1,044 1,385 1,177 2,281 1,280 1,654 1,360 1,438
------- ------- -------- -------- -------- -------- ------- --------
Total operating
expenses.............. 6,615 7,926 10,049 11,138 9,366 10,027 9,095 11,111
------- ------- -------- -------- -------- -------- ------- --------
Loss from operations.... (6,987) (7,449) (9,866) (13,463) (9,591) (10,334) (9,138) (10,176)
Other income (expense),
net.................... 54 (1,719) (2,202) (2,696) (3,108) (614) 293 255
------- ------- -------- -------- -------- -------- ------- --------
Net loss................ $(6,933) $(9,168) $(12,068) $(16,159) $(12,699) $(10,948) $(8,845) $ (9,921)
======= ======= ======== ======== ======== ======== ======= ========
</TABLE>
24
<PAGE>
Our revenues increased significantly over the last two quarters primarily as
a result of increased unit sales of our SpotLight systems and expanding
customer base. Our revenues in the last quarter of 1998 decreased compared to
the previous quarter due to delays in receiving orders from a significant
customer. Our revenues in the second quarter of 1999 declined compared to the
previous quarter primarily due to delays in orders associated with the
transition from analog to CDMA systems.
Research and development expense has generally remained constant on a
quarterly basis but increased in the last quarter of 1999 due to expenses
associated with costs of prototype systems and write off of certain capital
assets associated with research and development. Sales and marketing expense
has fluctuated with the number of personnel in sales, marketing and customer
support and changes in classifications to cost of revenues in 1999. General and
administrative expense has fluctuated with the number of personnel. The
increase in the fourth quarter of 1998 was the result of the establishment of a
bad debt reserve and expenses associated with the cancellation of a public
offering. As a result of our reduction in force in the third quarter of 1999,
general and administrative expense declined.
Our limited operating history makes the prediction of future operating
results difficult. Our business prospects must be considered in light of the
risks and uncertainties often encountered by early-stage companies in the
wireless communications market. We may not be successful in addressing these
risks and uncertainties. We have experienced significant percentage growth in
revenues in recent periods; however, we do not believe that prior growth rates
are indicative of future growth rates. It is likely that in some future quarter
our operating results may fall below the expectations of securities analysts
and investors. In this event, the trading price of our common stock may fall
significantly.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of preferred stock and common stock and the issuance of debt instruments,
and to a lesser extent, capital leases arrangements and borrowings under
various lines of credit. Net proceeds from these transactions totaled $182.2
million as of December 31, 1999.
For the twelve months ended December 31, 1999, we used net cash in operating
activities of $37.8 million. Our operating activities included major uses of
cash to fund our net loss of $42.4 million. We also used cash by increasing
accounts receivable by $5.8 million and reduced accounts payable and accrued
liabilities by $1.4 million. We partially offset cash uses by lowering
inventories by $3.8 million, increasing deferred revenues by $1.6 million. Our
net cash used in the fourth quarter 1999 amounted to $3.8 million. Our net cash
used in operating activities in 1998 amounted to $34.9 million.
Our net cash used in investing activities in 1999 was $1.3 million. Our 1998
net cash used in investing activities was $2.5 million.
Net cash provided by financing activities was $48.5 million for year ended
December 31, 1999. This primarily consisted of net proceeds from the sale of
Series E preferred stock of $82.5 million. In April 1999, we repaid $29.0
million in Senior Secured Bridge Notes plus interest of $4.1 million. Our 1998
net cash from financing activities was $34.8 million consisting of $29.0
million from the sale of Senior Secured Bridge Notes at 13.75% interest and
$7.2 million from the sale of Series E preferred stock.
As of December 31, 1999, we had $20.2 million in cash and cash equivalents,
$7.5 million under a revolving line of credit with Imperial Bank and $3.0
million under a equipment lease arrangement with Transamerica Business Credit,
of which $1.8 million remained available. On March 23, 2000, we signed a
commitment letter renewing and increasing our line of credit with Imperial Bank
to $10 million, of which no amount is presently outstanding other than a $2.5
million standby letter of credit to support our obligations under the lease for
our Redmond, Washington facility. Borrowings under the Transamerica equipment
lease are
25
<PAGE>
secured by the equipment financed thereunder. The Transamerica equipment lease
terms vary from 24 to 36 months with an effective interest rate of 12.26% per
annum for domestic equipment leases and 12.86% for foreign equipment leases,
and interest is payable monthly. We have several capital leases with terms
ranging from 24 to 48 months. At December 31, 1999, our outstanding capital
lease obligations were $5.2 million, accruing interest at rates ranging from
7.25% to 14.50%. Please see note 5 to the financial statements for a more
complete description of the credit facilities. We anticipate an increase in our
capital expenditures and lease commitments consistent with anticipated growth
in operations, infrastructure and personnel. We expect to use approximately
$2.8 million of the net proceeds from this offering for capital expenditures
primarily associated with expanding our manufacturing facilities and acquiring
additional testing equipment. In addition, we plan to use approximately
$22.6 million of the net proceeds in 2000 to fund research and development
activities.
We believe that current capital resources, together with the estimated net
proceeds from this offering, are adequate to fund our operations for at least
12 months. Thereafter, we may be required to raise additional capital which may
not be available to us on acceptable terms, if at all. Any inability to obtain
needed financing by us could have a material adverse effect on our business and
operating results.
Market Risk
We do not use derivative financial instruments. We generally place our
marketable security investments in high credit quality instruments, primarily
U.S. Government obligations and corporate obligations with contractual
maturities of less than one year. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material; however, these investments are subject
to interest rate risk.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of this new standard will have a material effect on our
earnings or our financial position, but we continue to evaluate the impact of
SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101 ("SAB 101"). This summarized certain areas of
the staff's views in applying generally accepted accounting principles as it
applies to revenue recognition. The Company believes that its revenue
recognition principles comply with SAB 101. The Company will continue to
evaluate interpretations of SAB 101.
26
<PAGE>
BUSINESS
Overview
We provide smart antenna systems for the wireless communications industry.
We believe that our SpotLight systems enable wireless network operators to
increase overall network capacity, improve or maintain network quality, reduce
network operating costs and better manage their network infrastructure. As the
demand for wireless services has grown in recent years, we have developed
products based on our proprietary technologies that address the associated
network capacity problems faced by wireless network operators.
Our SpotLight systems can reduce the need for more costly infrastructure
upgrades and additional cell site deployments, allowing wireless network
operators to more cost-effectively keep pace with subscriber growth and
increased demand for digital services. These smart antenna systems utilize
proprietary hardware and software to enable a more efficient utilization of the
finite amount of radio frequency spectrum, or "wireless bandwidth." Our
technology is designed to be implemented in a variety of market segments in the
wireless communications industry and currently supports CDMA, GSM and analog
standards. Our customers include AirTouch Communications, Inc., ALLTEL, Bell
Atlantic Mobile, GTE Wireless Inc., IUSACELL, Southwestco and Telefonica
Servicios Moviles S.A.C. of Peru. As of December 31, 1999, we had sold 121
SpotLight systems worldwide.
Industry Background
Growth in Wireless Usage
The demand for wireless communications services has grown significantly in
recent years. According to The Strategis Group, U.S. subscriber usage was
expected to increase from approximately 174 billion minutes of use in 1999 to
approximately 372 billion minutes of use by 2003, representing an expected
compound annual growth rate of 20.9%. This increase in usage has been driven by
an increased number of subscribers, lower prices and expanded availability of
existing services. In addition to these factors, the emergence of new data and
Internet-oriented wireless services is expected to contribute to the increase
in subscriber usage in the future.
Increased Subscribers. The number of wireless subscribers has increased
significantly in recent years. According to International Data Corporation, or
IDC, there were approximately 303 million wireless subscribers around the world
in 1998 and that number was expected to reach approximately 1.1 billion
subscribers in 2003, representing an expected compound annual growth rate of
28.9%. According to IDC, in 1998, there were approximately 64 million wireless
subscribers in the United States and that number was expected to grow to
approximately 118 million by 2003, representing an expected compound annual
growth rate of 12.9%.
Lower Price. The price of wireless services has decreased significantly in
recent years. According to data provided by The Strategis Group, the average
price per wireless minute in the United States was expected to decline from
$0.25 per minute in 1999 to $0.12 per minute in 2003. With multiple wireless
network operators competing in most U.S. markets, competitive pricing
strategies, such as discounting and fixed rate plans, have resulted in a
greater number of wireless subscribers, as well as a substantial increase in
subscriber usage. In addition, the greater supply of commercially available
wireless frequency due to increased government allocation of spectrum to
wireless network operators has resulted in increased competition among existing
and new wireless network operators, further reducing costs to subscribers.
Expanded Availability of Existing Services. Due to the high initial fixed
costs involved, early wireless deployments were limited to urban centers and
major traffic corridors. However, to meet increased demands for ubiquitous
wireless services, wireless network operators accelerated the buildout and
upgrade of their networks. This increased coverage has enabled these wireless
network operators to reach new subscribers and provide a higher level of
service to existing subscribers.
New Wireless Services. Consumer demand for "any time, anywhere" access to
the Internet and data services, such as email and instant messaging, has
created a demand for delivery of these services over a
27
<PAGE>
wireless network. Devices with wireless access, such as mobile phones, palm
computers and laptop computers with wireless modems, continue to evolve,
providing applications and ease of use that increase wireless data usage.
Additionally, standard protocols such as Wireless Application Protocol, or WAP,
have emerged and are designed to create interoperability of wireless equipment
and Internet-based products. These protocols are expected to further drive
consumer demand for wireless access to the Internet and data services.
Strains on Wireless Network Capacity
Increased subscriber usage and the demand for ubiquitous wireless access
place a significant strain on wireless network operators given the fixed amount
of radio frequency spectrum that is available. Wireless spectrum is allocated
to individual wireless network operators in fixed amounts by governments in the
U.S. and foreign markets. Thus, the fundamental challenge for wireless network
operators is to increase capacity, while maintaining signal quality, within a
fixed amount of wireless bandwidth. Wireless network operators generally have
used two alternatives to address capacity problems: building additional cell
sites or deploying more efficient digital technologies.
Additional cell sites. Operators of wireless networks often address capacity
problems by building new cell sites. This alternative has three major
disadvantages. First, we believe the cost of constructing a new standard 800
MHz CDMA cell site, including land, building and equipment, can be
approximately $500,000. Second, building cell sites closer together increases
signal interference in the network, which can reduce capacity and call quality,
exacerbating the very problems that the additional cell sites were built to
resolve. Third, wireless network operators face significant community
resistance arising from environmental and zoning concerns and objections to the
appearance of additional cell site towers.
More efficient digital technologies. In addition to building more cell
sites, wireless network operators have deployed more spectrum-efficient digital
technologies such as CDMA, GSM and TDMA to increase capacity. These digital
technologies offer many improvements to wireless network operators and their
customers, including more cost-effective infrastructure, smaller phones with
improved battery life and value-added features, such as the capability to
support data services. According to IDC, 69.2% of subscribers worldwide were
using digital handsets in 1998 and this number was expected to increase to
96.8% by 2003. Despite the improvement offered by digital technologies,
wireless network operators continue to find that portions of their networks
still face capacity limitations. For instance, CDMA lacks the ability to
efficiently add incremental capacity in localized heavy traffic areas of a
network. Consequently, wireless network operators must either deploy new cells,
or dedicate more spectrum to CDMA in significant portions of their network to
resolve isolated capacity constraints. In GSM networks, the capacity is limited
by interference between cell sites within the network. This interference
prevents GSM network operators from adding additional capacity to the network.
The growing demand for wireless services, coupled with the high costs and
technical difficulties associated with increasing network capacity, create the
need for more cost-effective solutions. As wireless network operators seek to
provide ubiquitous wireless service and support increased subscriber usage,
they must address the fundamental challenge of achieving maximum capacity from
the finite spectrum they have been allocated.
The Metawave Solution
We provide smart antenna systems to wireless network operators. Our
SpotLight systems are a cost-effective solution to expanding network capacity
while improving or maintaining overall network performance. Our SpotLight
systems are compatible with CDMA, GSM and analog base station equipment. Our
smart antenna systems provide wireless network operators with the following
benefits:
Cost-Effective Capacity Expansion. Our SpotLight systems enable wireless
network operators to increase the capacity of their existing networks and
reduce the need to build and maintain costly new cell sites. Our SpotLight
systems can be deployed selectively within a network in either a single cell
site or multiple cell sites. Based on customer data, current versions of our
SpotLight 2000 system improved CDMA capacity in cell sites from 30% to 50%,
depending on network configuration. Additionally, in a recent field trial, our
SpotLight GSM
28
<PAGE>
system demonstrated that, when deployed in a network of cell sites, GSM network
capacity can be increased by 100% without increasing the number of GSM cell
sites. By applying our SpotLight solutions in these targeted capacity
constrained cell sites, overall network capacity can be correspondingly
increased.
Improved Network Performance. Our SpotLight systems allow wireless network
operators to increase capacity while maintaining or improving the level of
service and signal quality. Our SpotLight 2000 systems increase CDMA network
performance by efficiently distributing existing network resources to better
match subscriber usage. We believe our SpotLight GSM systems will provide
wireless network operators with better signal reception and reduced
interference thereby improving network performance.
Compatibility with Standards and Equipment. Our SpotLight systems are
designed to be compatible with most existing wireless standards and currently
installed cell site equipment thereby preserving the wireless network
operators' existing investment in equipment and technology. Our smart antenna
systems have been independently developed by us to be compatible with the
Motorola, Lucent and Nortel 800 MHz CDMA base stations, which we believe
represent substantially all of the 800 MHz CDMA base stations deployed in North
America. We believe our SpotLight GSM systems are also compatible with most 900
MHz GSM base stations deployed worldwide.
Strategy
Our objective is to provide smart antenna systems to the worldwide wireless
communications market. Key elements of our strategy include:
Deliver Solutions to Capacity Constrained Wireless Network Operators. We
will continue to focus on developing solutions to increase capacity for those
wireless network operators facing capacity constraints. To date, we have
developed SpotLight systems to address the capacity and system quality problems
facing 800 MHz CDMA and 900 MHz GSM wireless network operators. According to
IDC, as of 1998, U.S. wireless network operators at these frequencies serviced
more than 75% of wireless subscribers. As capacity issues emerge in wireless
networks using different frequencies, we intend to develop smart antenna
systems that address capacity problems in these wireless networks.
Further Penetrate Existing CDMA Customers. We believe that the 800 MHz CDMA
market will continue to represent a significant opportunity for us. Over the
last two years we have sold SpotLight 2000 systems to the four largest 800 MHz
CDMA wireless network operators in North America, as measured by subscriber
market share data provided by the Radio Communications Review. We intend to
leverage the performance and service of our existing system deployments to
expand our presence and penetration within these wireless network operators.
Target Additional Strategic Customers. With our products today, we are able
to target additional large multi-system 800 MHz CDMA and 900 MHz GSM wireless
network operators around the world that serve substantial concentrations of
customers and have the greatest market share in their respective markets. We
intend to target these markets by expanding our manufacturing, installation,
sales and service capabilities in the regions served by these wireless network
operators.
Leverage Technology Leadership To Expand Markets. We intend to use our
technology leadership and intellectual property to develop and provide new
capacity solutions to the existing and emerging wireless communications
markets. Our core technology can be used to address spectrum management issues
in many large wireless networks. Currently, the principal areas of our product
development are the following:
. Integrating our technology into equipment provided by wireless base
station manufacturers;
. Developing smart antenna products for use by wireless network operators
at 1800 MHz and 1900 MHz PCS spectrum;
. Exploring the development of products for the TDMA wireless standard; and
. Exploring the development of products for the broadband wireless market.
29
<PAGE>
Markets
In wireless communications networks, there are several wireless standards
that use different technologies to process calls and divide allocated spectrum.
These wireless standards fall into two broad categories, analog and digital.
Advanced Mobile Phone System, or AMPS, is the leading analog standard. Digital
standards are further subdivided into two general schemes, time division and
code division. Time Division Multiple Access, or TDMA, and Global Systems for
Mobile Communications, or GSM, are the leading time division standards. Code
Division Multiple Access, or CDMA, is the leading code division standard. We
have developed smart antenna systems that increase capacity for CDMA, GSM and
analog based networks.
The terms cellular and PCS are often used interchangeably by the popular
press when discussing wireless communications networks. However, within the
wireless industry the distinction between the two is important. Cellular
describes networks operating in the 800 MHz and 900 MHz frequency bands, using
both analog and digital standards. Analog, CDMA, GSM and TDMA are the most
widely deployed cellular standards across the globe. PCS typically describes
networks operating in the 1800 MHz and 1900 MHz frequency bands. CDMA, GSM and
TDMA the most widely deployed PCS standards.
CDMA Market. The CDMA wireless market consists of wireless network operators
at both cellular and PCS frequencies. We believe that approximately half of the
cellular networks in North America have adopted CDMA as their digital
technology. Wireless network operators are overlaying CDMA networks on top of
existing analog networks thereby allocating spectrum between CDMA and analog.
We also believe that CDMA is the most widely deployed PCS digital technology in
North America.
The CDMA Development Group, a trade association, estimated there were 50
million CDMA subscribers worldwide at year end 1999, accessing both the 800 MHz
and 1900 MHz networks. Roughly 90% of these are in North America and Asia.
Frost and Sullivan estimated there were 46,716 CDMA 800 MHz base stations in
operation in 1999, up from 26,200 in 1998. These base stations represent the
target market for our CDMA systems. Frost and Sullivan also estimated 38,082
CDMA PCS base stations were in operation in 1999, up from 20,730 in 1998.
GSM Market. The GSM market consists of wireless network operators at both
cellular and PCS frequencies. According to the GSM Association, GSM is the most
widely deployed digital standard worldwide and has been deployed in 142
countries, with more than 250 million subscribers, predominantly in Europe and
Asia, at year end 1999. According to Frost and Sullivan, there were 98,133 GSM
base stations in operation at 900 MHz in 1999, up from 46,515 in 1998. These
base stations represent the market for our GSM systems. Frost and Sullivan also
estimated there were 55,711 PCS base stations using GSM were in operation in
1999, up from 31,690 in the prior year.
TDMA Wireless Market. The TDMA market consists of wireless network operators
at both cellular and PCS frequencies. According to the Universal Wireless
Communication Consortium, there were an estimated 30 million TDMA wireless and
PCS subscribers worldwide as of September 30, 1999.
Third Generation Standards. Over the next several years, CDMA, GSM and TDMA
wireless network operators may begin to migrate their systems to third
generation, or 3G, standards. Although the specifications for 3G are not
complete, we believe that they will be based on CDMA technologies and that our
smart antenna systems will be applicable to the evolving 3G technologies. We
intend to develop 3G compatible products.
Broadband Fixed Wireless In fixed, broadband wireless networks, no
predominant standards currently exist. This market is often described under the
umbrella term, broadband wireless access, or BWA. The BWA market services both
mobile and fixed end users. Services range from high speed internet access, to
combined high capacity data and voice offerings.
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Metawave Products
We have developed spectrum management solutions, consisting of smart antenna
systems, applications software and engineering services, that enable wireless
network operators to increase overall network capacity, improve or maintain
network quality, reduce network operating costs and better manage their network
infrastructure.
SpotLight 2000 Platform. Our SpotLight smart antenna system was initially
designed for use in analog networks and was first shipped for commercial sale
in November 1997. The second generation SpotLight 2000 system was designed to
support both analog and CDMA wireless standards. Our SpotLight 2000 connects to
Motorola HDII, SC2400, SC4812 and SC9600 base stations, Lucent Series II base
stations, and Nortel Metrocell base stations.
We have analyzed data from numerous CDMA networks and have found that the
distribution of traffic within a network and even within a cell varies
considerably. Thus, wireless network operators are faced with the challenge of
allocating spectrum resources to uneven and varied subscriber traffic. CDMA
lacks the ability to efficiently add incremental capacity in localized areas.
Consequently, to resolve isolated capacity constraints, wireless network
operators must either deploy new cells or dedicate more spectrum to CDMA in
significant portions of their network.
Cells are most often divided into three sectors. Because of imbalanced
traffic, one sector is often utilized to its maximum capacity, while the
neighboring sectors have unused or excess capacity. When a sector's capacity is
fully utilized, new calls cannot be originated within the sector without
negatively affecting network performance despite call servicing capability
remaining unused in adjacent sectors. In addition, subscriber calls cannot be
transferred into the overloaded sector when moving from an adjacent cell or
sector. This results in either calls being blocked or calls being terminated.
Our proprietary SpotLight 2000 system balances the traffic load within a
cell, reducing the problem of having one sector overloaded while the other
sectors are underutilized. As traffic varies throughout the day, our SpotLight
System can accommodate these variations and balance the traffic accordingly.
This load balancing increases network efficiency and capacity.
Load Balancing Through Sector Synthesis
Load Balancing Through Sector Synthesis
Graphical depiction with 2 cell sites demonstrating the load balancing
capability of the SpotLight 2000 CDMA system through sector synthesis.
Language under the cell site graphic on the left states:
Before SpotLight 2000
Peak traffic loading strains capacity in one sector, while capacity remains
idle in others.
Language under the cell site graphic on the right states:
After SpotLight 2000
Load balancing by reorienting and resizing sectors increases cell site
capacity.
As illustrated above, our SpotLight 2000 system addresses traffic loading by
controlling the transmission and reception of CDMA radio signals by base
stations through a process called sector synthesis. Our SpotLight 2000 system
adapts the sector coverage of the base stations' CDMA radios to the local
traffic patterns around
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cell sites. The system's phased-array antenna makes it possible to dynamically
adjust sector antenna patterns through a software-driven process. As a result,
wireless network operators can optimize their CDMA networks with increased
flexibility and precision, thereby enhancing network capacity and performance
in response to changing traffic patterns taking into account local terrain and
variable radio frequency conditions.
The SpotLight 2000 system can be deployed in three different configurations
depending on customer network requirements. The CDMA-only configuration uses
our SpotLight system to support only the CDMA interface. This is the baseline
SpotLight system for customers who are interested in improving the capacity of
their CDMA system without changing their analog network. The second available
configuration is CDMA with Analog Pass Through, or CDMA/APT. This system
provides capacity benefits to the CDMA interface while "passing" the analog
signals through our SpotLight system without changing the analog network. The
CDMA/APT system allows the service provider to support both CDMA and analog
networks with a single antenna and set of power amplifiers. The third system
configuration is the dual mode system which provides capacity improvements to
both the CDMA and analog wireless standards, configuring and optimizing each
wireless standard separately, while using only a single set of antennas.
Each of the three configurations described above can be deployed in three-
sector cell sites or can be used to increase the sectorization of a CDMA cell
site from three sectors to four, five or six sectors. In cell sites where more
than a single sector is heavily loaded, the wireless network operator may use
the SpotLight 2000 system to increase the sectorization of the cell site and
gain additional capacity over the original three-sector cell site. The
SpotLight system enables wireless network operators to use our software-
controlled antenna patterns to reduce handoff overhead and optimization
problems normally associated with four, five or six sector deployments. At the
same time, the SpotLight system provides an efficient way to increase the
sectorization of the cell site without having to add additional antennas,
cables, duplexers, filters or power amplifiers.
Our SpotLight 2000 system can be administered and monitored locally or
remotely through our Windows-based software application called SiteSculptor.
SiteSculptor allows real time monitoring of system performance through
graphical displays. Further, we offer networked access to our SpotLight 2000
system with our SiteNet network application. SiteNet utilizes our SiteSculptor
software package to provide a means for remote SpotLight configuration and
centralized collection of performance statistics in analog and CDMA networks.
SpotLight for GSM. Our SpotLight GSM system is designed to increase GSM
network capacity by reducing cell site and network interference levels using a
beam-switching technology. Currently the capacity of dense urban GSM networks
is limited by interference between cell sites within the network. This
interference prevents wireless network operators from adding additional
capacity to the network.
Our SpotLight system segments the normal three sector coverage area into
twelve narrow beam patterns. Our SpotLight GSM system tracks the location of
each subscriber within the sector coverage area and then assigns a single
narrow beam to them. As the subscriber moves through the sector coverage area,
our SpotLight GSM system continues to track the position of the subscriber and
switches the correct narrow beam to them. As illustrated below, the
interference received by and transmitted from the host cell site can be
significantly reduced, allowing the wireless network operator to increase
capacity while maintaining signal quality.
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Interference Reduction Through Switched Beam Technology
Graphical depiction with two cell sites demonstrating the switched beam
capability of the SpotLight GSM system.
Language under the cell site on the left states:
Before SpotLight GSM
Conventional sectors cause interference to be received by and transmitted for
the cell site over a large area
Language under the cell site on the right states:
After SpotLight 2000
Narrow beams reduce the interference received by and transmitted from the cell
site
Our SpotLight GSM system is designed to be compatible with most existing 900
MHz GSM base station equipment. We intend to develop systems to be compatible
with 1800 MHz base station equipment. Our SpotLight GSM system can be
configured to support one, two or three sectors within the cell site, allowing
the wireless network operator to use our SpotLight GSM system to reduce
interference only in the capacity limited sectors. Based on a recent field
trial, our SpotLight GSM system, when deployed in a network of cell sites, can
increase GSM network capacity by up to 100% without increasing the number of
cell sites. To date, we have not completed any commercial sales of our
SpotLight GSM system.
Core Technology
We believe that one of our key competitive advantages is our investment and
expertise in the core technologies that enable efficient spectrum management of
wireless networks. Spectrum management encompasses a number of technical
components, including advanced antenna concepts, radiowave propagation models,
network performance monitoring tools, wireless standards knowledge and
communications systems hardware implementations. These core competencies, when
applied in combination, allow wireless network operators to optimize capacity,
coverage and quality across their networks. We have developed, and continue to
expand upon, the following fundamental technical elements:
Phased-Array Antenna Systems. We have developed phased-array antenna systems
that provide compact beam-forming within a single structure. The antenna
systems make use of uniform linear or cylindrical arrays with a combination of
both ground-based and tower-based feed networks. We have designed antennas to
synthesize multiple narrow fixed-beams, which can be used to track individual
users within a cell site. In addition, we have developed beam-forming
techniques to allow the coverage area of a cell site to be customized. The
phased-array antenna technology can be scaled to a variety of gains and to span
a broad range of frequencies. The basic implementations are wireless standard
independent, and can therefore be applied to many wireless environments,
including cellular, PCS, enhanced specialized mobile radio, two-way paging,
multi-channel multipoint distribution service, or MMDS, other broadband
wireless markets, and emerging satellite-based wireless services. We continue
to develop and focus on improving the functionality and quality of our antenna
systems as well as reducing the costs and time associated with manufacturing
and deploying our antennas in the field.
Multibeam Hardware Architectures. We have developed cost-effective hardware
implementations of the complex circuitry necessary to support the operation of
multibeam systems on high-traffic cell sites. The hardware architecture can be
organized into several key subsystems: beam switching matrices, ultra-linear
amplification, beam-forming feed structures, array calibration circuitry and
performance measuring receivers.
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Our beam-switching technology allows us to effectively switch the call from
beam to beam within a cell while maintaining call quality. It is adaptable to
GSM, TDMA and analog wireless standards, where rapid beam switching is
required. Additionally, we have developed proprietary hardware techniques to
dynamically adjust CDMA sector patterns and maintain call quality by
calibrating phased-array antenna configurations. To monitor the radio
environment and adjust the sector coverage patterns for both our CDMA and GSM
systems, we have developed scanning receivers designed to accurately operate
over various channel bandwidths. Our spatial technology allows the simultaneous
operation of multiple wireless standards, currently CDMA/analog, through the
same physical antenna structure, while maintaining independent optimization of
the performance for each wireless standard.
Real Time Network Control Algorithms. We have developed algorithms to
control beam switching hardware in real world radio environments. These
algorithms make real time decisions about which beams best serve each user, how
often to update beam selections and how to mitigate interference from other
users on the same or adjacent channels. In addition, we have developed
expertise in the optimization of wireless network performance for CDMA, GSM and
analog wireless standards. This expertise allows network control algorithms to
be customized based on the specific wireless standard and network deployment
scenario. We have also developed internal software tools for performance
modeling wireless networks, allowing us to further customize systems for
wireless network operators based on their specific needs.
Adaptive Beam-Forming Techniques. We design and build antenna systems with a
broad range of standard and custom beam types and shapes using adaptive beam-
forming technology. Adaptive beam-forming systems can monitor traffic loading
and interference levels and then respond by implementing changes designed to
equalize traffic loads and reduce interference. With respect to CDMA, our
system makes use of phased-array antennas to create custom sector antenna
patterns through a software-driven process known as sector synthesis.
Applications Software. We develop applications software that allow wireless
network operators to analyze network performance and make appropriate
modifications to manage their spectrum more efficiently. We have designed the
SiteSculptor application software to allow users of our SpotLight system to
quickly and easily simulate antenna patterns and implement those patterns
through software configuration of our SpotLight systems. The antenna pattern
editor allows the wireless network operator to load per-sector traffic data
into our SpotLight system for analysis. SiteSculptor analyzes the data and
provides the operator with suggested sectorization patterns. SiteSculptor also
allows the user to modify the antenna pattern as required, view a simulation of
the pattern, and then load the pattern directly into our SpotLight system.
Research and Development
Our success depends on a number of factors, which include our ability to
identify and respond to emerging technological trends in our target markets,
develop and maintain competitive systems, enhance our existing systems by
adding features and functionality that differentiate them from those of our
direct and indirect competitors and bring systems to market on a timely basis
and at competitive prices. As a result, we have made, and we intend to continue
to make, significant investments in research and product development. Our
research and development expenses were $22.8 million in 1999, and $18.5 million
in 1998. As of December 31, 1999, we had 127 employees engaged in research and
product development, 91 of whom are engineers, and we continue to recruit
additional skilled personnel to enhance our research and development
department.
Our development efforts in the near term will be focused on using our
technology to develop capacity solutions to the existing and emerging wireless
communications markets. Our core technology can be used to address spectrum
management issues in many large wireless networks. Principal areas of focus
include the following: integrating our technology into wireless base station
equipment; developing smart antenna systems for use by wireless network
operators at 1800 MHz and 1900 MHz PCS spectrum; exploring the development of
systems for TDMA wireless standard technology; and exploring the development of
systems for the broadband wireless market.
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Customers
Our customers are wireless network operators worldwide who face network
capacity constraints. As of December 31, 1999, we had sold 121 SpotLight
systems. These sales have been to customers located in the United States,
Mexico, Russia and Paraguay.
We have master supply agreements with five of the six largest 800 MHz CDMA
wireless network operators in North America, as measured by subscriber market
share. These customers are AirTouch, ALLTEL, Bell Atlantic, GTE, and IUSACELL.
We have also sold systems to Millicom-St. Petersburg Telecom and Millicom-
Telefonica Celular. The wireless operations of three of our customers--
AirTouch, Bell Atlantic and GTE--are expected to be consolidated into one
entity in 2000. On July 28, 1998, Bell Atlantic and GTE announced a merger and
on September 21, 1999, Bell Atlantic and Vodaphone AirTouch plc, the parent
company of AirTouch announced an agreement to merge their U.S. wireless
operations. Bell Atlantic owns 47.2% of IUSACELL and Southwestco is a
subsidiary of Bell Atlantic.
We completed a field trial of our SpotLight GSM system with Shanghai Telecom
in the fourth quarter of 1999 and we have entered into a conditional sales
agreement with Telefonica Peru, under which the purchase of two SpotLight 2000
systems is subject to the achievement of certain performance criteria.
During the twelve months ended December 31, 1999, sales to ALLTEL, IUSACELL
and Southwestco accounted for 44.8%, 26.0% and 20.9% of revenues, respectively.
Sales to these customers are expected to continue to account for a significant
amount of our revenues in 2000. During the twelve months ended December 31,
1998, sales to Millicom-St. Petersburg Telecom, Millicom-Telefonica Celular,
ALLTEL and GTE accounted for 13.4%, 10.1%, 61.8% and 13.4% of revenues,
respectively.
International sales of our systems accounted for 26.0% of revenues for the
fiscal year ended December 31, 1999, and 23.5% for the fiscal year ended
December 31, 1998. We expect sales to foreign customers, such as IUSACELL and
others to continue to account for a significant proportion of our revenues in
fiscal year 2000.
The terms of our master supply agreements with our customers specify pricing
terms, delivery terms, ordering lead times, invoicing terms and warranty and
extended maintenance terms and procedures. In addition, pursuant to the
agreements, we are generally obligated to indemnify our customers for certain
third party claims and other losses. The agreements generally run for between
one and two years and are generally terminable by either party at any time in
their discretion.
As of December 31, 1999, our backlog of orders was approximately $12.8
million, compared to backlog of $2.6 million as of December 31, 1998. We only
include in backlog customer commitments which are scheduled to be shipped in
the next six months. System orders in our current backlog are subject to
changes in delivery schedules or to cancellation at the option of the purchaser
without significant penalty. Accordingly, although useful for internal
scheduling of production resources, backlog as of any particular date may not
be a reliable measure of sales for any future period.
Sales, Marketing and Customer Support
We sell our smart antenna systems in the United States through a direct
sales force supported by systems engineers. Our international sales and
marketing efforts are conducted through distributors, our direct sales force
and agents. Sales personnel are assigned on a customer account basis and are
responsible for generating system sales, providing system and customer support
and soliciting customer feedback for system development. In addition, sales
personnel receive support from our marketing communications organization which
is responsible for the branding and marketing of our products and services.
Our sales and marketing efforts are primarily focused on establishing and
developing long-term relationships with potential customers. A relationship
with a new customer typically begins with a field trial or conditional sale in
a particular market of a customer. These are designed to satisfy performance
conditions prior
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to the completion of the sale. We generally only have one field trial or
conditional sale per customer and the results of the field trial or conditional
performance period must be approved at the senior level of our customers'
management. Consequently, the sales process associated with the initial
purchase of our systems is typically complex and lengthy, lasting in some cases
up to 18 months. However, once the system successfully meets the applicable
performance criteria, we typically negotiate and enter into corporate-wide
master supply agreements. After this agreement is in place, purchasing
decisions are generally made on a market-by-market basis pursuant to purchase
orders placed under the master supply agreement which are not subject to the
satisfaction of performance criteria. Consequently, the sales cycle for
subsequent purchases by individual markets or regions is generally much
shorter.
Our customer support organization performs network design, system
installation, network optimization, training, consulting and repair and
maintenance services to support our SpotLight systems. Recent improvements to
our pre-shipment integration and testing processes at our manufacturing
facility in Redmond, Washington, combined with the integration of experienced
subcontractors into our installation teams, has significantly reduced
installation times for our systems.
Our customer services organization also offers services to optimize the
network following the installation of a SpotLight system. These services
utilize our expertise in radio frequency network design, knowledge of
individual network configurations and knowledge of our SpotLight system
capabilities.
We generally warranty our systems for 12 months. Warranty support and
extended maintenance services for our CDMA/analog systems are performed at our
headquarters in Redmond, Washington and will be performed for GSM systems at
our offices in Taipei, Taiwan.
Manufacturing
We rely to a substantial extent on outside suppliers to manufacture many of
the components and subassemblies used in our SpotLight systems. Our
manufacturing operations at our Redmond, Washington facility consist primarily
of supplier and commodity management and the assembling and testing of finished
systems from the components and subassemblies purchased from these outside
suppliers. We monitor quality at each stage of the production process,
including the selection of component suppliers, the assembly of finished goods
and final testing, packaging and shipping. We have been certified as ISO 9001
compliant since September 1998. We expect to begin manufacturing the SpotLight
GSM systems in Taipei, Taiwan beginning in late fiscal year 2000.
We rely on detailed sales forecasts to determine our production requirements
and manage our inventory. Our assembly and testing processes have been designed
to facilitate configuration of our systems tailored to the specific needs of
our customers. We have programs focusing on material cost reduction and supply
base management designed to reduce costs and reduce inventory exposures.
Certain parts and components used in our smart antenna systems, including
linear power amplifiers supplied by Powerwave Technologies, Inc. and integrated
duplexer low noise amplifiers and filters supplied by Filtronic Comtek Ltd.,
are presently only available from a single source. We have a supply agreement
with Powerwave Technologies, Inc. pursuant to which they have agreed to supply
all linear power amplifiers ordered by us. Certain other parts and components
are available from a limited number of sources. For a more detailed discussion
of the risks associated with having a limited source of suppliers see the risk
factor titled "Our reliance on a limited number of suppliers and the long lead
time of our systems could impair our ability to manufacture and deliver our
systems on a timely basis."
Competition
The market for spectrum management solutions is part of the broader market
for wireless infrastructure equipment which is dominated by a number of large
companies including Lucent, Motorola, Ericsson, Nortel,
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Nokia, Siemens, Alcatel and others. Our smart antenna systems compete with
other solutions to expand network capacity. These alternative solutions include
other smart antenna systems, additional base stations for capacity, deploying
efficient digital technologies and various enhancements to digital
technologies.
Other smart antenna systems are offered by various competitors. Alcatel,
Hazeltine, E-Systems, Boeing and Raytheon have offered smart antenna systems
for analog networks. Adaptive Telecom has offered a CDMA smart antenna product
that is integrated into a CDMA base station in cooperation with the base
station manufacturer. Arraycomm has offered a smart antenna product that is
integrated into a Personal Handyphone System standard base station in Japan.
Ericsson has announced a GSM smart antenna system called GSM Capacity Booster
that includes an Ericsson base station as well as the smart antenna system.
Nortel has offered a smart antenna equipped GSM base station in the past. Most
of the large wireless infrastructure equipment providers, including Lucent,
Motorola, Nortel, Ericsson, Nokia, Siemens, Alcatel, Samsung and NEC have large
development organizations and have either announced their intention to examine
smart antenna technologies, or have the core technology competence to do so for
the CDMA, GSM, TDMA and 3G standards. If base station manufacturers
successfully develop and integrate smart antenna solutions into their product
offerings, it may materially and adversely affect our business.
The addition of more cell sites often will provide more capacity to wireless
networks and therefore is a substitute for our systems and, therefore, the cost
of base station equipment contained in these cell sites has decreased in recent
years and affects our ability to compete effectively. Other related costs for
new cell sites including real estate, towers, and building construction
generally have not declined. Base stations are sold by wireless infrastructure
equipment manufacturers such as the companies listed above.
Efficient digital technologies and enhancements to these technologies will
provide more capacity to wireless networks and, therefore, are substitutes for
our systems. These digital technologies include existing technologies, such as
CDMA, GSM and TDMA, as well as emerging 3G standards, such as CDMA 2000 and
WCDMA. There are enhancements to the existing CDMA and GSM standards, commonly
referred to as 2.5G standards, which provide additional capacity. There are
also various enhancements, such as improved voice coding for CDMA and various
frequency hopping techniques for GSM, which are designed to increase the
capacity of these standards. These digital technologies and various
enhancements are also offered by the large wireless infrastructure equipment
providers listed above. We believe that our smart antenna technology can be
compatible with these digital technologies and their various enhancements. Our
technology, and its ability to enhance capacity, is additive to the capacity
enhancement provided by these digital technologies. Customers, however, may
delay or cancel deployment of our smart antenna systems while they deploy these
more efficient digital technologies and other enhancements which would harm our
business.
We believe the principal competitive factors in the spectrum management
solutions market include:
. expertise in the core technologies needed for radio frequency
communication systems;
. system performance, features and reliability;
. price and performance characteristics;
. timeliness of new system introductions;
. customer service and support;
. established customer relationships; and
. size of installed customer base.
We believe we will be competitive with respect to many of these factors;
however most of our existing and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases, greater
financial, technical, sales, marketing and other resources, and more
established customer relationships. To be competitive we must invest
significant resources to address these competitive factors and
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achieve customer satisfaction. If we fail to do so our smart antenna systems
will not compete favorably with our competitors which will materially and
adversely affect our business.
Intellectual Property
We rely on patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We
currently have 19 issued U.S. patents, 5 allowed U.S. patents and 32 pending
U.S. patent applications. In addition, we are seeking patent protection for our
inventions in foreign countries. The patent positions of companies in the
worldwide wireless communications industry are generally uncertain and involve
complex legal and factual questions. We cannot be certain that patents will be
issued with respect to pending or future patent applications or that our
patents will be upheld as valid or will be sufficient to prevent the
development of competitive products. While we believe that our patents will
make it more difficult for competitors to develop and market similar products,
our patents may be invalidated, circumvented or challenged. Our patent rights
may fail to provide us with competitive advantages.
We have received two registered federal copyrights for our software and four
more copyright applications are pending. The source code for our proprietary
software is also protected as a trade secret. In addition, we enter into
confidentiality agreements with our employees, customers, vendors and strategic
partners, and control access to, and the distribution of our software,
documentation and other confidential and proprietary information. Our primary
trademarks are registered with the U.S. Patent and Trademark Office and certain
other foreign jurisdictions. We have applied for trademark protection for a
number of other marks which are pending in the United States and in foreign
countries.
Despite these efforts, it may be possible for unauthorized third parties to
copy certain portions of our intellectual property contained in our systems,
design around our patents, or to reverse-engineer or otherwise obtain and use
our proprietary information. In addition, the laws of some countries do not
protect our proprietary rights to the same extent as the laws of the United
States. Accordingly, we may not be able to protect our proprietary rights
against unauthorized third-party copying or use, which could significantly harm
our business. We may have to pursue litigation in the future to enforce our
proprietary rights or to defend against claims of infringement. These claims,
regardless of their merits, may require us to enter into license arrangements
or may result in protracted and costly litigation.
In addition, we cannot be certain that others will not develop substantially
equivalent or superceding proprietary technology, or that equivalent products
will not be marketed in competition with our smart antenna systems, thereby
substantially reducing the value of our proprietary rights.
Patents and patent applications relating to products used in the wireless
communications industry are numerous. Current and potential competitors and
other third parties may have been issued or in the future may be issued
patents, or may obtain additional proprietary rights relating to products used
or proposed to be used by us. We may not be aware of all patents or patent
applications that may materially affect our ability to make, use or sell any
current or future products. From time to time, third parties have asserted
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to
infringement claims as the number of products and competitors in the spectrum
management market grows and the functionality of products overlaps. Third
parties may assert infringement claims against us in the future, and such
assertions could result in costly litigation, the diversion of management and
engineering resources and require us to obtain a license to intellectual
property rights of such parties. There can be no assurance that these licenses
would be available on terms acceptable to us, if at all. Any failure to obtain
a license from any third party asserting claims in the future or defense of any
third party lawsuit could materially and adversely affect our business and
operating results.
Government Regulation
Our smart antenna systems must obtain regulatory approval to be used. In the
United States, our systems must be certified by the Federal Communications
Commission before sales to customers may commence. Smart
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antenna systems must be certified by the FCC to ensure that they will not cause
wireless base stations to exceed the prescribed technical standards. In
addition, these systems are required to comply with electrical safety standards
to ensure that the base station operators will be in compliance with relevant
Occupational Safety and Health Administration's regulations.
Other countries have similar regulations that must be complied with before
our systems can be used. Foreign countries' regulatory programs are generally
similar to those in the United States. In most jurisdictions, smart antenna
systems must be of a type approved for use with cellular base stations under
national standards specific to each country. Smart antennas are also required
to demonstrate compliance with electrical safety standards that may be national
or international in scope. These governmental approval processes frequently
involve substantial delay, which could result in the cancellation, postponement
or rescheduling of systems by our customers. Any event like this in turn may
adversely affect our ability to sell systems to these customers. Because of the
expenses associated with government approvals of our systems in some countries,
we only plan to seek product approval in those countries once we have a
customer who intends to purchase our systems. This practice may take several
months and may deter customers or contribute to delays in receiving or filling
orders.
In addition, our customers' operations are subject to extensive government
regulations. To the extent that our customers are delayed in deploying their
wireless networks as a result of existing or new standards or regulations, we
could experience delays in orders. These delays could materially and adversely
affect on our business and operating results.
We are also subject to U.S. government export controls. Our sales and
distributorship agreements require that the export or resale of our systems to
end users located in other countries must be in compliance with U.S. export
controls.
Employees
As of December 31, 1999, we had 248 employees, of which, 127 were primarily
engaged in research, development and product management, 33 in manufacturing,
56 in sales, marketing and customer support and 32 in general and
administration. We have no collective bargaining agreement with our employees
and we have never experienced a work stoppage. We believe that our employee
relations are good.
Facilities
We are headquartered in Redmond, Washington, where we lease an aggregate of
approximately 96,000 square feet, housing our principal administrative, sales
and marketing, customer support and manufacturing facilities. Our lease for
this facility expires on May 31, 2005 and we have an option to renew this lease
for two additional five year terms. We sublease approximately 13,000 square
feet of this space. We have a three-year lease for sales, service and
manufacturing facilities totaling approximately 6,500 square feet in Taipei,
Taiwan and a five-year lease for a sales and engineering support office in
Dallas, Texas. We also have representative offices in Sao Paulo, Brazil and
Shanghai, China that are subject to short-term leases.
Legal Proceedings
We may become involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this prospectus, we are not
involved in any pending material legal proceedings.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of March 24, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Douglas O. Reudink.............. 60 Chairman of the Board and Chief
Technical Officer
Robert H. Hunsberger............ 53 President, Chief Executive Officer and
Director
Stuart W. Fuhlendorf............ 37 Senior Vice President and Chief
Financial Officer
Victor K. Liang................. 48 Senior Vice President, GSM Products
Group
Ray K. Butler................... 41 Vice President, International Operations
Martin J. Feuerstein............ 37 Vice President, Product Development
Richard P. Henderson............ 38 Vice President, Sales and Marketing
Andrew Merrill.................. 40 Vice President, Customer Operations
John R. Schaller................ 56 Controller and Treasurer
Bandel L. Carano(1)............. 38 Director
Bruce C. Edwards................ 46 Director
David R. Hathaway(1)............ 55 Director
Scot B. Jarvis(1)(2)............ 38 Director
Jennifer Gill Roberts(2)........ 36 Director
David A. Twyver(2).............. 53 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Douglas O. Reudink, a co-founder, has served as our chief technical officer
since our inception and as chairman of the board of directors since April 1997.
From 1991 to 1995, Dr. Reudink served as director of wireless planning at US
WEST NewVector Group, Inc., a wireless telecommunications company. From 1986 to
1991, he served as the director of Laboratories of the High Technology Center
at The Boeing Company, an aerospace company. Prior to 1986, Dr. Reudink served
20 years at the Bell Laboratories division of AT&T Corporation, a
telecommunications company, in various research and management positions.
Dr. Reudink holds a B.S. from Linfield College and a Ph.D. from Oregon State
University.
Robert H. Hunsberger has served as our president and chief executive officer
since July 1997. From 1995 to July 1997, Mr. Hunsberger served as senior vice
president and general manager of Siemens Business Communications Systems, Inc.,
a telecommunications company and a wholly owned subsidiary of Siemens. From
1981 to 1995, Mr. Hunsberger held various executive positions at Nortel, a
telecommunications company, including vice president of sales and marketing of
its wireless networks division from 1993 to 1995 and vice president of market
development of its wireless networks division and vice president of cellular
systems from 1991 to 1993. Mr. Hunsberger holds a B.S. from the University of
Virginia and an M.B.A. from Arizona State University.
Stuart W. Fuhlendorf has served as our senior vice president and chief
financial officer since March 2000. From 1992 to March 2000, Mr. Fuhlendorf
served as chief financial officer of EFTC Corporation, formerly Electronic Fab
Technology Corporation, an electronic component manufacturing company. Mr.
Fuhlendorf holds a B.A. from the University of Northern Colorado and an M.B.A.
from the University of San Diego.
40
<PAGE>
Victor K. Liang has served as our senior vice president, GSM products group
since July 1998 and general manager of Metawave Communications Taiwan Ltd., a
subsidiary since October 1998. From 1989 until March 1998, Mr. Liang held
various senior executive positions with Siemens and its subsidiaries, most
recently serving as managing director of two Siemens' joint ventures in China,
Siemens Shanghai Mobile Communications and Siemens Shanghai Communication
Terminals. From 1995 to 1998, Mr. Liang served as vice president of wireless
products group at Siemens Stromberg-Carlson. From 1994 to 1995, he served as
Senior Director at Siemens A.G., Munich, Germany and from 1989 through 1994 he
served as vice president product development of Siemens Telecommunications Ltd.
in Taiwan. Mr. Liang holds a B.S. from Chiao Tung University in Taiwan and a
degree in Business Administration from Cheng Chih University.
Ray K. Butler has served as our vice president of international operations
since August 1999, vice president of engineering from December 1997 to August
1999 and director of systems engineering and architecture from January 1997 to
December 1997. From 1985 to January 1997, Mr. Butler held various management
positions at the Bell Laboratories division of AT&T (which division became part
of Lucent in 1996), most recently serving as technical manager of the cell site
HW systems engineering group. Mr. Butler holds a B.S. from Brigham Young
University and an M.S. from Polytechnic University.
Martin J. Feuerstein has served as our vice president of product development
since August 1998 and director of research from March 1997 to July 1998. From
1995 to March 1997, Dr. Feuerstein served as technical manager at Lucent. From
1992 to 1995, he served as a senior member technical staff at US WEST. Mr.
Feuerstein holds a B.E. from Vanderbilt University, an M.S. from Northwestern
University and a Ph.D. from Virginia Polytechnic Institute.
Richard P. Henderson has served as our vice president of sales and marketing
since December 1997. From 1984 to 1997, Mr. Henderson held various sales and
marketing positions at Nortel, most recently serving as vice president of
marketing operations from 1996 to 1997 and sales account director from 1992 to
1995. Mr. Henderson holds a B.S. from Texas A&M University and an M.B.A. from
the University of Dallas.
Andrew Merrill has served as our vice president of customer operations since
August 1999. From 1984 to August 1999, Mr. Merrill worked at Motorola, Inc., an
electronics company, in several positions, most recently serving as engineering
manager from 1994 to 1999, program manager from 1992 to 1994 and international
cellular infrastructure manufacturing manager from 1984 to 1992. Mr. Merrill
studied communications electronics and nuclear power in the U.S. Navy.
John Schaller has served as our corporate controller and treasurer since
June 1998 and October 1999, respectively. From October 1997 to June 1998, he
served as the chief financial officer of Superconducting Core Technologies,
Inc., a telecommunications equipment company. From May 1996 to October 1997, he
served as vice president and chief financial officer of AirNet Communication
Corp., a telecommunications company. From June 1978 to April 1996, he served in
various senior financial positions, including chief financial officer of a
Motorola-Nortel wireless communications joint venture and director of finance
and administration for the wireless networks division of Nortel. Mr. Schaller
holds a B.S. from Philadelphia College of Textiles and Science and an M.B.A.
from University of Texas.
Bandel L. Carano has served as one of our directors since 1995. Mr. Carano
has been a general partner of Oak Investment Partners, a venture capital firm,
since 1987. Mr. Carano serves as a member of the Investment advisory board of
the Stanford University Engineering Venture Fund. Mr. Carano also serves as a
member of the board of directors of Netopia, Inc., a telecommunications
equipment provider, Polycom, Inc., a telecommunications equipment provider and
PulsePoint Communications, an information systems company, as well as several
private companies. Mr. Carano holds a B.S. and an M.S. from Stanford
University.
Bruce C. Edwards has served as one of our directors since May 1998. Mr.
Edwards has served as president, chief executive officer and a director of
Powerwave Technologies, Inc., a telecommunications equipment company, since
February 1996. Mr. Edwards was executive vice president, chief financial
officer and a director of AST Research, Inc., a personal computer company, from
1994 to December 1995 and senior
41
<PAGE>
vice president of finance and chief financial officer of AST from 1988 to 1994.
Mr. Edwards also serves as a director of HMT Technology Corporation, a computer
equipment company. Mr. Edwards holds a B.S. from Rider University and an M.B.A.
from the New York Institute of Technology.
David R. Hathaway has served as one of our directors since 1995. Mr.
Hathaway has been a general partner of the venture capital firms Venrock
Associates and Venrock Associates II, L.P. since 1980 and 1995, respectively.
Mr. Hathaway serves as a director of several private companies. Mr. Hathaway
holds a B.A. from Yale University.
Scot B. Jarvis has served as one of our directors since February 1998. Mr.
Jarvis is a co-founder and managing member of Cedar Grove Partners, LLC, a
privately owned investment company. From 1994 to 1997, Mr. Jarvis was co-
founder and executive vice president of NEXTLINK Communications, Inc., a
wireless service operator. Mr. Jarvis serves as a director of Wireless
Facilities, Inc., a wireless telecommunications company, Point.com, Inc., an
internet services company, Leap Wireless International, Inc., a wireless
communications company and Cricket Communications, Inc. a wireless
communications company. Mr. Jarvis holds a B.A. from the University of
Washington.
Jennifer Gill Roberts has served as one of our directors since 1995. Ms.
Roberts has been a general partner of Sevin Rosen Funds, a venture capital
firm, since 1994. Ms. Roberts serves as a director of several private
companies. Ms. Roberts holds a B.S. and an M.B.A. from Stanford University and
an M.S. from the University of Texas.
David A. Twyver has served as one of our directors since May 1998. He is
currently chief executive officer of Ensemble Communications Inc, a wireless
communications equipment company. From 1996 to 1997, Mr. Twyver served as chief
executive officer of Teledesic Corporation, a satellite telecommunications
company. From 1974 to 1996, Mr. Twyver served in several management positions
at Nortel, most recently serving as president of the wireless networks group
from 1993 to 1996. Mr. Twyver serves as a director of several private
companies. Mr. Twyver holds a B.S. from the University of Saskatchewan.
Board Composition
Our bylaws currently provide for a board of directors consisting of nine
members. All directors hold office until the next annual meeting of our
stockholders and until their successors have been duly elected and qualified.
Our officers are appointed annually and serve at the discretion of the board of
directors.
Committees of the Board of Directors
The members of the audit committee are Scot Jarvis, Jennifer Gill Roberts
and David Twyver. The audit committee reviews the results and scope of the
audit and other services provided by our independent auditors.
The members of the compensation committee are Bandel Carano, David Hathaway
and Scot Jarvis. The compensation committee reviews and approves the
compensation and benefits for our executive officers, administers our stock
purchase and stock option plans and makes recommendations to the board of
directors regarding such matters.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors, except for Bruce Edwards, Scot
Jarvis and David Twyver who each receive $1,000 for each board meeting attended
and $500 for each committee meeting attended. Directors who are our employees
are eligible to participate in the 1995 Stock Option Plan, the 1998 Stock
Option Plan, the 2000 Stock Option Plan and the 2000 Employee Stock Purchase
Plan. Directors who are not our employees are eligible to participate in the
1998 Amended and Restated Directors' Stock Option Plan. See "Stock Plans."
42
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the compensation committee has at any time been an officer or
employee of ours or any subsidiary of ours. See "Certain Relationships and
Related Transactions" for a description of certain transactions and
relationships between us and Bandel Carano, Bruce Edwards, David Hathaway,
Jennifer Gill Roberts and Scot Jarvis and entities affiliated with them.
Executive Compensation
The following table sets forth information concerning compensation awarded
to, earned by or paid to our chief executive officer and our four other most
highly compensated executive officers whose total cash compensation exceeded
$100,000 during the year ended December 31, 1999 (collectively, our "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------------ ---------------------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus (1) Options Compensation (2)
- --------------------------- -------- --------- ---------- ----------------
<S> <C> <C> <C> <C>
Robert H. Hunsberger, President
and Chief Executive Officer... $270,766 $12,150 66,666 $ 912
Richard P. Henderson, Vice
President of Sales and
Marketing..................... 159,539 80,686 10,000 262
Victor K. Liang, Senior Vice
President, GSM Products Group. 190,263 4,309 86,666 567
Douglas O. Reudink, Chairman
and Chief Technology Officer.. 175,488 7,875 33,333 2,364
Martin J. Feuerstein, Vice
President of Product
Development................... 139,604 21,075 30,000 251
</TABLE>
- --------
(1) Bonus represents the amount earned by the employee in 1999 and includes
commissions.
(2) Consists of life insurance premiums paid by us.
The following table sets forth information for each of our Named Executive
Officers concerning stock options granted to them during the fiscal year ended
December 31, 1999.
Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percentage of Potential Realizable Annual Rates of Stock
Shares Total Options Value at Midrange of Price Appreciation for
Underlying Granted to Exercise Assumed Initial Option Term(5)
Options Employees Price per Expiration Offering Price ----------------------
Name Granted(1) in 1999(2) Share(3) Date(4) of $12.00 5% 10%
- ---- ---------- ------------- --------- ---------- -------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert H. Hunsberger.... 66,666 4.8% $6.75 6/22/09 $349,997 $ 853,107 $ 624,978
Richard P. Henderson.... 10,000 0.7% 6.75 6/22/09 52,500 127,967 243,749
Victor K. Liang......... 26,666 1.9% 6.75 6/22/09 139,997 341,238 649,981
60,000 4.2% 6.75 5/19/09 315,000 767,804 1,462,494
Douglas O. Reudink...... 33,333 2.4% 6.75 6/22/09 174,998 426,554 812,489
Martin J. Feuerstein.... 10,000 0.7% 6.75 5/19/09 52,500 127,967 243,749
20,000 1.4% 6.75 6/22/09 105,000 255,935 487,498
</TABLE>
- --------
(1) Each of the above options was granted pursuant to our 1998 Stock Option
Plan.
(2) In the last fiscal year, we granted options to employees to purchase an
aggregate of 1,386,736 shares.
43
<PAGE>
(3) In determining the fair market value of our common stock, our board of
directors considered factors such as our financial condition and business
prospects, our operating results, the absence of a market for our common
stock and the risks normally associated with companies comparable to us.
(4) Options granted on June 22, 1999 and expiring on June 22, 2009 vest 50%
upon the effectiveness of this offering and the remaining 50% vests one
year from the effective date of this offering. Those options granted on
May 19, 1999 vest 25% one year from date of grant and the remaining 75%
vest monthly over three years.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
These figures are based on an assumed public offering price of $12.00 per
share.
Option Grants in the First Quarter of 2000
The following table provides certain information concerning the number and
value of options granted to our Named Executive Officers and Stuart W.
Fuhlendorf in the first quarter of 2000.
<TABLE>
<CAPTION>
Number of Potential Realizable
Shares Exercise Value at Midrange of
Underlying Price Assumed Initial
Options Per Offering Price
Name Granted(1) Share(2) of $12.00
- ---- ---------- -------- --------------------
<S> <C> <C> <C>
Robert H. Hunsberger................... 166,666 $ 6.00 $999,996
Richard P. Henderson................... 10,000 6.00 60,000
Victor K. Liang........................ -- -- --
Douglas O. Reudink..................... -- -- --
Martin J. Feuerstein................... 13,333 6.00 80,000
Stuart W. Fuhlendorf................... 310,000 12.00 0
</TABLE>
- --------
(1) Each of the above options was granted pursuant to our 1998 Stock Option
Plan.
(2) In determining the fair market value of our common stock, our board of
directors considered factors such as our financial condition and business
prospects, our operating results, the absence of a market for our common
stock and the risks normally associated with companies comparable to us.
Option Exercises in Last Fiscal Year and Year-End Option Values
There were no option exercises by our Named Executive Officers in 1999. The
following table provides information concerning the number and value of
unexercised options held by each of our Named Executive Officers as of December
31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money Options
Unexercised Options at at
December 31, 1999(1) December 31, 1999(2)
------------------------ ---------------------
Name Vested Unvested Vested Unvested
- ---- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Robert H. Hunsberger.............. 356,500 304,166 $4,012,875 $2,979,125
Richard P. Henderson.............. 55,554 61,112 499,992 512,508
Victor K. Liang................... 46,040 240,626 399,221 55,780
Douglas O. Reudink................ -- 33,333 -- 175,000
Martin J. Feuerstein.............. 35,110 61,556 221,620 255,560
</TABLE>
- --------
(1) Certain options granted under the 1998 Stock Option Plan and the 1995 Stock
Option Plan may be exercised immediately upon grant and prior to full
vesting, subject to the optionee's entering into a
44
<PAGE>
restricted stock purchase agreement with us with respect to any unvested
shares. The unvested shares are subject to a right of first refusal in favor
of Metawave which lapses over time.
(2) Based on an assumed initial public offering price of $12.00 per share,
minus the exercise price, multiplied by the number of shares underlying
the option.
Severance Arrangements
We have entered into severance arrangements with Douglas O. Reudink, chief
technical officer, Robert H. Hunsberger, president and chief executive
officer, Stuart W. Fuhlendorf, senior vice president and chief financial
officer, Richard P. Henderson, vice president of sales and marketing, Victor
K. Liang, senior vice president, GSM products group, and Andrew Merrill, vice
president of customer operations.
On July 7, 1995, in connection with the Series A preferred stock financing,
we entered into an agreement with Dr. Reudink which provides that if we were
to terminate his employment without cause after July 7, 1996, we would be
obligated to make a lump-sum payment to Dr. Reudink equal to six months of his
then-current base salary and to provide benefits for six months following
termination. In connection with this agreement, Dr. Reudink entered into a
one-year non-competition agreement effective upon the termination of his
employment with us.
On June 27, 1997, in connection with the employment of Mr. Hunsberger, we
entered into an arrangement with Mr. Hunsberger which provides that if we were
to terminate his employment without cause, we would be obligated to make a
lump-sum payment to Mr. Hunsberger equal to twelve months of his then-current
base salary and provide benefits for twelve months following termination.
On October 29, 1997, in connection with the employment of Mr. Henderson, we
entered into an arrangement with Mr. Henderson which provides that if we were
to terminate his employment without cause, we would be obligated to make a
lump-sum payment to Mr. Henderson equal to six months of his then-current base
salary.
On July 23, 1998, in connection with the employment of Mr. Liang, we
entered into an arrangement with Mr. Liang that provides that if we were to
terminate his employment without cause within the first two years of his
employment, we would be obligated to make a lump-sum payment to Mr. Liang
equal to six months of his then-current base salary.
On July 12, 1999, in connection with the employment of Mr. Merrill, we
entered into an agreement with Mr. Merrill that provides that if we were to
terminate his employment without cause, we would be obligated to pay Mr.
Merrill six months of his then-current base salary.
On March 10, 2000, in connection with the employment of Mr. Fuhlendorf, we
entered into an agreement with Mr. Fuhlendorf that provides that if we were to
terminate his employment without cause, we would be obligated to make a lump
sum payment to Mr. Fuhlendorf equal to six months of his then-current base
salary.
Stock Plans
2000 Stock Plan. Our 2000 stock option plan provides for the grant of
incentive stock options to employees, including employee directors, and of
nonstatutory stock options and stock purchase rights to employees, directors
and consultants. The purposes of the 2000 stock plan are to attract and retain
the best available personnel, to provide additional incentives to our
employees and consultants and to promote the success of our business. The 2000
plan was originally adopted by our board of directors in February 2000 and
will be approved by our stockholders prior to completion of this offering. The
2000 plan provides for this issuance of options and rights to purchase up to
1,333,333 shares of our common stock, plus an automatic annual increase on the
first day of each of our fiscal years beginning in 2001 through 2009 equal to
the lesser of 2,000,000 shares, 5% of our outstanding common stock on the last
day of the immediately preceding fiscal
45
<PAGE>
year, or a lesser number of shares as our board of directors determines. Unless
terminated earlier by the board of directors, the 2000 plan will terminate ten
years following its effective date.
The 2000 plan may be administered by the board of directors or a committee
of the board, each known as the administrator. The administrator determines the
terms of options and stock purchase rights granted under the 2000 plan,
including the number of shares subject to the award, the exercise or purchase
price, and the vesting and/or exercisability of the award and any other
conditions to which the award is subject. No employee may receive awards for
more than 1,333,333 shares under the 2000 plan in any fiscal year. Incentive
stock options granted under the 2000 plan must have an exercise price of at
least 100% of the fair market value of the common stock on the date of grant.
The plan does not impose restrictions on the exercise or purchase price
applicable to nonstatutory stock options and stock purchase rights, although we
expect that nonstatutory stock options and stock purchase rights granted to our
Chief Executive Officer and our four other most highly compensated officers
will generally equal at least 100% of the grant date fair market value. Payment
of the exercise or purchase price may be made in cash or any other
consideration allowed by the administrator.
With respect to options granted under the 2000 plan, the administrator
determines the term of options, which may not exceed 10 years. Generally, an
option is nontransferable other than by will or the laws of descent and
distribution, and may be exercised during the lifetime of the optionee only by
such optionee. In certain circumstances, the administrator has the discretion
to grant nonstatutory stock options with limited transferability rights. Stock
options are generally subject to vesting, meaning that the optionee earns the
right to exercise the option over a specified period of time only if he or she
continues to provide services to Metawave over that period. Shares of stock
issued pursuant to stock purchase rights granted under the 2000 plan are
generally subject to a repurchase right exercisable by Metawave upon the
termination of the holder's employment or consulting relationship with us for
any reason (which lapses in accordance with the terms of the stock purchase
right determined by the administrator at the time of grant). In addition, the
2000 stock plan provides that options to purchase vested shares will terminate,
and we will have the right to repurchase vested shares issued under the plan,
if we terminate a participant's employment or consulting relationship with us
for cause.
If we are acquired, we would expect that options and stock purchase rights
outstanding under the 2000 plan at the time of the transaction would be assumed
or replaced with substitute options by our acquiror. If our acquiror did not
assume or replace outstanding awards, then the vesting of these awards would
accelerate so that the holder of an outstanding award would be able to exercise
and retain the number of shares that he or she would have vested in had he or
she continued working for us for another 12 months (if the holder had been
employed by us for less than 2 years at the time of the acquisition) or for
another 24 months (if the holder had been employed for us for 2 years or more
at the time of the acquisition) from the acquisition date. In addition, if our
acquiror assumed or replaced outstanding awards at the time of the acquisition
and a plan participant holding assumed or replaced awards experienced an
involuntary termination of his or her employment or consulting relationship
within six months following the transaction, then the vesting of outstanding
options or stock held by any such person who is not a Section 16 reporting
person at the time of the acquisition would accelerate as to 12 or 24 months
(depending upon the duration of the person's service relationship with us and
our acquiror as described above), and as to all the shares underlying an award
held by a person who is a Section 16 reporting officer at the time of the
acquisition. Outstanding awards, the number of shares remaining available for
issuance under the 2000 plan, the maximum number of shares subject to awards
that may be granted to an employee during a year and the fixed number in the
plan's evergreen formula will adjust in the event of a stock split, stock
dividend or other similar change in our capital stock. The administrator has
the authority to amend or terminate the 2000 plan, but no action may be taken
that impairs the rights of any holder of an outstanding option or stock
purchase right without the holder's consent. In addition, we must obtain
stockholder approval of amendments to the plan as required by applicable law.
1995 and 1998 Stock Option Plans. In addition to our 2000 stock plan, we
have two prior employee stock plans, our Third Amended and Restated 1995 Stock
Option Plan and our 1998 Stock Option Plan. These
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<PAGE>
plans provide for the grant of incentive stock options to employees, including
employee directors, and the grant of nonstatutory stock options to employees,
consultants and directors.
Our 1995 stock plan was originally adopted by our board of directors in
August 1995 and approved by our stockholders in January 1996. It has been
amended several times since its adoption such that there are currently
2,766,666 shares of common stock reserved for issuance under this plan. As of
December 31, 1999, options to purchase 2,029,962 shares of common stock at a
weighted average exercise price of $4.28 were outstanding, 708,104 shares with
a weighted average purchase price of $0.45 have been issued upon exercise of
options and 28,600 shares remain available for issuance under our 1995 plan.
Unless terminated earlier, the 1995 plan will terminate in August 2005.
Our 1998 stock option plan was originally adopted by our board of directors
in May 1998 and approved by our stockholders in September 1998. An aggregate of
1,763,369 shares of common stock has been reserved for issuance under the 1998
plan. As of December 31, 1999, options to purchase 705,332 shares of common
stock at a weighted average exercise price of $7.82 were outstanding, 406
shares with a weighted average exercise price of $6.75 have been issued upon
exercise of options and 1,057,631 shares remain available for future grant.
Unless terminated earlier, this plan will terminate in May 2008.
The terms of awards issued under our 1995 and 1998 plans are generally the
same as those that may be issued under our 2000 stock plan, except with respect
to the following features. Neither the 1995 plan nor the 1998 plan provides for
the issuance of stock purchase rights to employees and consultants. The 1998
plan provides that, as of our first stockholders meeting following the third
calendar year after the year in which this offering takes place, the maximum
number of shares that may be granted to any individual employee during a fiscal
year is 566,666 shares. The 1995 plan does not impose an annual limitation on
the number of shares of stock subject to options that may be granted to any
individual employee during a fiscal year. Under both plans, generally an option
is nontransferable other than by will or the laws or descent or distribution.
In addition, the 1995 Stock Option Plan does not provide for forfeiture of
vested options or stock upon a termination of the holder's service relationship
with us for cause.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was
adopted by the board of directors in February 2000 and will be submitted for
approval by our stockholders prior to completion of this offering. A total of
233,333 shares of common stock has been reserved for issuance under the 2000
purchase plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance under the 2000 purchase plan will be
subject to an automatic annual increase on the first day of each of our fiscal
years beginning in 2001 through 2010 equal to the lesser of 266,666 shares, 1%
of our outstanding common stock on the last day of the immediately preceding
fiscal year or a lesser number of shares as the board of directors determines.
The 2000 purchase plan becomes effective upon the date of this offering. Unless
terminated earlier by the board of directors, this plan will terminate in
February 2020.
The 2000 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on May 1 and November
1 of each year. Each offering period will generally consist of four consecutive
purchase periods of six months' duration, at the end of which an automatic
purchase will be made for participants. The initial offering period is expected
to commence on the date of this offering and end on April 30, 2002; the initial
purchase period is expected to begin on the date of this offering and end on
October 31, 2000, with subsequent purchase periods ending on April 30, 2001,
October 31, 2001 and April 30, 2002. The 2000 purchase plan will be
administered by the board of directors or by a committee appointed by the
board. Our employees (including officers and employee directors), or of any
majority-owned subsidiary designated by the board, are eligible to participate
in the 2000 purchase plan if they are employed by us or a designated subsidiary
for at least 20 hours per week and more than five months per year. The 2000
purchase plan permits eligible employees to purchase common stock through
payroll deductions at a rate of not more than 15% of an employee's
compensation. The purchase price is equal to the lower of 85% of the fair
market value of the common stock at the beginning of each offering
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<PAGE>
period or at the end of each purchase period, subject to certain adjustments as
provided in the plan. Employees may end their participation in the 2000
purchase plan at any time during an offering period, and participation ends
automatically on termination of employment. No employee may purchase more than
1,333 shares of common stock under the 2000 Purchase Plan in any one purchase
period.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 2000
purchase plan will be assumed or an equivalent right substituted by our
acquiror. If our acquiror did not agree to assume or substitute stock purchase
rights, any offering period and purchase period then in progress would be
shortened and a new exercise date occurring prior to the closing of the
transaction would be set. Outstanding awards, shares remaining available for
issuance under the plan, the fixed number in the plan's evergreen formula, and
the maximum number of shares that may be purchased during a six-month purchase
period will each adjust in the event of a stock split, stock dividend or other
similar change in our capital stock. Our board of directors has the power to
amend or terminate the 2000 purchase plan and to change or terminate offering
periods as long as such action does not adversely affect any outstanding rights
to purchase stock thereunder. However, the board of directors may amend or
terminate the 2000 purchase plan or an offering period even if it would
adversely affect outstanding options in order to avoid our incurring adverse
accounting charges.
Amended and Restated 1998 Directors' Stock Option Plan. The 1998 directors'
stock option was adopted by the board of directors in February 1998 and
approved by our stockholders in April 1998. It was amended in February 2000 by
our board of directors to increase the total number of shares of common stock
reserved for issuance under the plan from 200,000 to 466,666 shares. This
amendment will be submitted to our stockholders for approval prior to the date
of this offering. As of December 31, 1999, options to purchase 150,000 shares
of common stock with a weighted average exercise price of $6.50 were
outstanding and no shares had been purchased upon exercise of options issued
under the plan. We expect that a total of 316,666 shares of common stock will
be available for issuance as of the date of this offering.
The directors' plan provides for the grant of nonstatutory stock options to
our nonemployee directors. Prior to the date of this offering, option grants
made under the 1998 directors' plan were made on a discretionary basis by our
board of directors. Following this offering, the plan provides for automatic
formula grants to our nonemployee directors. The directors' plan is designed to
work after the date of this offering automatically without administration;
however, to the extent administration is necessary, it will be performed by our
board of directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which a director has a personal
interest. Unless terminated earlier, the directors' plan will terminate in
February 2008.
The directors' plan provides that each person who becomes a nonemployee
director after the completion of this offering will be granted a nonstatutory
stock option to purchase 16,666 shares of common stock on the date on which
such individual first becomes a member of our board of directors. In addition,
on the date of each annual stockholders meeting, each nonemployee director who
will continue serving on the board following the meeting and who has been a
director of Metawave for at least six months prior to the meeting date will be
granted an option to purchase 6,666 shares of common stock.
All options granted under the directors' plan will have a term of ten years
and an exercise price equal to the fair market value of on the date of grant
and will be transferable only to members of a directors' immediate family and
to trusts and other entities for the benefit their family members. Options
granted under the directors' plan to new nonemployee directors following this
offering will vest as to 25% of the shares underlying the option on the first
anniversary of the date of the option grant and as to 1/48th of the shares each
month after the first anniversary so that these options will be fully vested on
the fourth anniversary of the grant date. Options granted to our nonemployee
directors at the time of each annual stockholders meeting following this
offering will vest as to 1/36th of the shares underlying the option so that
these options will be fully vested on the third anniversary of the grant date.
If Metawave determines that a director has engaged in fraud, embezzlement or
similar acts against us, or if a director has disclosed information that is
confidential to Metawave or engaged in
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<PAGE>
any conduct constituting unfair competition against us, we have the right to
suspend or terminate that director's right to exercise an option under the
directors' plan.
If we are acquired by another corporation, we would expect each option
outstanding under our 1998 directors' plan to be assumed or replaced with
equivalent options by our acquiror. If our acquiror did not assume or replace
outstanding options, then the vesting of outstanding awards would accelerate so
that nonemployee directors holding options would be able to exercise and retain
the number of shares that he or she would have vested in had he or she
continued serving as a member of our board of directors for us for another 12
months (if the director had been a member of our board us for less than 2 years
at the time of the acquisition) or for another 24 months (if he or she had been
a member of our board for 2 years or more at the time of the acquisition)
following the acquisition date. Outstanding awards, the number of shares
remaining available for grant under the plan, and the number of shares subject
to the automatic director grants described above will each adjust in the event
of a stock split, stock dividend or other similar change in our capital stock.
Our board of directors may amend or terminate the directors' plan as long as
such action does not adversely affect any outstanding option. We will obtain
stockholder approval for any amendment to the plan to the extent required by
applicable law.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by the Delaware General Corporation Law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of such individual's fiduciary duties as a director
except for liability for:
. any breach of the director's duty of loyalty to us or to our
stockholders,
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
. unlawful payments of dividends or unlawful stock repurchases or
redemptions, or
. any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our other employees and agents to the fullest extent permitted by
law. We believe that indemnification under our bylaws covers at least
negligence and gross negligence on the part of an indemnified party. Our bylaws
also permit us to advance expenses incurred by an indemnified party in
connection with the defense of any action or proceeding arising out of such
party's status or service as a director, officer, employee or other agent of
Metawave upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification. This
advancement of expenses is subject to authorization by the board of directors
in the case of non-executive officers, employees and agents.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us, among other things, to
indemnify the director or officer against expenses, including attorney's fees,
judgments, fines and settlements paid by the individual in connection with any
action, suit or proceeding arising out of his or her status or service as one
of our directors or officers other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest
and to advance expenses incurred by such individual in connection with any
proceeding against such individual with respect to which such individual may be
entitled to indemnification by us. We believe that our certificate of
incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers. We also
maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any of our directors, officers, employees or agents where
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Sales of Equity Securities
Certain stock option grants to our directors and executive officers are
described herein under the caption "Management--Executive Compensation."
Since July 1995, we have issued, in private placement transactions, shares
of preferred stock as follows:
. an aggregate of 5,500,000 shares of Series A preferred stock at $1.00 per
share in July 1995,
. an aggregate of 2,711,113 shares of Series B preferred stock at $3.375
per share in May 1996,
. an aggregate of 2,491,880 shares of Series C preferred stock at $6.16 per
share in October and November 1996,
. an aggregate of 2,397,727 shares of Series D preferred stock at $8.00 per
share in August 1997, and
. an aggregate of 18,276,151 shares of Series E preferred stock at $5.00
per share in December 1998, January, April and June 1999.
Upon completion of this offering, each share of Series A and Series B
preferred stock will convert into 0.66667 shares of our common stock, each
share of Series C preferred stock will convert into 0.87190 shares of our
common stock, each share of Series D preferred stock will convert into 0.96096
shares of our common stock and each share of Series E preferred stock will
convert into 0.95238 shares of our common stock.
Listed below are those directors, executive officers and five percent
stockholders who have made equity investments in Metawave during the last
three fiscal years. We believe that the shares issued in these transactions
were sold at the then fair market value and that the terms of these
transactions were no less favorable than we could have obtained from
unaffiliated third parties.
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Common Preferred Preferred Preferred Preferred Preferred
Investor(1) Stock Stock(2) Stock(2) Stock(2) Stock(2) Stock(2)
- ----------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Venrock Associates(3).. -- 1,222,222 592,592 283,086 175,654 589,164
Entities affiliated with
Oak Investment
Partners(4)............ -- 1,222,222 592,592 283,086 175,654 5,351,064
Entities affiliated with
The Sevin Rosen
Funds(5)............... -- 1,218,888 583,704 283,086 175,654 589,164
Entities affiliated with
MeriTech Capital
Partners L.P........... -- -- -- -- -- 4,761,900
General Motors
Investment Management
Corporation............ -- -- -- -- -- 3,333,330
Entities associated with
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated........... -- -- -- -- -- 2,380,950
Douglas O. Reudink...... 906,153 -- -- -- -- --
Jennifer Gill
Roberts(5)............. -- 3,333 4,986 -- -- --
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Shown on an as-converted basis.
(3) David R. Hathaway, a director, is a general partner of Venrock Associates.
(4) Bandel L. Carano, a director, is a general partner of Oak Investment
Partners.
(5) Jennifer Gill Roberts, a director, is a general partner of the Sevin Rosen
Funds. In addition to the equity investment made by entities affiliated
with Sevin Rosen Funds, (i) Ms. Roberts purchased shares of Series A and
Series B preferred stock for her own account which convert to 3,333 and
4,986 shares of common stock, respectively, and (ii) Steven L. Domenik, a
general partner of Sevin Rosen, purchased shares of Series B
preferred stock for his own account which convert to 3,950 shares of
common stock.
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<PAGE>
On April 3, 1998, Dr. Reudink sold 20,513 shares of common stock at a price
of $9.75 per share to Cedar Grove Investment L.L.C., a limited liability
corporation which is managed by Mr. Scot Jarvis, one of our directors. On April
17, 1998, Dr. Reudink sold 13,333 shares of common stock at a price of $9.75
per share to Spinnaker Offshore Founders Fund, an entity affiliated with Bowman
Capital Management and related entities which are holders of Series D preferred
stock.
On April 28, 1998, we issued an aggregate principal amount of $29.0 million
13.75% Senior Secured Bridge Notes due April 28, 2000 to certain institutional
investors, including Powerwave Technologies, Inc. of which Bruce Edwards, one
of our directors, is president and chief executive officer. In addition, we
issued warrants to purchase an aggregate of 537,500 shares of our Series D
preferred stock at a purchase price of $0.01 per share. The number of shares of
Series D preferred stock issuable upon exercise of these warrants was adjusted
in December 1998 in connection with our sale of Series E preferred stock. On
April 28, 1999 all outstanding principal and accrued interest on these notes
were repaid in full. On April 26, 1999 all of the warrants issued in connection
with these notes were exercised and 620,702 shares of Series D preferred stock
were issued. Powerwave purchased $2,500,000 in aggregate principal amount of
the 13.75% Senior Secured Bridge Notes and was issued a warrant to purchase up
to an aggregate of 46,336 shares of Series D preferred stock at an exercise
price of $0.01 per share which was exercised in full in April 1999 for 53,509
shares of Series D preferred stock as a result of certain adjustments.
Powerwave Technologies, Inc. is currently our sole supplier of linear power
amplifiers, a component in our smart antenna systems. From January 1, 1999 to
December 31, 1999, we purchased a total of $6.1 million of linear power
amplifiers and related components from Powerwave. Pursuant to a manufacturing
agreement, Powerwave will manufacture and sell to us 100% of our requirements
for linear power amplifiers that Powerwave manufactures.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding beneficial
ownership of our common stock as of December 31, 1999, after giving effect to
the conversion of all outstanding shares of preferred stock, and as adjusted to
reflect the sale of common stock offered by this prospectus, as to:
. each person, or group of affiliated or associated persons, who owns
beneficially more than 5% of the outstanding shares of our common stock,
. each of our directors,
. each of our Named Executive Officers, and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each stockholder is: c/o Metawave
Communications Corporation, 10735 Willows Road NE, P.O. Box 97069, Redmond, WA
98073-9769.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after
December 31, 1999 are deemed outstanding, while such shares are not deemed
outstanding for purposes of computing percentage ownership of any other person.
The percent of beneficial ownership for each stockholder is based on 30,363,817
shares of common stock outstanding prior to this offering, on an as converted
basis, plus an additional 6,250,000 shares of common stock outstanding after
this offering. Unless otherwise indicated in the footnotes below, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Percent of Shares
Outstanding
Shares -----------------
Beneficially Prior to After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Oak Investment Partners(1)................... 7,705,730 25.4% 21.1%
525 University Avenue, Suite 1300
Palo Alto, CA 94301-1902
Venrock Associates(2)........................ 2,937,823 9.7 8.0
30 Rockefeller Plaza
New York, NY 10112-0184
The Sevin Rosen Funds(3)..................... 2,931,602 9.7 8.0
550 Lytton Avenue, Suite 200
Palo Alto, CA 94301-1542
MeriTech Capital Partners(4)................. 4,761,899 15.7 13.0
428 University Avenue, 2nd Floor
Palo Alto, CA 94301
General Motors Investment Management
Corporation................................. 3,333,330 11.0 9.1
767 Fifth Avenue(5)
New York, New York 10153
Merrill Lynch, Pierce, Fenner & Smith
Incorporated(6)............................. 2,380,948 7.8 6.5
World Financial Center, South Tower
New York, New York 10080-6123
Douglas O. Reudink(7)........................ 922,818 3.0 2.5
Robert H. Hunsberger(8)...................... 600,000 1.9 1.6
Victor K. Liang(9)........................... 66,480 * *
Richard Henderson(10)........................ 106,666 * *
Martin J. Feuerstein(11)..................... 48,777 * *
Ray Butler(12)............................... 60,388 * *
Bandel L. Carano(1).......................... 7,705,730 25.4 21.1
Jennifer Gill Roberts(13).................... 2,944,010 9.8 8.0
David R. Hathaway(2)......................... 2,937,823 9.7 8.0
Scot B. Jarvis(14)........................... 61,484 * *
Bruce C. Edwards(15)......................... 16,666 * *
David A. Twyver(16).......................... 16,666 * *
All directors and executive officers as a
group (14 persons)(17)...................... 15,994,807 51.3 42.5
</TABLE>
- --------
* Represents less than 1% ownership.
Footnotes continued on following page.
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<PAGE>
(1) Includes 2,876,710 shares held by Oak Investment Partners VI, L.P.,
4,671,424 shares held by Oak Investment Partners VIII, L.P., 67,120
shares held by Oak VI Affiliates Fund, L.P. and 90,476 shares held by
Oak VIII Affiliates Fund, L.P. Bandel L. Carano, one of our directors,
is a Managing Member of Oak Associates VI, L.L.C., a general partner of
Oak Investment Partners VI, L.P., a General Partner of Oak VI Affiliates
and a general partner of Oak VI Affiliates Fund, and as such may be
deemed to share voting and investment power with respect to such shares.
Mr. Carano disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest in such shares.
(2) Includes 1,715,298 shares held by Venrock Associates and 1,222,531
shares held by Venrock Associates II, L.P. David R. Hathaway, a
director, is a general partner of Venrock Associates and Venrock
Associates II, L.P., and as such, may be deemed to share voting and
investment power with respect to such shares. Mr. Hathaway disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest in such shares.
(3) Includes 10,146 shares held by Sevin Rosen Bayless Management Co.,
1,998,944 shares held by Sevin Rosen Fund IV L.P., 884,694 shares held
by Sevin Rosen Fund V L.P., 37,822 shares held by Sevin Rosen V
Affiliates Fund L.P.
(4) Includes 4,685,709 shares held by MeriTech Capital Partners and 76,190
shares held by MeriTech Capital Affiliates, L.P.
(5) Includes 3,333,330 shares held by Chase Manhattan Bank, as trustee for
First Plaza Group Trust, General Motors Investment Management
Corporation.
(6) Includes 952,380 shares held by ML IBK Positions, Inc, 599,999 shares
held by Merrill Lynch KECALP L.P. 1997, 657,142 shares held by Merrill
Lynch KECALP L.P. 1999, 114,285 shares held by Merrill Lynch KECALP
International L.P. 1997 and 57,142 shares held by Merrill Lynch KECALP
International L.P. 1999.
(7) Includes 16,666 shares held in trust for Matthew Reudink, Dr. Reudink's
son.
(8) Includes 600,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Hunsberger within 60 days of December
31, 1999, 237,500 shares of which are subject to our right of repurchase
that lapses over time.
(9) Includes 66,480 shares issuable upon the exercise of immediately
exercisable options held by Mr. Liang within 60 days of December 31,
1999, 23,147 shares of which are subject to our right of repurchase that
lapses over time.
(10) Includes 106,666 shares issuable upon the exercise of immediately
exercisable options held by Mr. Henderson within 60 days of December 31,
1999, 51,112 shares of which are subject to our right of repurchase that
lapses over time.
(11) Includes 48,777 shares issuable upon the exercise of immediately
exercisable options held by Mr. Feuerstein within 60 days of December
31, 1999, 13,666 shares of which are subject to our right of repurchase
that lapses over time.
(12) Includes 60,388 shares issuable upon the exercise of immediately
exercisable options held by Mr. Butler within 60 days of December 31,
1999.
(13) Includes the shares referenced in footnote (3) and 8,272 shares held by
Ms. Roberts. Jennifer Gill Roberts, one of our directors, is a general
partner of Sevin Rosen Fund IV L.P., Sevin Rosen Fund V L.P. and Sevin
Rosen V Affiliates Fund L.P., and as such, may be deemed to share voting
and investment power with respect to such shares. Ms. Roberts disclaims
beneficial ownership of the shares referenced in footnote (3), except to
the extent of her pecuniary interest in such shares.
(14) Includes 53,846 shares owned by Cedar Grove Investments, LLC, Cedar
Grove, and 16,666 shares issuable upon the exercise of immediately
exercisable options held by Cedar Grove Investments, LLC within 60 days
of December 31, 1999. Mr. Jarvis, a managing member of Cedar Grove,
disclaims beneficial ownership of such shares, except to the extent of
his pecuniary interest in such shares.
(15) Includes 16,666 shares issuable upon the exercise of immediately
exercisable options held by Mr. Edwards within 60 days of December 31,
1999.
(16) Includes 16,666 shares issuable upon the exercise of immediately
exercisable options held by Mr. Twyver within 60 days of December 31,
1999.
(17) Includes shares referred to in footnotes (7)-(16) and 102,000 shares
issuable upon exercise of outstanding options exercisable within 60 days
of December 31, 1999 held by other officers.
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<PAGE>
DESCRIPTION OF SECURITIES
Following the closing of this offering, our authorized capital stock will
consist of 150,000,000 shares of common stock, $0.0001 par value, and
10,000,000 shares of preferred stock, $0.0001 par value. As of December 31,
1999, there were 2,390,910 shares of common stock outstanding that were held of
record by approximately 115 stockholders. There will be 36,613,817 shares of
common stock outstanding (assuming no exercise of outstanding options after
December 31, 1999) after giving effect to this offering and conversion of all
outstanding preferred shares.
Common Stock
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Metawave, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. The common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stock.
Preferred Stock
Upon the closing of this offering, the board of directors is authorized to
issue up to 10,000,000 shares of preferred stock in one or more series and to
determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated preferred stock, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of Metawave without further action by the
stockholders and may adversely affect the voting and other rights of the
holders of common stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the common stock. As of the closing of
this offering, no shares of preferred stock will be outstanding and we
currently have no plans to issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had warrants outstanding to purchase an
aggregate of 20,833 shares of common stock, 65,416 shares of Series A preferred
stock, convertible into 43,610 shares of common stock, 19,999 shares of Series
B preferred stock, convertible into 13,332 shares of common stock,
34,090 shares of Series C preferred stock, convertible into 29,723 shares of
common stock and 4,375 shares of Series D preferred stock, convertible into
4,204 shares of common stock.
In connection with a equipment lease line entered into with Transamerica
Business Credit Corporation in May 1999, we issued a warrant to purchase up to
an aggregate of 20,833 shares of common stock at an exercise price of $6.75 per
share. The warrant expires on May 19, 2004.
In connection with an equipment lease line entered into in December 1995, we
issued a warrant to purchase up to an aggregate of 48,750 shares of Series A
preferred stock to Comdisco, Inc. at an exercise price of $2.1875 per share,
convertible into 32,500 shares of common stock. The warrant expires on December
13, 2002. In connection with a second equipment lease line entered into in
April 1996, we issued a warrant to purchase up to an aggregate of 16,666 shares
of Series A preferred stock to Comdisco at an exercise price of $2.1875 per
share, convertible into 11,110 shares of common stock. The warrant expires on
April 9, 2003. In connection with a third equipment lease line entered into in
August 1996, we issued a warrant to purchase up to an aggregate of 19,999
shares of Series B preferred stock to Comdisco at an exercise price of
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<PAGE>
$4.7675 per share, convertible into 13,332 shares of common stock. The warrant
and the extension expire on the later of August 20, 2003 or three years
following the effective date of this offering. In connection with a fourth
equipment lease line entered into in June 1997, we issued a warrant to purchase
up to an aggregate of 34,090 shares of Series C preferred stock to Comdisco at
an exercise price of $6.16 per share convertible into 29,723 shares of common
stock. The warrant expires on the later of June 9, 2004 or 18 months following
the effective date of this offering.
In connection with an equipment lease line entered into with Insight
Investments Corporation in April 1998, we issued a warrant to purchase up to an
aggregate of 4,375 shares of Series D preferred stock at an exercise price of
$8.00 per share, convertible into 4,204 shares of common stock. The warrant
expires on the closing of this offering.
Registration Rights of Certain Holders
The holders of 28,924,774 shares of common stock or certain of their
transferees are entitled to rights with respect to the registration of such
shares under the Securities Act. These rights are provided under the terms of
an agreement between us and the holders of registrable securities. Subject to
certain limitations in the agreement, certain holders of the registrable
securities may require, on two occasions at any time after six months from the
effective date of this offering, that we use our best efforts to register the
registrable securities for public resale, provided that the proposed aggregate
offering price is at least $7,500,000. No shares of common stock are being
registered on behalf of these holders in this offering. Furthermore, in the
event we elect to register any of our common stock for purposes of effecting
any public offering, the holders of registrable securities are entitled to
include their shares of common stock in the registration. A holder's right to
include shares in an underwritten registration is subject to the ability of the
underwriters to limit the number of shares included in the underwritten public
offering. Subject to certain conditions, all fees, costs and expenses of such
registrations must be borne by us and all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes, relating
to registrable securities must be borne by the holders of the securities being
registered. In addition, we have agreed to indemnify the holders of
registration rights against liabilities under the Securities Act.
Anti-Takeover Provisions of Delaware and Washington Law and Charter Documents
We are subject to the provisions of Section 203 of the Delaware General
Corporate Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, with certain exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Metawave without further action by the
stockholders.
The laws of the State of Washington, where our principal executive offices
are located, impose restrictions on certain transactions between certain
foreign corporations and significant stockholders. Chapter 23B.19 of the
Washington Business Corporation Act, or the WBCA, prohibits a "target
corporation," with certain exceptions, from engaging in certain "significant
business transactions" with a person or group of persons who beneficially own
10% or more of the voting securities of the target corporation, an "acquiring
person", for a period of five years after such acquisition, unless the
transaction or acquisition of such shares is approved by a majority of the
members of the target corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things, a merger
or consolidation with, disposition of assets to, or issuance or redemption of
stock to or from, the acquiring person, termination of 5% or more of the
employees of the target corporation as a result of the acquiring person's
acquisition of 10% or more of the shares or allowing the acquiring person to
receive disproportionate benefit as a stockholder. After the five-year period,
a
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<PAGE>
significant business transaction may take place as long as it complies with
certain fair price provisions of the statute. A target corporation includes a
foreign corporation if:
. the corporation has a class of voting stock registered pursuant to
Section 12 or 15 of the Exchange Act,
. the corporation's principal executive office is located in Washington,
and
. any of (a) more than 10% of the corporation's stockholders of record are
Washington residents, (b) more than 10% of its shares are owned of record
by Washington residents, (c) 1,000 or more of its stockholders of record
are Washington residents, (d) a majority of the corporation's employees
are Washington residents or more than 1,000 Washington residents are
employees of the corporation, or (e) a majority of the corporation's
tangible assets are located in Washington or the corporation has more
than $50.0 million of tangible assets located in Washington.
A corporation may not "opt out" of this statute and, therefore, we
anticipate this statute will apply to us. Depending upon whether we meet the
definition of a target corporation, Chapter 23B.19 of the WBCA may have the
effect of delaying, deferring or preventing a change in control of Metawave.
In addition, upon completion of this offering, certain provisions of our
charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Metawave, which
could have an adverse effect on the market price of our common stock. Our stock
option and purchase plans generally provide that upon a change in control or
similar event optionees are entitled to accelerated vesting credit equal to
either twelve months or twenty-four months of additional vesting beyond that
otherwise scheduled, based on whether he or she has been employed by Metawave
less than two years, or two years or more, respectively, as of the date of such
event unless in connection with the change in control or similar event,
outstanding options are assumed or substituted for equivalent options of a
successor corporation. The board of directors has authority to issue up to
10,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares without
any further vote or action by the stockholders. The rights of the holders of
the common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock, thereby delaying, deferring or preventing a
change in control of Metawave. Furthermore, such preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance of such preferred stock could have a material adverse effect on
the market value of the common stock. We have no present plan to issue shares
of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services L.L.C. and their number is (206) 674-3030.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "MTWV."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 36,613,817 shares
of common stock, assuming no exercise of options after December 31, 1999. Of
these shares, the 6,250,000 shares sold in this offering will be eligible for
resale in transactions on the Nasdaq National Market without restriction
pursuant to exemptions under the Securities Act unless purchased by our
"affiliates" as that term is defined in Rule 144 of the Securities Act.
The remaining 30,363,817 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 and may
not be sold publicly unless they are registered under the Securities Act or are
sold pursuant to Rule 144 or another exemption from registration. All of our
directors and executive officers and certain other stockholders, holding in the
aggregate 15,994,807 of the shares of common stock outstanding prior to this
offering, are contractually obligated not to sell or otherwise dispose of any
shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated or us. The number of shares of common stock available for
sale in the public market is further limited by restrictions under the
Securities Act.
Because of the restrictions noted above, on the date of this prospectus and
until 180 days after the date of this prospectus, assuming no release of the
lockup period by us or by Merrill Lynch, Pierce, Fenner & Smith Incorporated,
469,142 shares in addition to the 6,250,000 shares offered hereby will be
eligible for sale in the public market. Beginning 90 days after the effective
date of this offering, approximately 411,112 restricted shares will be eligible
for sale in the public market. Beginning 180 days after the effective date of
this offering, approximately 29,505,874 restricted shares, will be eligible for
sale in the public market, subject in some cases to certain volume limitations.
Upon the expiration of one-year minimum holding periods, an additional
22,310 shares will be eligible for sale.
<TABLE>
<CAPTION>
Days after Date Shares Eligible
of this Prospectus for Sale Comment
-------------------- --------------- -----------------------------------------
<C> <C> <S>
Upon effectiveness.. 6,250,000 Shares sold in offering
Upon effectiveness.. 469,142 Freely tradable shares salable under Rule
144(k) that are not subject to the lockup
91 days............. 411,112 Shares salable under Rules 701 and 144
and not subject to the lockup
181 days............ 29,505,874 Lockup released; shares salable under
Rules 144 and 701
</TABLE>
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for
at least one year, including persons who may be deemed our "affiliates", would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the number of shares of common stock then
outstanding or the average weekly trading volume of the common stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about us. In
addition, a person who is not deemed to have been an affiliate of us at any
time during the 90 days preceding a sale, and who has beneficially owned for at
least two years the shares proposed to be sold, would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Exchange Act in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144. During the lockup period,
we intend to file a registration statement under the Securities Act to register
shares to be issued pursuant to our employee benefit plans. As a result, any
options exercised under the 1995 stock option plan, the 1998 stock option plan,
the 2000 stock option plan, the 2000 director option plan, the 2000 employee
stock purchase plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that shares
57
<PAGE>
held by affiliates will still be subject to the volume limitation, manner of
sale, notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of December 31, 1999, there were outstanding
options for the purchase of 2,885,294 shares of our common stock under our
employee benefit plans.
Prior to this offering, there has been no public market for our securities.
No prediction can be made as to the effect, if any, that market sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of our common
stock in the public market after the lapse of the restrictions described above
could adversely affect the prevailing market price and our ability to raise
equity capital in the future at a time and price which we deem appropriate. In
addition, after this offering, the holders of the registrable securities will
be entitled to certain demand and piggyback rights with respect to registration
of their shares under the Securities Act. Registration of those shares under
the Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by our
affiliates) immediately upon the effectiveness of such registration. If such
holders, by exercising their demand registration rights, cause a larger number
of securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for our common stock. If we were to
include in a registration initiated by us, any registrable securities pursuant
to the exercise of piggyback registration rights, such sales may have an
adverse effect on our ability to raise needed capital.
58
<PAGE>
UNDERWRITING
General
We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney and
U.S. Bancorp Piper Jaffray are acting as representatives of the underwriters
named below. Subject to the terms and conditions described in a purchase
agreement among us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from our company, the number of shares of common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Salomon Smith Barney...............................................
U.S. Bancorp Piper Jaffray Inc.....................................
Total.........................................................
====
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated. The closings for the sales of shares to be purchased by the
underwriters are conditioned on one another.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus, and to certain
dealers at a price less a concession not in excess of $ per share of common
stock. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may change.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. The information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Public offering price............................... $ $ $
Underwriting discount............................... $ $ $
Proceeds, before expenses, to Metawave.............. $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $1,000,000 and are payable by Metawave.
59
<PAGE>
Over-allotment Option
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to an aggregate of
937,500 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 of such additional shares as the number set forth next to such
underwriters name in the above table bears to the total number of shares of
common stock offered hereby, and we will be obligated, pursuant to the option,
to sell 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 shares of common stock offered hereby. If
purchased, the underwriters will offer such additional shares on the same terms
as those on which the 6,250,000 shares are being offered.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 7% of the shares offered by this prospectus for
sale to some of our employees, distributors, suppliers, business associates and
related persons. If these persons purchase reserved shares, this will reduce
the number of shares available for sale to the general public. Any reserved
shares that are not orally confirmed for purchase within one day of the pricing
of this offering will be offered by the underwriters to the general public on
the same terms as the other shares offered by this prospectus.
No Sales of Similar Securities
We, our executive officers and directors and most of our existing
stockholders have agreed not to directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into
or exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the
agreement or with respect to which the person executing the agreement
later acquires the power of disposition, or file any registration
statement under the Securities Act relating to any shares of our common
stock (other than shares sold in this offering or hereafter acquired in
the public market), or
. enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise,
without the prior written consent of Merrill Lynch Pierce, Fenner & Smith
Incorporated on behalf of the underwriters for a period of 180 days after the
date of the prospectus. See "Shares Eligible for Future Sale."
Quotation on the Nasdaq National Market
We have applied to have our common stock listed on the Nasdaq National
Market, subject to notice of issuance, under the symbol "MTWV."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives and the lead managers. In addition to prevailing
market conditions, the factors to be considered in determining the initial
public offering price are:
. the valuation multiples of publicly traded comparisons that the
representatives and the lead managers believe to be comparable to us,
. our financial information,
60
<PAGE>
. the history of, and the prospects for, our company and the industry in
which we compete,
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,
. the present state of our development and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
Other Relationships
ML IBK Positions, Inc. and other investment funds which are associated with
Merrill Lynch, Pierce, Fenner & Smith Incorporated purchased an aggregate of
2,380,948 shares of our Series E preferred stock. Merrill Lynch, Pierce, Fenner
& Smith Incorporated has in the past provided and may in the future provide,
investment banking services for which they have received, and may receive,
customary fees.
Price Stabilization and Short Positions
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters to bid for and purchase
our common stock. As an exception to these rules, the underwriters are
permitted to engage in transactions that stabilize the price of our common
stock. Stock transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of our common stock.
The underwriters may create a short position in our common stock in
connection with the offering. This means that if they sell more shares of our
common stock than are set forth on the cover page of this prospectus, the
underwriters may reduce that short position by purchasing our common stock in
the open market. The underwriters may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the underwriters
will engage in such transactions or that such transactions, once commenced,
will not be discontinued without notice.
Electronic Distribution of Prospectus
Merrill Lynch will be facilitating Internet distribution for this offering
to certain of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the Website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch Website relating to this offering is not a part of this
prospectus.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by our counsel, Venture Law Group, a Professional Corporation, Kirkland,
Washington. Certain legal matters will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, a Professional Corporation, Palo Alto,
California.
EXPERTS
The financial statements and schedule of Metawave Communications Corporation
as of December 31, 1997, 1998 and 1999 and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended appearing in this prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports, given on the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act. This prospectus, which is a
part of the registration statement, does not contain all of the information set
forth in the registration statement, including items contained in the exhibits
to the registration statement. For further information about our company and
the common stock being offered by this prospectus, you should see the
registration statement and the exhibits, financial statements and notes filed
with the registration statement. Copies of the registration statement,
including exhibits, financial statements and notes, may be inspected without
charge at the SEC principal office in Washington, D.C. or obtained at
prescribed rates from the public reference room of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information regarding the
public reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
companies that file electronically with the SEC. We have filed the registration
statement, including the exhibits and schedules, electronically with the SEC
via the SEC EDGAR system.
62
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................... F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statements of Stockholders' Deficit...................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Metawave Communications Corporation
We have audited the accompanying consolidated balance sheets of Metawave
Communications Corporation as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for each of the three years in the period ended December 31, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Metawave
Communications Corporation at December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Seattle, Washington
February 11, 2000, except paragraph 10 of Note 6 and Note 14,
as to which the date is
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the two for three stock split described in Note 14 to the financial
statements.
ERNST & YOUNG LLP
Seattle, Washington
March 27, 2000
F-2
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------- December 31,
1998 1999 1999
-------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents................. $ 10,763 $ 20,165
Accounts receivable, less allowances of
$908 ($693 in 1998)...................... 4,329 10,127
Inventories............................... 7,929 4,149
Debt issuance costs, net of amortization
of $6,491 ($4,170 in 1998)............... 2,321 --
Prepaid expenses and other assets......... 621 613
-------- ---------
Total current assets.................... 25,963 35,054
Property and equipment, net................. 6,355 5,701
Other noncurrent assets..................... 192 191
-------- ---------
Total assets............................ $ 32,510 $ 40,946
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable.......................... $ 5,412 $ 3,758
Accrued liabilities....................... 2,334 2,493
Accrued compensation...................... 1,461 1,511
Senior secured notes...................... 31,704 --
Current portion of notes payable.......... 134 75
Current portion of capital lease
obligations.............................. 1,908 2,692
Deferred revenues......................... 145 1,766
-------- ---------
Total current liabilities............... 43,098 12,295
Capital lease obligations, less current
portion.................................... 4,326 2,479
Notes payable, less current portion......... 87 8
Other long-term liabilities................. -- 16
Commitments:
Convertible and redeemable preferred stock,
issued and outstanding shares--14,029,088
in 1998, 32,027,203 in 1999, and none pro
forma, at liquidation value................ 56,472 143,945
Convertible and redeemable preferred stock
warrants................................... 5,123 157
Stockholders' equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares--37,000,000, of which
32,027,203 have been designated as
convertible and redeemable at December
31, 1999.................................
Common stock, $.0001 par value:
Authorized shares--50,000,000; issued and
outstanding shares--2,112,229 in 1998,
2,390,910 in 1999 and 30,363,817
pro forma................................ 2,179 3,573 $ 147,675
Deferred stock compensation............... (554) (906) (906)
Accumulated other comprehensive income ... 6 19 19
Accumulated deficit....................... (78,227) (120,640) (120,640)
-------- --------- ---------
Total stockholders' equity (deficit).... (76,596) (117,954) $ 26,148
-------- --------- ---------
Total liabilities and stockholders'
equity................................. $ 32,510 $ 40,946
======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues..................................... $ 1,450 $ 15,991 $ 22,596
Cost of revenues............................. 1,728 18,028 22,236
--------- --------- ---------
Gross profit (loss).......................... (278) (2,037) 360
Operating expenses:
Research and development................... 13,083 18,495 22,787
Sales and marketing........................ 5,383 11,346 11,080
General and administrative................. 3,762 5,887 5,732
--------- --------- ---------
Total operating expenses................. 22,228 35,728 39,599
--------- --------- ---------
Operating loss............................... (22,506) (37,765) (39,239)
Other income, net............................ 851 790 1,165
Interest expense............................. (449) (7,353) (4,339)
--------- --------- ---------
Other income (expense), net.............. 402 (6,563) (3,174)
--------- --------- ---------
Net loss..................................... $ (22,104) $ (44,328) $ (42,413)
========= ========= =========
Basic and diluted net loss per share......... $ (12.18) $ (21.88) $ (18.98)
========= ========= =========
Shares used in computation of basic and
diluted net loss per share.................. 1,815,000 2,025,741 2,234,798
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deferred Other Total
----------------- Stock Comprehensive Accumulated Stockholders'
Shares Amount Compensation Income Deficit Deficit
--------- ------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 1,767,335 $ 10 $ 0 $ 0 $ (11,795) $ (11,785)
Exercise of stock
options............... 188,061 77 -- -- -- 77
Deferred stock
compensation.......... -- 1,881 (1,881) -- -- --
Stock compensation
expense............... -- -- 676 -- -- 676
Net loss for the year
ended December 31,
1997.................. -- -- -- -- (22,104) (22,104)
--------- ------ ------- --- --------- ---------
Balance at December 31,
1997................... 1,955,396 1,968 (1,205) 0 (33,899) (33,136)
Repurchased restricted
stock................. (92,266) (5) -- -- -- (5)
Exercise of stock
options............... 241,766 106 -- -- -- 106
Issuance and exercise
of common stock
warrants.............. 7,333 110 -- -- -- 110
Stock compensation
expense............... -- -- 651 -- -- 651
Comprehensive income
(loss):
Foreign exchange
translation gain...... -- -- -- 6 -- 6
Net loss for the year
ended December 31,
1998.................. -- -- -- -- (44,328) (44,328)
---------
Comprehensive loss..... (44,322)
--------- ------ ------- --- --------- ---------
Balance at December 31,
1998................... 2,112,229 2,179 (554) 6 (78,227) (76,596)
Exercise of stock
options............... 278,681 137 -- -- -- 137
Issuance of common
stock warrants........ -- 88 -- -- -- 88
Deferred stock
compensation.......... -- 1,169 (1,169) -- -- --
Stock compensation
expense............... -- -- 817 -- -- 817
Comprehensive income
(loss):
Foreign exchange
translation gain...... -- -- -- 13 -- 13
Net loss for the year
ended December 31,
1999.................. -- -- -- -- (42,413) (42,413)
---------
Comprehensive loss..... (42,400)
--------- ------ ------- --- --------- ---------
Balance at December 31,
1999................... 2,390,910 $3,573 $ (906) $19 $(120,640) $(117,954)
========= ====== ======= === ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Operating activities
Net loss....................................... $(22,104) $(44,328) $(42,413)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense........ 1,841 2,623 3,035
Loss on disposal of assets................... -- 8 208
Stock compensation expense................... 676 651 817
Reserve for loss on assets................... 425 -- --
Accrued interest expense on senior notes..... -- 2,704 --
Debt financing amortization.................. -- 2,673 2,321
Noncash warrant expense........................ -- 110 88
Changes in operating assets and liabilities:
Decrease in accounts receivable............ (1,323) (2,885) (5,798)
Increase (decrease) in inventories......... (4,080) (3,849) 3,780
Increase (decrease) in other assets........ (34) (502) 8
Increase (decrease) in accounts payable,
accrued liabilities, and other
liabilities............................... 926 7,915 (1,441)
Increase in other long-term liabilities.... -- (5) --
Increase in deferred revenues.............. 114 30 1,621
--------- --------- --------
Net cash provided by (used in) operating
activities.................................... (23,559) (34,855) (37,774)
Investing activities
Proceeds on sale of assets..................... -- 78 --
Purchases of equipment......................... (621) (2,593) (1,317)
--------- --------- --------
Net cash provided by (used in) investing
activities.................................... (621) (2,515) (1,317)
Financing activities
Proceeds from issuance of preferred stock...... 19,182 7,190 82,507
Proceeds from issuance of common stock......... 77 101 138
Proceeds from notes payable.................... -- 29,000 --
Payments on notes payable...................... (115) (182) (31,841)
Principal payments on capital lease
obligations................................... (722) (1,317) (2,319)
--------- --------- --------
Net cash provided by financing activities...... 18,422 34,792 48,485
--------- --------- --------
Net increase (decrease)in cash................. (5,758) (2,578) 9,394
Effect of exchange rate changes on cash........ -- 7 8
Cash and cash equivalents at beginning of
period........................................ 19,092 13,334 10,763
--------- --------- --------
Cash and cash equivalents at end of period..... $ 13,334 $ 10,763 $ 20,165
========= ========= ========
Noncash transactions and supplemental
disclosures
Capital lease obligations incurred to purchase
assets........................................ $ 2,665 $ 3,104 $ 1,256
Inventories reclassified to property and
equipment..................................... -- 171 --
Interest paid.................................. 450 596 1,653
Non cash conversion of warrants to preferred
stock......................................... -- -- 620
Deferred stock compensation.................... 1,881 -- 1,169
</TABLE>
See accompanying notes.
F-6
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Description of Business
Metawave Communications Corporation (the "Company") designs, develops,
manufactures and markets smart antenna systems for the wireless communications
industry. The Company believes that its spectrum management solutions,
consisting of smart antenna systems, applications software and engineering
services, enable wireless network operators to increase overall network
capacity, improve or maintain network quality and reduce network operating
costs and better manage network infrastructure. Using its proprietary
technologies, the Company has developed systems that address the capacity,
coverage and call quality problems faced by wireless network operators.
On September 2, 1998, the Company formed Metawave International
Communications Corporation ("MICC"), a wholly owned Delaware subsidiary. On
October 5,1998, the Company formed a Hong Kong subsidiary, Metawave
Communications (Asia) Limited, which is now owned by Metawave Communications
(Cayman Islands). On December 7, 1998, the Company formed Metawave
Communications (Cayman Islands), a wholly owned subsidiary of MICC. On April 2,
1999 Metawave Communications (Cayman Islands) formed a Taiwan subsidiary,
Metawave Communications Taiwan Co. Ltd.
Principles of Consolidation and 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.
In 1998, the Company adopted a 52 week fiscal year ending on the Sunday
closest to December 31, 1999. The 1999 fiscal year ends on January 2, 2000,
with each of the fiscal quarters representing a 13-week period. For convenience
of presentation, all fiscal periods in these financial statements are treated
as ending on a calendar month end.
The Company experienced net losses of $44,328,000 and $42,413,000 for the
years ended December 31, 1998 and 1999, respectively. These losses are the
result of intense product development efforts and the costs associated with the
development of the Company's manufacturing and sales operations. Management
believes that the Company will experience substantial losses in 2000, even if
commercial sales of the Company's systems continue to grow. Management believes
that existing cash, unused credit facilities, and revenues from system sales,
will be sufficient to fund operations through 2000. If necessary, management
would delay and or curtail planned increases in costs and expenses to meet its
liquidity needs.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses
are translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown within accumulated
other comprehensive income (loss) as a component of stockholders' equity. Gains
and losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Accordingly, actual results may differ from those
estimates. The Company has used estimates in determining certain provisions,
including the allowance for doubtful accounts receivable, inventory reserves,
useful lives for property and equipment, and warranty accruals.
F-7
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
Revenue Recognition
The Company generates revenues through the sales of smart antenna systems
and related installation and optimization services. System revenues are
recognized when title to the system and risk of loss has been transferred to
the customer and all customer acceptance conditions, if any, have been
satisfied, and when collection is probable.
Service revenues, generally for installation and optimization, are
recognized when the services have been performed and all customer acceptance
conditions, if any, have been satisfied. Revenues from maintenance contracts
are deferred and recognized ratably over the term of the agreement (which is
typically one year). Any billings in excess of revenues are classified as
deferred revenues and related systems are recorded as inventory.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and trade receivables.
The carrying value of financial instruments approximates market value.
The Company's customers are primarily wireless network operators in the
United States and certain international markets. As such, the Company's primary
market is made up of a limited number of customers operating within the same
industry, thereby subjecting the Company to business risks associated with
potential downturns of the industry. Export sales represented 26.0% of revenues
in the year ended December 31, 1999, 23.5% in 1998 and none in 1997. During
1998, one customer, Alltel Communications Inc., represented 88% of the
Company's trade accounts receivable. In 1999, two customers, AirTouch
Communications Inc. and Grupo Iusacell S.A. de C.V., represented 28% and 53% of
the Company's trade accounts receivable, respectively.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves, which to date have not been material, for potential credit losses,
and such losses have been within management's expectations.
Net Loss per Share
Basic net loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted net loss per share reflects the potential dilution of
securities by including other common stock equivalents, including stock options
and redeemable convertible preferred stock, in the weighted average number of
common shares outstanding as if such shares were converted to common stock at
the time of issuance. Common stock equivalents, including stock options and
warrants, are excluded from the computation as their effect is anti-dilutive.
For the periods presented, there is no difference between the basic and diluted
net loss per share.
Pro forma loss per share (unaudited) is computed by dividing net loss by the
weighted average number of shares of common stock outstanding and the weighted
average number of shares of convertible and redeemable preferred stock
outstanding as if such shares were converted to common stock at the time of
issuance.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents. The Company
invests with various high-quality institutions and, in accordance with Company
policy, limits the amount of credit exposure to any one institution.
F-8
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
The Company accounts for its marketable securities under the provisions of
Statement of Financial Accounting Standards ("SFAS") Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." All
marketable securities are classified as available-for-sale and are carried at
fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. As of December 31, 1998 and 1999
all marketable securities were cash equivalents and unrealized holdings gains
and losses were not significant.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of purchased parts, subassemblies and finished goods.
Property and Equipment
Property, equipment and leasehold improvements are recorded at cost.
Depreciation and amortization is provided using the straight-line method over
the estimated useful lives of the related assets for financial statement
purposes over estimated useful lives of two to seven years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
useful life.
Warranty
The Company generally provides a 12 month warranty, which may vary depending
upon specific contractual terms, on all systems and records a related provision
for estimated warranty costs at the date of sale.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are charged to expense as incurred. Advertising expense of
$535,000, $692,000 and $1,387,000 was recorded for the years ended December 31,
1997, 1998 and 1999, respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 25 provides that the compensation expense relative to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123 (refer to Note 6). The Company recognizes compensation expense
for options and warrants granted to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force Consensus 96-18.
F-9
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies--(continued)
Other Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. The other comprehensive income
(loss) which the Company currently reports is foreign currency translation
adjustments.
Business Segments
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for reporting
information about operating segments in annual financial statements. The
Company operates in one segment as a provider of certain wireless
telecommunication equipment. SFAS No. 131 also establishes standards for
related disclosures about systems and services, geographic areas and major
customers. Information related to segment disclosures is contained in Notes 13
and 14.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. The Company does not
anticipate that the adoption of this new standard will have a material effect
on earnings or the financial position of the Company, but continues to evaluate
the impact of SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101 ("SAB 101"). This summarized certain areas of
the staff's views in applying generally accepted accounting principles as it
applies to revenue recognition. The Company believes that its revenue
recognition principles comply with SAB 101. The Company will continue to
evaluate interpretations of SAB 101.
2. Inventories
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
(in
thousands)
<S> <C> <C>
Purchased parts.............................................. $4,922 $2,251
Subassemblies................................................ 2,332 1,144
Finished goods............................................... 675 754
------ ------
$7,929 $4,149
====== ======
</TABLE>
Purchased parts include purchased components and partially assembled units.
Subassemblies primarily represent components that are assembled and ready for
final configuration pending the detailed requirements for the specific
customer. Finished goods are units representing projects-in-process at customer
locations.
F-10
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Equipment................................................ $ 9,384 $10,100
Furniture and fixtures................................... 869 976
Leasehold improvements................................... 920 910
------- -------
11,173 11,986
======= =======
Accumulated depreciation and amortization................ (4,818) (6,285)
------- -------
$ 6,355 $ 5,701
======= =======
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of $9,591,000 and $8,920,000 as of December
31, 1998 and 1999, respectively. Accumulated amortization on the leased assets
was $3,357,000 and $3,749,000 as of December 31, 1998 and 1999, respectively.
4. Notes Payable
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
------- ----
(in
thousands)
<S> <C> <C>
Senior Secured Notes, repaid in April 1999........................ $31,704 $--
Note payable to U.S. Bank with monthly payments of $217, maturing
in July 2000, bearing interest at 11%............................ 4 --
Note payable to Comdisco, with monthly payments of $12,126,
maturing in February 2000, bearing interest at 8%, with a
residual payment of $50,000 due February 28, 2000, secured by the
underlying equipment............................................. 202 72
Notes payable to Chrysler Financial with monthly payments
aggregating $347, bearing interest at 10%........................ 15 11
------- ----
31,925 83
Less current portion.............................................. 31,838 75
------- ----
Long term portion................................................. $ 87 $ 8
======= ====
</TABLE>
Senior Secured Notes
On April 28, 1998, the Company issued $29.0 million aggregate principal
amount of Senior Secured Notes ("Senior Notes"), with a maturity date of April
28, 2000. The Senior Notes accrue interest at 13.75%, payable semiannually at
the option of the Company in either additional Senior Notes or cash. In October
1998, the Company issued additional Senior Notes of approximately $2.7 million
in connection with the related accrued interest.
In connection with the Senior Notes, the noteholders received warrants to
purchase 537,500 shares of Series D Preferred Stock at $.01 per share. The
Company recorded debt issuance fees of approximately $4.3 million related to
the estimated fair value of these warrants. The debt issuance fees were
amortized over the period during which the Senior Notes were outstanding.
F-11
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Notes Payable--(continued)
On December 21, 1998, the Company issued an additional 83,202 warrants at
$0.01 per share to the Senior Noteholders in connection with certain
antidilution provisions. The fair value of these additional warrants was
estimated to be approximately $671,000 which has been amortized over the
remaining term of the Senior Notes.
In April 1999, the Company retired all of the principal and accrued interest
on the Senior Notes aggregating $33,124,570. In addition, the warrants issued
in connection with the Senior Notes were exercised by the noteholders for an
aggregate 620,702 shares of Series D Preferred Stock. Amortization of debt
issuance costs, which has been included in interest expense, aggregated
$4,170,000 in 1998 and $2,321,000 in 1999.
Line of Credit Agreement
The Company has a credit facility with a commercial bank. The facility
provides for a revolving credit line of $7.5 million to support working capital
with a $3.0 million sublimit for issuance of trade-related commercial and
standby letters of credit, and expires on March 14, 2000. Outstanding balances
on the credit line bear interest at the bank's prime rate (8.5% as of December
31, 1998 and 1999), and are secured by the Company's accounts receivable. At
December 31, 1998 and 1999, $2.5 million was outstanding related to the
issuance of a standby letter of credit. The Company is required to comply with
certain covenants set forth in the line of credit agreement. The Company is
currently in compliance with these covenants.
5. Convertible and Redeemable Preferred Stock
In July 1995, the Company issued 5,500,000 shares of Series A Preferred
Stock ("Series A") through a private offering. Proceeds from the financing
amounted to $5,500,000, or $1.00 per share.
In May 1996, the Company issued 2,711,113 shares of Series B Preferred Stock
("Series B") through a private offering. Proceeds from the financing amounted
to $9,150,006. An additional 29,630 shares of Series B were issued in November
1996 with proceeds of $100,002, or $3.375 per share.
In October and November 1996, the Company issued 2,491,880 shares of Series
C Preferred Stock ("Series C") through a private offering. Proceeds from the
financing amounted to $15,349,980, or $6.16 per share.
In August 1997, the Company issued 2,397,727 shares of Series D Preferred
Stock ("Series D") through a private offering. Proceeds from the financing
amounted to $19,181,816, or $8.00 per share.
In December 1998, the Company issued 898,738 shares of Series E Preferred
Stock ("Series E") through a private offering. Proceeds from the initial round
of Series E financing amounted to $7,189,904, or $8.00.
In January 1999, the Company issued 726,264 additional shares of Series E at
$8.00 per share with gross proceeds of $5,810,112. In April and June 1999, the
Company issued 15,676,153 additional shares of Series E at $5.00 per share with
gross proceeds of $78,380,765. In connection with the issuance of the Series E
at $5.00 per share in April, the existing Series E shareholders were issued
974,996 additional Series E shares adjusting the price per share from $8.00 to
$5.00.
Holders of Series A, B, C, D and E have preferential rights to dividends
($.08, $.27, $.49, $.64 and $.40 per share per annum, respectively) when and if
declared by the Board of Directors. Dividends are not cumulative until January
1, 2002. The holders are entitled to the number of votes equal to the number of
shares of common stock into which the preferred stock could be converted. Every
three shares of Series A and B is convertible into two shares of common stock
at the option of the holder. In July 1999, in accordance with
F-12
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Convertible and Redeemable Preferred Stock--(continued)
certain adjustment provisions of the Amended and Restated Certificate of
Incorporation, the Series C, D, and E conversion rate to common stock was
amended to 1.30786, 1.44144 and 1.42857, respectively. The conversion rate of
the Series A, B, C, D and E Preferred Stock is subject to adjustment in the
event the Company issues shares of capital stock at a price per share below the
original purchase price for each Series, subject to certain exceptions. In
addition, the conversion rate is automatically adjusted in the event of a stock
split, stock dividend, recapitalization or similar event. As a result of the
two for three reverse stock split detailed in Note 14, the Series A, B, C, D
and E conversion rates to common stock were adjusted to 0.66667, 0.66667,
0.87190, 0.96096, and 0.95238, respectively. Each share of preferred stock
automatically converts to common stock upon the vote or written consent of the
holders of the majority of the shares of Series A, B, C, D and E originally
issued or upon the closing of an initial public offering of the Company's
common stock at a price of $10 per share from which the aggregate proceeds are
not less than $40 million. The conversion rates are subject to adjustment,
pursuant to certain antidilution provisions as provided by the Company's
Amended and Restated Certificate of Incorporation.
In the event of liquidation, the holders of Series A, B, C, D and E have
preferential rights to liquidation payments of $1.00, $3.375, $6.16, $8.00 and
$5.00 per share, respectively, plus any declared but unpaid dividends. The
preferred stock has redemption rights for a six-month period beginning on
December 31, 2002 upon the election of at least 50% of the holders. The
redemption price is equal to the original purchase price plus any declared but
unpaid dividends.
Convertible and Redeemable Preferred Stock Warrants
In connection with certain leasing agreements, the Company has issued
warrants providing for the purchase of 48,750 shares and 16,666 shares of
Series A at an exercise price of $2.1875 per share, subject to adjustment as
provided in the Warrant Agreements. The Warrant Agreements expire after seven
years or 18 months to three years from the effective date of an initial public
offering, whichever comes later. During 1996, the Company entered into an
additional lease line to the Master Lease Agreement. The new lease included the
issuance of a warrant to purchase 19,999 shares of Series B with an exercise
price of $4.77. During 1997, the Company entered into an additional lease line
to this Master Lease Agreement. The new lease included the issuance of a
warrant to purchase 34,090 shares of Series C with an exercise price of $6.16.
The value of the warrants was recorded as additional debt issuance cost and is
being amortized using the interest method over the term of the related Master
Lease Agreement. The warrants were valued using the Black-Scholes valuation
model based upon the exercise prices described above, a risk free rate of 4.5%-
6.0%, a dividend yield rate of 0%, volatility of .6 and an expected life of 2-5
years. In connection with lease agreements entered into 1998, the Company
issued warrants to purchase 4,375 shares of Series D Preferred Stock with an
exercise price of $8.00.
6. Stockholders' Equity
Initial Public Offering
In February 2000, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
the Company to offer up to 12,000,000 shares of common stock to the public. In
February 2000, the Board of Directors authorized an increase in the
capitalization of the Company to 160,000,000 authorized shares with 150,000,000
shares of common stock, par value $.001 per share and 10,000,000 shares
designated as preferred stock, par value $.001 per share upon the effective
date of the Company's public offering. If the offering is consummated under
terms presently anticipated, all outstanding shares of redeemable convertible
preferred stock will convert into 27,972,908 shares of common stock. Unaudited
pro forma stockholders' equity reflects the assumed conversion of the
redeemable convertible preferred stock outstanding at December 31, 1999 into
common stock.
F-13
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity--(continued)
Stock Repurchases
On January 10, 1998, the Company repurchased 91,850 shares of common stock
from one of its founders for $501 pursuant to the terms of a stock repurchase
agreement with the founder. In addition, the Company caused one of its founders
to surrender 66,666 shares of common stock in 1996 for no consideration.
In December 1998, the Company also repurchased 416 shares from one of its
employees for $5,000.
Stock Option Plans
The Company's 1995 Stock Option Plan (the "1995 Plan") provides for the
granting of incentive stock options and nonqualified stock options to
employees, officers, directors and consultants. Options under the 1995 Plan
have been granted at fair market value on the date of grant and expire ten
years after the date of the grant. Options granted under the 1995 Plan
generally become exercisable at the rate of 25% of the total number of shares
subject to the option after the first anniversary following the date of grant,
with 2.083% vesting monthly thereafter, with all shares becoming fully vested
on the fourth anniversary date of the date of grant. The Company has reserved
2,766,666 shares of common stock for issuance under the 1995 Plan.
In May 1998, the Board of Directors approved the 1998 Stock Option Plan (the
"1998 Plan"). Options granted under the 1998 Plan generally vest on the same
terms as the 1995 Plan and are exercisable for a period of ten years. On the
first trading day of each of the five calendar years beginning in 1999 and
ending in 2003, the number of shares reserved for issuance under the 1998 Plan
automatically increase by an amount equal to three percent of the Company's
outstanding common stock, up to a maximum of 666,666 shares in any calendar
year, or such lower amount as approved by the Board of Directors. The Company
initially reserved 566,666 shares under the 1998 Plan, and was increased to
1,763,369 shares in April 1999 by the Board of Directors.
In June 1999, the Board of Directors approved the adoption of the Employee
Option Incentive Program (the "Incentive Program") under the 1998 Plan. Options
granted under the Incentive Program vest five years from the date of grant,
however, vesting shall accelerate for 50% of such options upon the effective
date of an initial public offering ("IPO") of the Company's shares, and the
remaining 50% of the options shall vest upon the twelve-month anniversary of
the effective date of the IPO. Options under the Incentive Program were granted
at estimated fair value on the date of grant and expire ten years after the
date of the grant. The Board of Directors issued 336,666 shares under this
program.
In February 2000, the Board approved the 2000 Employee Stock Purchase Plan
(ESSP), subject to shareholder approval. The Company will implement the ESSP
upon the effective date of the Registration Statement on Form S-1 for the
initial public offering and continue until April 30, 2020. The ESSP, subject to
certain limitations, permits eligible employees of the Company to purchase
common stock through payroll deductions of up to 15% of their compensation. The
Company has authorized the issuance of up to 233,333 shares of common stock
under the ESSP, plus an automatic annual increase, to be added on the first day
of the fiscal year beginning in 2001, equal to the lesser of 266,666 shares, 1%
of the common stock outstanding on the last day of the preceding fiscal year,
or a lesser number of shares as determined by the Board of Directors.
The 1998 Directors' Stock Option Plan (Directors' Plan) was adopted by the
Board of Directors in February 1998 and approved by the stockholders on April
20, 1998. A total of 200,000 shares of common stock have been reserved for
issuance under the Directors' Plan. The Directors' Plan provides for
discretionary grants of nonstatutory stock options to nonemployee directors of
the Company. Following the effectiveness of an
F-14
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity--(continued)
initial public offering of the Company's common stock, the Plan provides
automatic formula based grants to the nonemployee directors. In February 2000,
the Board of Directors amended the Directors' Plan, subject to shareholders
approval. The amended plan becomes effective upon the effectiveness of the
initial public offering. An automatic grant is made to each non-employee
director who joins the Board after the closing of the initial public offering
for an option to purchase 16,666 shares of common stock. Additionally, at each
annual shareholder meeting, each non-employee director is granted an additional
option to purchase 6,666 shares of common stock provided that the director
continues serving on the Board and has served as a director six months prior to
grant date. The amended Directors' Plan increases the issuance of options under
the plan to 466,666. Initial options granted under the directors' plan to new
nonemployee directors following the IPO will vest as to 25% of the shares
underlying the option on the first anniversary of the date of the option grant
and as to 1/48th of the shares each month after the first anniversary so that
these options will be fully vested on the fourth anniversary of the grant date.
Options granted to our nonemployee directors at the time of each annual
stockholders meeting following this offering will vest as to 1/36th of the
shares underlying the option so that these options will be fully vested on the
third anniversary of the grant date. The exercise price of all stock options
granted under the Directors' Plan shall be equal to the estimated fair value of
a share of the Company's common stock on the date of grant of the option.
Options granted under the Directors' Plan have a term of ten years.
Deferred stock compensation is calculated as the difference between the
exercise price and the deemed fair value of the Company's common stock at the
date of grant. The deferred stock compensation is amortized over the vesting
period of the related options. In 1997 and 1999, deferred stock compensation of
$1,881,282 and $1,168,848 was recorded for options granted under the various
stock option plans. Amortized stock compensation of $676,000, $651,000 and
$817,000 was recorded during each of the years ended December 31, 1997, 1998
and 1999, respectively.
In January, February and March 2000, the Company granted 547,223 additional
stock options for common stock. In connection with these grants, the Company
has recorded approximately, $2,433,000 of additional deferred stock
compensation in the first quarter of year 2000. In addition, the Company issued
230,661 shares in connection with stock option exercises.
Had the stock compensation expense for the Company's stock option plan been
determined based on the estimated fair value using the minimum value option
pricing model at the date of grant, the Company's net loss would have been
increased to these pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported.................................. $(22,104) $(44,328) $(42,413)
Pro forma.................................... (22,109) (44,728) (43,231)
Basic and diluted net loss per share:
As reported.................................. (12.18) (21.88) (18.98)
Pro forma.................................... (12.18) (22.08) (12.82)
</TABLE>
The fair value for these options was estimated at the date of grant using
minimum value option pricing models that take into account: (1) the estimated
fair value of the common stock at the grant date, (2) the exercise prices, (3)
a one-year expected life beyond the vest date, (4) no dividends, and (5) a
risk-free interest rate of between 5.42% and 6.43% during 1996 through 1999
over the expected life of the options. Compensation expense recognized in
providing pro forma disclosures may not be representative of the effects on pro
forma net income for future years because the amounts above include only the
amortization for the fair value of 1997, 1998 and 1999 grants.
F-15
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity--(continued)
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 December 31, 1999
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,295,236 $ .36 2,099,196 $1.19 2,531,996 $4.59
Granted at deemed fair
value................ 447,988 2.93 1,478,547 13.02 914,820 6.96
Granted at above
deemed fair value.... -- -- -- -- 16,666 6.75
Granted at below
deemed fair value.... 906,190 1.02 -- -- 455,250 4.61
Canceled.............. (362,157) .44 (803,981) 12.56 (754,757) 6.53
Exercised............. (188,061) .41 (241,766) .44 (278,681) .50
--------- --------- ---------
Outstanding at end of
period................. 2,009,196 1.19 2,531,996 4.56 2,885,294 5.25
========= ========= =========
Exercisable at end of
period................. 1,426,668 1.46 2,213,954 5.13 2,837,236 5.33
========= ========= =========
Weighted-average fair
value of options
granted during the
period:
Granted at value.... 2.93 12.84 12.71
Granted at below
value.............. 2.84 -- 4.54
</TABLE>
The following information is provided for options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------- -------------------------
Average
Weighted- Remaining Weighted-
Range of Average Contractual Average
Exercise Number of Exercise Life Number of Exercise
Price Options Price (Years) Options Price
- ------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.15 - 0.53 228,411 $0.26 6.12 214,441 $0.24
0.93 - 1.80 777,695 0.96 7.48 743,606 0.96
3.00 - 5.04 561,950 4.23 9.02 561,950 4.23
5.25 - 6.75 655,174 6.62 8.96 655,174 6.62
7.50 - 12.00 662,064 11.54 8.06 662,065 11.54
--------- ---------
2,885,294 5.25 8.47 2,837,236 5.33
========= =========
</TABLE>
Stock options available for future grants under the Company's stock option
plans total 1,136,232 as of December 31, 1999.
Common Stock Warrants
During 1999, the Company entered into an additional leasing agreement. The
new lease included the issuance of a warrant to purchase 20,833 shares of
common stock with an exercise price of $6.75. The value of the warrants,
determined using the Black-Scholes valuation model, was recorded as additional
interest expense over the term of the lease agreement.
F-16
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity--(continued)
Common Shares Reserved for Future Issuance
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Stock options outstanding..................................... 2,885,294
Stock option available for future grant....................... 1,136,232
----------
4,021,526
Conversion of:
Series A Preferred Stock.................................... 3,666,664
Series B Preferred Stock.................................... 1,827,157
Series C Preferred Stock.................................... 2,172,677
Series D Preferred Stock.................................... 2,900,577
Series E Preferred Stock.................................... 17,405,832
----------
27,972,907
Convertible redeemable preferred stock warrants............... 90,870
Common stock warrants......................................... 20,833
----------
32,106,136
==========
</TABLE>
7. Income Taxes
As of December 31, 1999, the Company had federal net operating loss
carryforwards (NOL) of approximately $108.4 million and research and
development tax credit carryforwards of approximately $1.9 million. The federal
net operating loss carryforwards will begin to expire in the year 2009 if not
utilized. As a result of changes in ownership coincident with the recent equity
financing, the utilization of a portion of the net operating loss carryforward
will be limited, pursuant to Section 382 of the Internal Revenue Code of 1986,
as amended. Approximately $83.1 million of the NOL is limited to approximately
$4.0 million per year. The remaining NOL is not subject to limitation as of
December 31, 1999.
F-17
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes--(continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance equal to the deferred tax assets due to the
uncertainty of realizing the benefits of the assets. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Prepaid assets........................................ $ 47 $ 57
Deferred tax assets:
Net operating loss carryforwards.................... 22,664 36,880
Research and development tax credit carryforwards... -- 1,872
Accrued compensation................................ 380 335
Fixed assets........................................ 90 175
Accrued expenses and reserves....................... 1,146 2,195
Deferred revenues................................... -- 564
Stock compensation.................................. 80 82
-------- --------
Total deferred tax assets............................. 24,360 42,103
-------- --------
24,313 42,046
Less valuation reserve................................ (24,313) (42,046)
-------- --------
Net deferred taxes.................................... $ -- $ --
======== ========
</TABLE>
8. Commitments
The Company leases its facilities under noncancelable operating lease
agreements that expire on various dates through 2005. The Company leases
certain equipment under noncancelable capital leases that expire on various
dates through 2002.
In June 1998, the Company moved into a new building. The lease on this
building expires on May 31, 2005. The Company, at its option, may extend the
term of this lease for two successive periods of five years each. The option
must be elected 12 months prior to the expiration of the initial lease term. In
connection with this arrangement, the Company has issued letters of credit to
the landlord aggregating $2.5 million.
F-18
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Commitments--(continued)
Following is a summary of future minimum payments under capital leases and
operating leases, including the principal facility, that have initial or
remaining noncancelable lease terms in excess of one year at December 31, 1999
(in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000..................................................... $3,015 $ 2,001
2001..................................................... 2,238 2,089
2002..................................................... 620 1,969
2003..................................................... -- 2,108
2004 and thereafter...................................... -- 2,867
------ -------
5,873 $11,034
=======
Less interest............................................ 702
------
5,171
Less current portion..................................... 2,692
------
$2,479
======
</TABLE>
Rental expense for operating leases was $667,939, $1,304,007 and $2,041,328
for the years ended December 31, 1997, 1998 and 1999, respectively.
The Company entered into agreements with certain leasing companies to
provide up to $3.0 million in 1997, $3.5 million in December 31, 1998 and $3.0
million at December 31, 1999 of financing to allow the Company to lease
additional equipment. Pursuant to these agreements, equipment leases would
generally have a term of three years and an implicit interest rate of 7.25% in
1997, 14.5% at December 31, 1998 and 12.25% at December 31, 1999. The leases
are secured by the underlying equipment. In connection with these lease
agreements, warrants were issued to purchase preferred stock (see Note 5).
9. Net Loss Per Share
Basic and diluted loss per share is calculated using the average number of
shares of common stock outstanding. The effect of stock options, warrants and
convertible and redeemable preferred stock have not been included in the
calculation of diluted net loss per share as their effect is antidilutive. Pro
forma basic and diluted loss per share is computed on the basis of the average
number of shares of common stock outstanding plus the effect of convertible
preferred shares as if such shares were converted to common stock at the time
of issuance as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(In thousands, except per
share data)
<S> <C> <C> <C>
Net loss (A)................................. $(22,104) $(44,328) $(42,413)
======== ======== ========
Weighted average outstanding:
Common stock (B)........................... 1,815 2,026 2,235
Convertible and redeemable preferred
stock..................................... 7,773 8,804 20,140
-------- -------- --------
Pro forma weighted average shares outstanding
(C) ........................................ 9,588 10,830 22,375
======== ======== ========
Basic and diluted net loss per share (A/B)... $ (12.18) $ (21.88) $ (18.98)
======== ======== ========
Pro forma net loss per share (A/C)........... $ (2.31) $ (4.09) $ (1.90)
======== ======== ========
</TABLE>
F-19
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Retirement Plans
The Company has a salary deferral 401(k) plan for its employees. The plan
allows employees to contribute a percentage of their pretax earnings annually,
subject to limitations imposed by the Internal Revenue Service. The plan also
allows the Company to make a matching contribution, subject to certain
limitations. To date, the Company has made no contributions to the plan.
11. Related-Party Transactions
In October 1997, the Board authorized a secured loan of $162,500 and an
unsecured loan of $75,000 to the Company's former Chief Financial Officer
("CFO"). Both loans bear interest at 5.5%. The secured loan was payable in full
on October 28, 2002, or earlier, based upon certain events specified in the
agreement. Under the original terms of the unsecured loan, $50,000 of the
principal amount of the loan was to be forgiven over a three-year period
provided that the CFO remained employed with the Company, with the remaining
balance of $25,000 plus interest due on the earlier of October 22, 2000 or the
date on which his employment terminated. In accordance with the loan agreement,
a total of $16,665 was forgiven in 1998 and was expensed as compensation.
The CFO resigned from the Company in January 1999. The Board authorized an
extension of due dates on the secured loan of $162,500 and the unsecured loan
and accrued interest balance of $62,460 to the earlier of January 30, 2000, or
190 days after an IPO of the Company. The Board authorized an amendment to the
Security Agreement securing the obligations of the former CFO under the secured
and unsecured promissory notes that provide for an acceleration of the notes
based upon certain events specified in the Agreement. These notes were repaid
in full in February 2000.
Powerwave Technologies, Inc. ("Powerwave"), whose chief executive officer is
a director of the Company, is the Company's sole supplier of linear power
amplifiers, a component in the Company's systems. Pursuant to a manufacturing
agreement with Powerwave (which agreement was approved by a majority of the
Company's disinterested directors), Powerwave will manufacture and sell to the
Company 100% of the Company's requirements for linear power amplifiers that
Powerwave manufactures. The initial term of the agreement is 18 months with an
automatic 18-month extension, unless either party otherwise terminates the
agreement. The Company's purchases from Powerwave totaled $2,203,217,
$8,047,401 and $6,427,026 in 1997, 1998, and 1999, respectively.
In December 1997, the Company determined that it would discontinue the
Company's Network Services division. In March 1998, the Company sold the assets
of this division for an aggregate purchase price of $78,000 to Advanced
Wireless Engineering ("AWE"), a company that was majority-owned by an
individual who at that time was the Company's Vice President, Network Services.
This individual resigned from the Company in March 1998 to run AWE on a full-
time basis.
12. Revenues and Operations
In December 1997, the Company determined that it would discontinue the
Network Services division. Accordingly, the carrying value of these fixed
assets were adjusted to net realizable value, thereby resulting in an
impairment loss of $200,000, which is included in other expenses in the
accompanying 1997 Statement of Operations. These assets were sold in March
1998. Included in revenues for the year ended December 31, 1997 and 1998 were
revenues of $1,450,000 and $200,000 respectively, relating to the Network
Services division and the cost of revenues were $1,728,000 and $242,000,
respectively.
In June 1998, in connection with certain patent licenses, the Company paid
$250,000 in cash and issued 7,333 common stock warrants for an aggregate amount
of $360,000. The common stock warrants had an
F-20
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Revenues and Operations--(continued)
exercise price of $.015 per share and were immediately exercised. The value of
these warrants, using the Black-Scholes valuation model, of $110,000 and cash
of $250,000 was recorded as research and development expense in 1998.
Revenues from customers representing more than 10% of annual sales in each
year were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
AirTouch Communications, Inc....................... 27.0% -- --
Alltel Communications Inc. ........................ -- 61.8% 44.8%
Cox Communications Inc. ........................... 63.0% -- --
GTE Wireless....................................... -- 13.4% --
Grupo Iusacell S.A. de C.V. ....................... -- -- 26.0%
OJSC St. Petersburg Telecom........................ -- 13.4% --
Southwestco Wireless............................... -- -- 20.9%
Telefonica Servicios Moviles S.A. ................. -- 10.1% --
</TABLE>
13. International Operations
Metawave sells its smart antenna systems and services throughout the world,
and operates in a single industry segment. While certain expenses for sales and
marketing activities are incurred in various geographical regions,
substantially all of Metawave's assets are located and the majority of its
operating expenses are incurred at its corporate headquarters. Revenue
information by geographic region is the only segment information presented as
follows:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1997 1998 1999
------ ------- -------
(in thousands)
<S> <C> <C> <C>
United States....................................... $1,450 $12,233 $16,717
Paraguay............................................ -- 1,615 --
Russia.............................................. -- 2,143 --
Mexico.............................................. -- -- 5,879
------ ------- -------
Total............................................... $1,450 $15,991 $22,596
====== ======= =======
</TABLE>
14. Subsequent Event--Reverse Stock Split
On March 27, 2000 the Board of Directors authorized a two for three reverse
stock split of Metawave's common stock that will be effective immediately
before the effective date of the initial public offering discussed in Note 6.
Also, as a result of the split the conversion rate of each series of preferred
stock was adjusted to reflect the split. All share and per share data and all
conversion rate disclosures in the accompanying financial statements have been
retroactively adjusted to reflect this split.
F-21
<PAGE>
Stylized Metawave Logo
Text on top: Customers & Deployments
Map of the world depicting customer deployments by commercial sales and field
trials
Bullet points:
* Commercial Sale
* Field Trial
Graphic of radio frequency spectrum
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
6,250,000 Shares
[LOGO OF METAWAVE COMMUNICATIONS CORPORATION]
Common Stock
--------------------
PROSPECTUS
--------------------
Merrill Lynch & Co.
Salomon Smith Barney
U.S. Bancorp Piper Jaffray
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market Listing
Fee.
<TABLE>
<CAPTION>
Amount
To Be Paid
----------
<S> <C>
SEC Registration Fee............................................. $ 24,668
NASD Filing Fee.................................................. 9,125
Nasdaq National Market Listing Fee............................... 1,000
Printing Fees and Expenses....................................... 200,000
Legal Fees and Expenses.......................................... 300,000
Accounting Fees and Expenses..................................... 200,000
Blue Sky Fees and Expenses....................................... 5,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 250,207
----------
Total.......................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Article IX of
Metawave's certificate of incorporation and sections 6.1 and 6.2 of Article VI
of Metawave's bylaws provide for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, Metawave has entered into indemnification
agreements with its directors and officers. The indemnification agreements may
require Metawave, among other things, to indemnify its directors against
certain liabilities that may arise by reason of their status or service as
directors (other than liabilities arising from willful misconduct of culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors'
insurance if available on reasonable terms. The underwriting agreement (Exhibit
1.1 hereto) also provides for cross indemnification among Metawave and the
underwriters with respect to certain matters, including matters arising under
the Securities Act of 1933.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1997, we have issued and sold (without payment of any
selling commission to any person except as noted below) the following
unregistered securities (as adjusted to reflect the automatic conversion of our
outstanding preferred stock into common stock upon completion of this
offering):
(1) In August 1997, we issued and sold shares of Series D preferred
stock convertible into an aggregate of 2,304,120 shares of common stock to
22 investors for an aggregate purchase price of $19,181,865.
(2) In December 1998 and April and June 1999, we issued and sold shares
of Series E Preferred Stock convertible into an aggregate of 17,405,832
shares of common stock to 25 investors for an aggregate purchase price of
$91,380,781. We paid an aggregate of $1,650,322 in commissions in
connection with the sale of Series E preferred stock.
II-1
<PAGE>
(3) We issued to an equipment lease provider in June 1997, a warrant to
purchase shares of Series C preferred stock convertible into 29,722 shares
of common stock for an aggregate purchase price of $209,994.
(4) In April 1998, we issued an aggregate principal amount of $29.0
million 13.75% Senior Secured Bridge Notes due April 28, 2000 to certain
institutional investors. In connection with the issuance of such notes, we
issued warrants to purchase shares of Series D preferred stock convertible
into 596,470 shares of common stock for an aggregate purchase price of
$5,375. We paid an aggregate of $1,450,000 in commissions in connection
with the issuance of the Senior Secured Bridge Notes.
(5) In May 1998, we issued to an equipment lease provider a warrant to
purchase shares of Series D preferred stock convertible into 4,204 shares
of common stock for an aggregate purchase price of $35,000.
(6) In June 1998, in connection with certain patent licenses, we issued
the licensor a warrant to purchase 7,333 shares of common stock for an
aggregate purchase price of $110. Such licensor subsequently exercised the
warrant and purchased 7,333 shares of common stock for an aggregate
purchase price of $110.
(7) In May 1999, we issued to an equipment lease provider a warrant to
purchase 20,833 shares of common stock for an aggregate purchase price of
$140,625.
(8) As of December 31, 1999, an aggregate of 708,508 shares of common
stock had been issued upon exercise of options under our stock option
plans.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1) through 15(a)(7) were deemed to be
exempt from registration under the Securities Act in reliance upon Section 4(2)
thereof as transactions by an issuer not involving any public offering. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends where
affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about the
Registrant. The issuances described in Items 15(a)(8) were deemed to be exempt
from registration under the Securities Act in reliance upon Rule 701
promulgated thereunder in that they were offered and sold either pursuant to
written compensatory benefit plans or pursuant to a written contract relating
to compensation, as provided by Rule 701. In addition, such issuances were
deemed to be exempt from registration under Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Sixth Amended and Restated Certificate of Incorporation of the
Registrant, to be effected prior to the effective date of the
offering.
3.4* Seventh Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
offering.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.2* 1995 Stock Option Plan, as amended.
10.3* 1998 Stock Option Plan, as amended.
10.4 2000 Employee Stock Purchase Plan.
10.5 1998 Amended and Restated Directors' Stock Option Plan.
10.6* Series E Preferred Stock Purchase Agreement dated April 28, 1999.
10.7* Fifth Amended and Restated Investors Rights Agreement dated April
28, 1999 by and among the Registrant and certain holders of the
Registrant's capital stock.
10.8+* Lease for Willow Creek Corporate Center dated September 29, 1997 by
and between the Registrant and Carr America Realty Corporation.
10.9+* Purchase Agreement dated March 4, 1998 by and between the Registrant
and ALLTEL Supply Inc.
10.10+* Loan Agreement dated October 14, 1997 by and between Registrant and
Imperial Bank, and amendments thereto.
10.11+* Manufacturing Agreement between the Registrant and Powerwave
Technologies, Inc. dated as of September 3, 1998.
10.12+* Purchase Agreement between the Registrant and GTE Wireless
Incorporated dated as of September 8, 1998.
10.13+* Technical Cooperation Agreement between the Registrant and Shanghai
Telecom dated as of December 17, 1998.
10.14+* Purchase Agreement between the Registrant and Southwestco Wireless,
L.P. dated as of February 24, 1999.
10.15+* Value Added Reseller Agreement between the Registrant and CommVerge
Solutions (Asia), Inc. dated as of December 4, 1999.
10.16+* Distribution Agreement between the Registrant and SeeNode Co., Ltd.
dated as of February 10, 2000.
10.17+* Purchase Agreement between the Registrant and AirTouch Support
Services, Inc. dated as of January 1, 2000.
10.18+* Purchase Agreement between the Registrant and Grupo IUSACELL S.A.,
de C.V. dated as of December 17, 1999.
10.19+* Purchase Agreement between the Registrant and Cellco, L.P., dba Bell
Atlantic dated as of December 20, 1999.
10.20* Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995.
10.21* Employment Agreement with Mr. Robert H. Hunsberger dated July 27,
1997.
10.22+* Employment Agreement with Mr. Andy Merrill dated July 12, 1999.
10.23* Employment Agreement with Mr. Richard Henderson dated October 29,
1997.
10.24* Employment Agreement with Mr. Victor K. Liang dated July 23, 1998.
10.25+* Employment Agreement with Mr. Stuart Fuhlendorf dated March 10,
2000.
10.26 2000 Stock Plan.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (see page II-5).
27.1* Financial Data Schedule.
99.1* Report of Ernst & Young LLP, Independent Auditors on Financial Statement Schedule.
99.2* Financial Statement Schedule.
</TABLE>
- --------
* Previously filed.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406.
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts (see Exhibit 99.2).
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant 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 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 undersigned Registrant 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 the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Act shall be deemed to be a 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 this offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 2 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redmond, State of Washington, on April 6, 2000.
METAWAVE COMMUNICATIONS CORPORATION
/s/ Robert H. Hunsberger
By: _________________________________
Robert H. Hunsberger
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Hunsberger President, Chief Executive April 6, 2000
_________________________________ Officer and Director (Principal
Robert H. Hunsberger Executive Officer)
/s/ Stuart W. Fuhlendorf Senior Vice President and Chief April 6, 2000
_________________________________ Financial Officer (Principal
Stuart W. Fuhlendorf Financial and Accounting
Officer)
/s/ Douglas O. Reudink Chief Technical Officer and April 6, 2000
_________________________________ Chairman of the Board of
Douglas O. Reudink Directors
/s/ Bandel L. Carano Director April 6, 2000
_________________________________
Bandel L. Carano
/s/ Bruce C. Edwards Director April 6, 2000
_________________________________
Bruce C. Edwards
/s/ David R. Hathaway Director April 6, 2000
_________________________________
David R. Hathaway
/s/ Scot B. Jarvis Director April 6, 2000
_________________________________
Scot B. Jarvis
/s/ Jennifer Gill Roberts Director April 6, 2000
_________________________________
Jennifer Gill Roberts
/s/ David A. Twyver Director April 6, 2000
_________________________________
David A. Twyver
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Sixth Amended and Restated Certificate of Incorporation of the
Registrant, to be effected prior to the effective date of the
offering.
3.4* Seventh Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
offering.
5.1 Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1995 Stock Option Plan, as amended.
10.3* 1998 Stock Option Plan, as amended.
10.4 2000 Employee Stock Purchase Plan.
10.5 1998 Amended and Restated Directors' Stock Option Plan.
10.6* Series E Preferred Stock Purchase Agreement dated April 28, 1999.
10.7* Fifth Amended and Restated Investors Rights Agreement dated April
28, 1999 by and among the Registrant and certain holders of the
Registrant's capital stock.
10.8+* Lease for Willow Creek Corporate Center dated September 29, 1997 by
and between the Registrant and Carr America Realty Corporation.
10.9+* Purchase Agreement dated March 4, 1998 by and between the Registrant
and ALLTEL Supply Inc.
10.10+* Loan Agreement dated October 14, 1997 by and between Registrant and
Imperial Bank, and amendments thereto.
10.11+* Manufacturing Agreement between the Registrant and Powerwave
Technologies, Inc. dated as of September 3, 1998.
10.12+* Purchase Agreement between the Registrant and GTE Wireless
Incorporated dated as of September 8, 1998.
10.13+* Technical Cooperation Agreement between the Registrant and Shanghai
Telecom dated as of December 17, 1998.
10.14+* Purchase Agreement between the Registrant and Southwestco Wireless,
L.P. dated as of February 24, 1999.
10.15+* Value Added Reseller Agreement between the Registrant and CommVerge
Solutions (Asia), Inc. dated as of December 4, 1999.
10.16+* Distribution Agreement between the Registrant and SeeNode Co., Ltd.
dated as of February 10, 2000.
10.17+* Purchase Agreement between the Registrant and AirTouch Support
Services, Inc. dated as of January 1, 2000.
10.18+* Purchase Agreement between the Registrant and Grupo IUSACELL S.A.,
de C.V. dated as of December 17, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.19+* Purchase Agreement between the Registrant and Cellco, L.P., dba Bell
Atlantic dated as of December 20, 1999.
10.20* Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995.
10.21* Employment Agreement with Mr. Robert H. Hunsberger dated July 27,
1997.
10.22+* Employment Agreement with Mr. Andy Merrill dated July 12, 1999.
10.23* Employment Agreement with Mr. Richard Henderson dated October 29,
1997.
10.24* Employment Agreement with Mr. Victor K. Liang dated July 23, 1998.
10.25+* Employment Agreement with Mr. Stuart Fuhlendorf dated March 10,
2000.
10.26 2000 Stock Option Plan.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (see page II-4).
27.1* Financial Data Schedule.
99.1* Report of Ernst & Young LLP, Independent Auditors on Financial
Statement Schedule.
99.2* Financial Statement Schedule.
</TABLE>
- --------
* Previously filed.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406.
<PAGE>
EXHIBIT 5.1
March 24, 2000
Metawave Communications Corporation
10735 Willows Road NE
Redmond, WA 98052
Registration Statement on Form S-1 (File No. 333-30568)
-------------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
30568) (the "Registration Statement") to be filed by you with the Securities and
Exchange Commission on March 24, 2000, in connection with the registration
under the Securities Act of 1933 of shares of your Common Stock (the "Shares").
As your legal counsel in connection with this transaction, we have examined the
proceedings taken and we are familiar with the proceedings proposed to be taken
by you in connection with the sale and issuance of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable under the general corporate law of the State of
Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and in any amendment to it.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
WWE
<PAGE>
EXHIBIT 10.4
METAWAVE COMMUNICATIONS CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Metawave Communications Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Metawave Communications Corporation, a Delaware
corporation.
(e) "Compensation" means total cash compensation received by an
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses (other than bonuses offered in
connection with, and as an inducement for, the commencement of employment),
commissions and incentive compensation, but excludes relocation, expense
reimbursements, tuition or other reimbursements, cash payments in lieu of sick
or vacation time benefits and income realized as a result of participation in
any stock option, stock purchase, or similar plan of the Company or any
Designated Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
participant pursuant to the Plan.
<PAGE>
(h) "Corporate Transaction" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Offering Date" means the first business day of each Offering
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
commencing on May 1 and November 1 of each year, except for the first Offering
Period and as otherwise as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
(p) "Purchase Date" means the last day of each Purchase Period of the
Plan.
(q) "Purchase Period" means a period of six (6) months within an
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "Purchase Price" means with respect to a Purchase Period an
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
-2-
<PAGE>
(s) "Share" means a share of Common Stock, as adjusted in accordance
with Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
(a) Offering Periods. The Plan shall be implemented by a series of
Offering Periods of approximately twenty-four (24) months duration, with new
Offering Periods commencing on or about May 1 and November 1 of each year (or at
such other time or times as may be determined by the Board of Directors). The
first Offering Period shall commence on the effective date of the Registration
Statement on Form S-1 for the initial public offering of the Company's Common
Stock (the "IPO Date") and continue until April 30, 2002 (unless the IPO date
occurs after May 1, 2000, in which case "May 1" wherever used in this Plan shall
be replaced with "August 1" and "November 1" wherever used in this Plan shall be
replaced with "February 1" of the following year). The Plan shall continue until
terminated in accordance with Section 20 hereof. The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without stockholder approval
if such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
consecutive Purchase Periods of approximately six (6) months' duration. The last
day of each Purchase Period shall be the "Purchase Date" for such Purchase
Period. A Purchase Period commencing on May 1 shall end on the next October 31
and a Purchase Period commencing on November 1 shall end on the next April 30
(unless the IPO date occurs after May 1, 2000, in which case "May 1"
-3-
<PAGE>
wherever used in this Plan shall be replaced with "August 1," "November 1"
wherever used in this Plan shall be replaced with "February 1" of the following
year, "October 31" wherever used in this Plan shall be replaced with "January
31" of the following year and "April 30" wherever used in this Plan shall be
replaced with "July 31"). The first Purchase Period shall commence on the IPO
Date and shall end on October 31, 2000. The Board of Directors of the Company
shall have the power to change the duration and/or frequency of Purchase Periods
with respect to future purchases without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Purchase Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing an enrollment agreement on the form provided by the Company and
delivering it to the Company prior to the applicable Offering Date. The
enrollment agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll paid
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the enrollment
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. Method of Payment of Contributions.
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than fifteen percent (15%) (or such greater percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during an Offering Period; provided that to the
extent a participant is participating in more than one Offering Period, the
maximum aggregate percentage of Compensation that he or she may contribute under
the Plan shall be fifteen percent (15%) (or such greater percentage as the Board
may establish from time to time before an Offering Date). All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, may notify the Administrator that he or she
wishes to increase or decrease the rate of his or her Contributions with respect
to the Offering Period by completing and filing with the Company a new
enrollment agreement authorizing a change in the payroll deduction rate. Any
change in rate of Contributions pursuant to the preceding sentence shall be
effective as of the next succeeding May 1 or November 1, as applicable, provided
the agreement indicating such change is filed at least ten (10) business days
prior to such date and, if not, then such change shall be effective as of the
next following May 1 or November 1, as the case may be.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b), a participant's payroll
deductions may be decreased by the Company to 0% at any time during a Purchase
Period. Payroll deductions shall
-4-
<PAGE>
re-commence at the rate provided in such participant's enrollment agreement at
the beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 10. In addition, a participant's payroll deductions may be decreased by
the Company to 0% at any time during a Purchase Period in order to avoid
unnecessary payroll contributions as a result of application of the maximum
share limit set forth in Section 7(a), in which case payroll deductions shall
re-commence at the rate provided in such participant's enrollment agreement at
the beginning of the next Purchase Period, unless terminated by the participant
as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Purchase Period shall be 1,333
Shares (subject to any adjustment pursuant to Section 19 below), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
discretion; provided that, to the extent the Common Stock is trading on the
Nasdaq National Market, (i) the Fair Market Value as of an Offering Date shall
be the closing sales price of the Common Stock as reported by the Nasdaq
National Market for the last trading day immediately preceding the Offering
Date, and (ii) the Fair Market Value of the Common Stock as of a Purchase Date
shall be the closing sales price of the Common Stock as reported by the Nasdaq
National Market for the Purchase Date, in each case as reported in The Wall
Street Journal. For purposes of the Offering Date under the first Offering
Period under the Plan, the Fair Market Value of a share of the Common Stock of
the Company shall be the Price to Public as set forth in the final prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any
-5-
<PAGE>
payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full Share shall be retained in the participant's
account for the subsequent Purchase Period or Offering Period, subject to
earlier withdrawal by the participant as provided in Section 10 below. Any other
amounts left over in a participant's account after a Purchase Date shall be
returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. To the extent permitted by any applicable laws,
regulations or stock exchange rules, if the Fair Market Value of the Shares on
an Offering Date for an Offering Period (the "New Offering Period") commencing
within an Offering Period (The "Ongoing Offering Period") then in progress is
lower than was the Fair Market Value of the Shares on the Offering Date for the
Ongoing Offering Period, then every participant in the Ongoing Offering Period
shall automatically be deemed to have (i) withdrawn from the Ongoing Offering
Period at the close of the Purchase Period immediately preceding the New
Offering Period, and (ii) enrolled in such New Offering Period. In addition,
participants shall automatically be withdrawn as of April 30, 2000 from the
Offering Period beginning on the IPO Date and re-enrolled in the Offering Period
beginning on May 1, 2000 if the Fair Market Value of the Shares on the IPO Date
is greater than the Fair Market Value of the Shares for the May 1, 2000 Offering
Date unless a participant notifies the Administrator prior to April 30, 2000
that he or she does not wish to be withdrawn and re-enrolled under these
circumstances.
-6-
<PAGE>
All payroll deductions accumulated in a participant's account as of any
withdrawal date pursuant to this Section 11 shall be returned to the
participant.
12. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
233,333 Shares, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2001 through 2010 equal to the lesser of (i)
266,666 Shares, (ii) one percent (1%) of the Shares outstanding on the last day
of the immediately preceding fiscal year, or (iii) such lesser number of Shares
as is determined by the Board. If the Board determines that, on a given Purchase
Date, the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Purchase Date,
the Board may in its sole discretion provide (x) that the Company shall make a
pro rata allocation of the Shares of Common Stock available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below. The Company may make pro rata allocation of the
Shares available on the Offering Date of any applicable Offering Period pursuant
to the preceding sentence, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
-7-
<PAGE>
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders
of the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a) above, and the price
per Share of Common Stock covered by each option under the Plan which has not
yet been
-8-
<PAGE>
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock (including any
such change in the number of Shares of Common Stock effected in connection with
a change in domicile of the Company), or any other increase or decrease in the
number of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
an option.
(b) Corporate Transactions. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which date any Purchase Period and
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 19); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding
-9-
<PAGE>
Common Stock, and in the event of the Company's being consolidated with or
merged into any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
-10-
<PAGE>
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
-11-
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Metawave Communications Corporation 2000 Employee Stock Purchase Plan (the
"Plan") for the Offering Period ______________, ____ to _______________, ____,
and subscribe to purchase shares of the Company's Common Stock in accordance
with this Enrollment Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount (together with any other amounts I am contributing
under the Plan) must not be less than 1% and not more than 15% of my
Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Enrollment Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions during
an Offering Period by completing and filing with the Company a new Enrollment
Agreement with such increase or decrease taking effect as of the next following
May 1 or November 1, as applicable, within the Offering Period, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Enrollment Agreement, and any such change will be effective as of the beginning
of the next Offering Period. In addition, I acknowledge that, unless I
discontinue my participation in the Plan as provided in Section 10 of the Plan,
my election will continue to be effective for each successive Offering Period.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Metawave Communications Corporation 2000
Employee Stock Purchase
<PAGE>
Plan." I understand that my participation in the Plan is in all respects subject
to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ____________________________________
(First) (Middle) (Last)
__________________________________ ____________________________________
(Relationship) (Address)
Social Security #:________________ ____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
date of any such disposition, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company shall be entitled, to the extent
required by applicable law, to withhold from my Compensation any amount
necessary to comply with applicable tax withholding requirements with respect to
the purchase or sale of shares under the Plan.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
-2-
<PAGE>
I understand that this tax summary is only a summary and is subject to
change. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
10. In connection with the initial public offering of the Company's
securities and upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, I agree not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any securities of the Company, however or whenever I acquired them, without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
11. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Enrollment Agreement is dependent upon my eligibility to participate in
the Plan.
NAME (print):
-----------------------------
SIGNATURE:
--------------------------------
SOCIAL SECURITY #:
------------------------
DATE:
-------------------------------------
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
- ------------------------------------------
(Signature)
- ------------------------------------------
(Print name)
-3-
<PAGE>
METAWAVE COMMUNICATIONS CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the Metawave Communications Corporation 2000 Employee Stock Purchase Plan (the
"Plan") for the Offering Period that began on _________ ___, _____. This
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Enrollment Agreement.
Dated:___________________ _______________________________________
Signature of Employee
_______________________________________
Social Security Number
<PAGE>
EXHIBIT 10.5
METAWAVE COMMUNICATIONS CORPORATION
1998 DIRECTORS' STOCK OPTION PLAN
(as amended February 10, 2000)
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Metawave Communications Corporation, a
Delaware corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Control Transaction" means:
(i) any merger, consolidation, or statutory or contractual share
exchange in which there is no group of persons who held a majority of the
outstanding Common Stock immediately prior to the transaction who continue to
hold, immediately following the transaction, at least a majority of the combined
voting power of the outstanding shares of that class of capital stock (herein,
"Voting Stock") which ordinarily (and apart from rights accruing under special
circumstances) has the right to vote in the election of directors of the Company
(or of any other corporation or entity whose securities are issued in such
transaction wholly or partially in exchange for Common Stock);
(ii) any liquidation or dissolution of the Company;
(iii) any transaction (or series of related transactions)
involving the sale, lease, exchange or other transfer not in the ordinary course
of business of all, or substantially all, of the assets of the Company; or
(iv) any transaction (or series of related transactions) in
which any person (including, without limitation, any natural person, any
corporation or other legal entity,
<PAGE>
and any person as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act,
other than the Company or any employee benefit plan sponsored by the Company):
(A) purchases any Common Stock (or securities convertible
into Common Stock) for cash, securities or any other consideration pursuant to a
tender offer or exchange offer subject to the requirements of the Exchange Act,
or
(B) directly or indirectly becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the Company
which, when aggregated with such person's beneficial ownership prior to such
transaction, either (x) represent 30% or more (50% or more if the Company is not
then subject to the requirements of the Exchange Act) (the "Control Percentage")
of the combined voting power of the then outstanding Voting Stock of the
Company, or (y) if such person's beneficial ownership prior to such transaction
already exceeded the applicable Control Percentage, result in an increase in
such holder's beneficial ownership percentage (all such percentages being
calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to
rights to acquire the Company's securities).
All references in this definition to specific sections of or rules
promulgated under the Exchange Act shall apply whether or not the Company is
then subject to the requirements of the Exchange Act.
(g) "Director" shall mean a member of the Board.
(h) "Employee" shall mean any person, including any officer or
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Outside Director who receives an Option.
(m) "Outside Director" shall mean a Director who is not an Employee.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1998 Directors' Stock Option Plan.
<PAGE>
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(r) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 466,666 Shares (the "Pool") of Common Stock. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) Procedure for Grants Effective following Initial Public Offering.
All grants of Options hereunder after the effectiveness date of a registration
statement under the Securities Act of 1933 relating to the Company's initial
public offering of securities ("IPO Effective Date") shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who first becomes an Outside Director
after the IPO Effective Date shall automatically be granted an Option to
purchase 16,666 Shares (the "First Option") on the date on which such person
first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall automatically be granted an
Option to purchase 6,666 Shares (a "Subsequent Option") on the date of each
Annual Meeting of the Company's stockholders immediately following which such
Outside Director is serving on
<PAGE>
the Board, provided that, on such date, the IPO Effective Date shall have
occurred and he or she shall have served on the Board for at least six (6)
months prior to the date of such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (b) and (c)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
such date on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
stockholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be
as follows:
(A) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(B) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
(C) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
the first anniversary of the date of grant of the Option and one-forty-eighth
(1/48th) of the total number of Shares subject to the Option shall vest ratably
at the end of each month thereafter upon Optionee's completion of each month of
Continuous Status as a Director.
(vii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(A) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(B) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and
(C) the Subsequent Option shall become exercisable in
installments cumulatively as to one-thirty-sixth (1/36th) of the Shares subject
to the Subsequent
<PAGE>
Option at the end of each month following the date of grant upon Optionee's
completion of each month of Continuous Status as a Director.
(c) Procedure for Grants prior to Initial Public Offering. Prior to
the IPO Effective Date, the Board (or one or more committees of the Board) shall
administer the Plan and may grant options to Directors on such terms and
conditions, not inconsistent with the terms of the Plan, as it determines.
(d) Powers of the Board. Subject to the provisions and restrictions
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(e) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(f) Suspension or Termination of Option. If the President or his or
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. After
the IPO Effective Date, all Options shall be automatically granted in accordance
with the terms set forth in Section 4(b) hereof. An Outside Director who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in
<PAGE>
any way with any rights which the Director or the Company may have to terminate
his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
date of its adoption by the Board of Directors. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
the date of grant thereof.
8. Exercise Price and Consideration
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
the Board; provided, however, that where there is a public market for the Common
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
Journal. With respect to any Options granted hereunder concurrently with the
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.
(c) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times as are set forth by (i) the
Administrator with respect to Options granted prior to the IPO Effective Date
and (ii) by 4(b) hereof with respect to Options granted after the IPO Effective
Date; provided, however, that after the IPO Effective Date, no Options shall be
exercisable prior to stockholder approval of the Plan in accordance with Section
17 hereof.
An Option may not be exercised for a fraction of a Share.
<PAGE>
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board) from the date of such termination, exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the date of termination, or
if he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
during the period of Continuous Status as a Director since the date of grant of
the Option, or within thirty (30) days following termination of Optionee's
Continuous Status as a Director, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise Shares that are not subject to repurchase that had accrued at
the date of death or, if earlier, the date of termination of Optionee's
Continuous Status as a Director. To the extent that Optionee was not entitled
to exercise the
<PAGE>
Option at the date of death or termination, as the case may be, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
10. Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, or disposed of in any manner other than by will or by
the laws of descent or distribution or pursuant to a qualified domestic
relations order; provided, however, that Options shall be transferable under
the terms and conditions established by the Administrator to the following
recipients: a family trust established by the Optionee, a family limited
partnership established by the Optionee, a member of Optionee's immediate family
or to a partnership or other entity of which Optionee is a general partner or in
which Optionee plays a similar managerial role. Any such transfer shall be
subject to the applicable laws. An Option may be exercised, during the lifetime
of the Optionee, only by the Optionee or a transferee permitted by this Section
10.
11. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option, the number of Shares specified in Section 4(b) above,
and the number of Shares of Common Stock that have been authorized for issuance
under the Plan but as to which no Options have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination, recapitalization or reclassification of the Common
Stock, or any other increase or decrease in the number of issued Shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Control Transaction.
(i) Following Initial Public Offering. With respect to Options issued
under this Plan following the Company's initial public offering, this Section
11(c)(i) shall govern. In the event of a Control Transaction, each such
outstanding Option shall be assumed or an equivalent option or right shall be
substituted by the Company's successor corporation or a
<PAGE>
parent or subsidiary of such successor corporation (the "Successor
Corporation"), unless the Successor Corporation does not agree to assume the
award or to substitute an equivalent option, in which case the vesting and
exercisability of each such Option shall accelerate as to that number of Shares
that would otherwise have vested and been exercisable as of the date 12 months
or 24 months from the date of consummation of the transaction (assuming the
Optionee had remained in Continuous Status as a Director for such 12 or 24 month
period), depending upon whether as of the date of such consummation the Optionee
has been in Continuous Status as a Director less than two years, or two years or
more, respectively. To the extent that an Option is not exercised prior to
consummation of a Control Transaction in which the Option is not being assumed
or substituted, such Option shall terminate upon the consummation. Any exercise
may be made contingent upon consummation of a Control Transaction if so elected
by the Optionee in his or her notice of exercise, and must be made contingent
upon such consummation with respect to any portion of an Option entitled to
accelerated vesting under this Section 11(c)(i).
(ii) Prior to Initial Public Offering. With respect to Options
issued under the Plan prior to the Company's initial public offering, in the
event of a Control Transaction, this Section 11(c)(ii) shall govern:
(A) The Company shall provide each Optionee with notice of
the pendency of any Control Transaction (i) at least thirty (30) days prior to
the expected date of consummation of a Control Transaction that has been
approved or recommended by the Board, or (ii) promptly after the Board becomes
aware of the pendency or occurrence of a proposed or completed Control
Transaction that has not been approved or recommended by the Board.
(B) Each Optionee shall be entitled to exercise the vested
portion of the Option at any time prior to consummation of a Control
Transaction. If the terms of the Option prescribe a time-based vesting schedule,
the Optionee shall, conditioned upon consummation of the Control Transaction and
upon the Optionee's continuing to serve as a Director through the date of such
consummation, be entitled to accelerated vesting credit equal to either twelve
months or twenty-four months of additional vesting beyond that otherwise
scheduled, based on whether he or she has been in Continuous Status as a
Director less than two years, or two years or more, respectively, as of the date
of such consummation; provided, however, that the acceleration provided for
above shall not apply with respect to any Option which is assumed by or as to
which the acquiring person or the surviving corporation, as the case may be,
provides for the substitution of a new option for the Option on terms which are,
as nearly as practicable, the financial equivalent of the Option (taking into
account the consideration for which the Common Stock is to be exchanged in the
Control Transaction).
(C) Any exercise may be made contingent upon consummation
of a Control Transaction if so elected by the Optionee in his or her notice of
exercise, and must be made contingent upon such consummation with respect to any
portion of an Option entitled to accelerated vesting under the second sentence
of Section 11(c)(ii)(B) above.
(D) Upon consummation of a Control Transaction that has
been approved or recommended by the Board, all unexercised Options shall expire,
except to the
<PAGE>
extent that they are assumed or replaced with equivalent awards pursuant to the
second sentence of Section 11(c)(ii)(B) above.
(iii) Definition of Assumption. For purposes of this Section
11(c), an Option shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon a Control Transaction,
each holder of an Option would be entitled to receive upon exercise of the award
the same number and kind of shares of stock or the same amount of property, cash
or securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to such
transaction, the holder of the number of Shares of Common Stock covered by the
award at such time (after giving effect to any adjustments in the number of
Shares covered by the Option as provided for in this Section 11); provided that
if such consideration received in the transaction is not solely common stock of
the Successor Corporation, the Administrator may, with the consent of the
Successor Corporation, provide for the consideration to be received upon
exercise of the award to be solely common stock of the Successor Corporation
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.
(d) Certain Distributions. In the event of any distribution to the
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Time of Granting Options. With respect to Options granted after the
IPO Effective Date, the date of grant of an Option shall, for all purposes, be
the date determined in accordance with Section 4(b) hereof. Notice of the
determination shall be given to each Outside Director to whom an Option is so
granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the
<PAGE>
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding Shares of the Company present or represented and entitled to vote
thereon.
<PAGE>
EXHIBIT 10.26
METAWAVE COMMUNICATIONS CORPORATION
2000 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants and
to promote the success of the Company's business. Options granted under the Plan
may be Incentive Stock Options or Nonstatutory Stock Options, as determined by
the Administrator at the time of grant of an option and subject to the
applicable provisions of Section 422 of the Code and the regulations promulgated
thereunder. Stock purchase rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
below) which, together with the Company, is under common control of a third
person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" for termination of a Participant's Continuous Service
Status will exist if the Participant is terminated for any of the following
reasons: (i) Participant's willful failure substantially to perform his or her
duties and responsibilities to the Company or deliberate violation of a Company
policy; (ii) Participant's commission of any act of fraud, embezzlement,
dishonesty or any other willful misconduct that has caused or is reasonably
expected to result in material injury to the Company; (iii) unauthorized use or
disclosure by Participant of any proprietary information or trade secrets of the
Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful breach of any of his or her obligations under any written
agreement or covenant with the Company. The determination as to whether a
Participant is being terminated for Cause shall be made in good faith by the
Company and shall be final and binding on the Participant. The foregoing
definition does not in any way limit the Company's ability to terminate a
Participant's employment or consulting relationship at any time as provided in
Section 5(d) below, and the term "Company" will be interpreted to include any
Subsidiary, Parent, Affiliate or successor thereto, if appropriate.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(g) "Committee" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(h) "Common Stock" means the Common Stock of the Company.
(i) "Company" means Metawave Communications Corporation, a Delaware
corporation.
(j) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "Continuous Service Status" means the absence of any interruption
or termination of service as an Employee or Consultant. Continuous Service
Status as an Employee or Consultant shall not be considered interrupted in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence
approved by the Administrator, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its Parents,
Subsidiaries, Affiliates or their respective successors. A change in status
from an Employee to a Consultant or from a Consultant to an Employee will not
constitute an interruption of Continuous Service Status.
(l) "Control Transaction" means:
(i) any merger, consolidation, or statutory or contractual
share exchange in which there is no group of persons who held a majority of the
outstanding Common Stock immediately prior to the transaction who continue to
hold, immediately following the transaction, at least a majority of the combined
voting power of the outstanding shares of that class of capital stock (herein,
"Voting Stock") which ordinarily (and apart from rights accruing under special
circumstances) has the right to vote in the election of directors of the Company
(or of any other corporation or entity whose securities are issued in such
transaction wholly or partially in exchange for Common Stock);
(ii) any liquidation or dissolution of the Company;
(iii) any transaction (or series of related transactions)
involving the sale, lease, exchange or other transfer not in the ordinary course
of business of all, or substantially all, of the assets of the Company; or
(iv) any transaction (or series of related transactions) in
which any person (including, without limitation, any natural person, any
corporation or other legal entity, and any person as defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act, other than the Company or any
employee benefit plan sponsored by the Company):
(A) purchases any Common Stock (or securities convertible
into Common Stock) for cash, securities or any other consideration pursuant to a
tender offer or exchange offer subject to the requirements of the Exchange Act,
or
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<PAGE>
(B) directly or indirectly becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the Company
which, when aggregated with such person's beneficial ownership prior to such
transaction, either (x) represent 30% or more (50% or more if the Company is not
then subject to the requirements of the Exchange Act) (the "Control Percentage")
of the combined voting power of the then outstanding Voting Stock of the
Company, or (y) if such person's beneficial ownership prior to such transaction
already exceeded the applicable Control Percentage, result in an increase in
such holder's beneficial ownership percentage (all such percentages being
calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to
rights to acquire the Company's securities).
All references in this definition to specific sections of or rules
promulgated under the Exchange Act shall apply whether or not the Company is
then subject to the requirements of the Exchange Act.
(m) "Director" means a member of the Board.
(n) "Employee" means any person employed by the Company or any
Parent, Subsidiary or Affiliate, with the status of employment determined based
upon such factors as are deemed appropriate by the Administrator in its
discretion, subject to any requirements of the Code or the Applicable Laws. The
payment by the Company of a director's fee to a Director shall not be sufficient
to constitute "employment" of such Director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the fair market value
of the Common Stock, as determined by the Administrator in good faith on such
basis as it deems appropriate and applied consistently with respect to
Participants. Whenever possible, the determination of Fair Market Value shall be
based upon the closing price for the Shares as reported in the Wall Street
Journal for the applicable date.
(q) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "Involuntary Termination" means termination of a Participant's
Continuous Service Status under the following circumstances: (i) termination
without Cause by the Company or a Subsidiary, Parent, Affiliate or successor
thereto, as appropriate; or (ii) voluntary termination by the Participant within
60 days following (A) a material reduction in the Participant's job
responsibilities, provided that neither a mere change in title alone nor
reassignment following a Control Transaction to a position that is substantially
similar to the position held prior to the Control Transaction shall constitute a
material reduction in job responsibilities; (B) relocation by the Company or a
Subsidiary, Parent, Affiliate or successor thereto, as appropriate, of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site for the Company at the time of the Control
Transaction; or (C) a reduction in Participant's then-current total compensation
by at least 15%, provided that an across-the-board reduction in the salary level
of all other employees or consultants in positions
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<PAGE>
similar to the Participant's by the same percentage amount as part of a general
salary level reduction shall not constitute such a salary reduction.
(s) "Listed Security" means any security of the Company that is
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(t) "Named Executive" means any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(u) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(x) "Option Exchange Program" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price or are amended to decrease the exercise price as a result of a
decline in the Fair Market Value of the Common Stock.
(y) "Optioned Stock" means the Common Stock subject to an Option.
(z) "Optionee" means an Employee or Consultant who receives an
Option.
(aa) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(bb) "Participant" means any holder of one or more Options or Stock
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
(cc) "Plan" means this 2000 Stock Plan.
(dd) "Reporting Person" means an officer, Director, or greater than
ten percent stockholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(ee) "Restricted Stock" means Shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
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<PAGE>
(ff) "Restricted Stock Purchase Agreement" means a written document,
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as amended from time to time, or any successor provision.
(hh) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(ii) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(jj) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 below.
(kk) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ll) "Ten Percent Holder" means a person who owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 1,333,333 Shares of Common Stock plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2001 through 2009 equal to the
lesser of (i) 2,000,000 Shares (ii) five percent (5%) of the Shares outstanding
on the last day of the immediately preceding fiscal year, or (iii) such lesser
number of Shares as the Board shall determine. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an award should expire or become
unexercisable for any reason without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares that
were subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. In addition, any Shares of Common
Stock which are retained by the Company upon exercise of an award in order to
satisfy any withholding taxes due with respect to such exercise or purchase
shall be treated as not issued and shall continue to be available under the
Plan. Shares issued under the Plan and later repurchased by the Company pursuant
to any repurchase right which the Company may have shall not be available for
future grant under the Plan.
4. Administration of the Plan.
(a) General. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to make awards under the Plan.
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<PAGE>
(b) Committee Composition. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee administering
the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of
the Code, to the extent permitted or required by such provisions.
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights may from time to time be granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each award granted;
(v) to approve the form(s) of agreement(s) used under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option, Optioned Stock, Stock
Purchase Right or Restricted Stock, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(c) instead of Common Stock;
(viii) to implement an Option Exchange Program on such terms and
conditions as the Administrator in its discretion deems appropriate, provided
that no amendment or adjustment to an Option that would materially and adversely
affect the rights of any Optionee shall be made without the prior written
consent of the Optionee;
(ix) to adjust the vesting of an Option held by an Employee or
Consultant as a result of a change in the terms or conditions under which such
person is providing services to the Company;
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<PAGE>
(x) to construe and interpret the terms of the Plan and awards
granted under the Plan, which constructions, interpretations and decisions shall
be final and binding on all Participants; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided that Employees of Affiliates
shall not be eligible to receive Incentive Stock Options.
(b) Type of Option. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
(c) ISO $100,000 Limitation. Notwithstanding any designation under
Section 5(b), to the extent that the aggregate Fair Market Value of Shares with
respect to which Options designated as Incentive Stock Options are exercisable
for the first time by any Optionee during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options
shall be treated as Nonstatutory Stock Options. For purposes of this Section
5(c), Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of the Shares subject to an
Incentive Stock Option shall be determined as of the grant date of such Option.
(d) No Employment Rights. The Plan shall not confer upon any
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way with
such Participant's right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without Cause.
6. Term of Plan. The Plan shall become effective upon the effective date
of the registration statement on Form S-1 for the initial public offering of the
Company's Common Stock. It shall continue in effect for a term of ten (10) years
thereafter unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided that the term shall be no more than ten years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement and provided further that, in the case of an Incentive Stock
Option granted to a person who at the time of such grant is a Ten Percent
Holder, the term of the Option shall be five years from the grant date thereof
or such shorter term as may be provided in the Option Agreement.
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<PAGE>
8. Limitation on Grants to Employees. Subject to adjustment as provided
in Section 14 below, the maximum number of Shares that may be subject to Options
and Stock Purchase Rights granted to any one Employee under this Plan for any
fiscal year of the Company shall be 1,333,333, provided that this Section 8
shall apply only after such time, if any, as the Common Stock becomes a Listed
Security.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is determined
by the Administrator and set forth in the Option Agreement, but shall be subject
to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a
Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
Exercise Price shall be such price as determined by the Administrator, provided
that if such eligible person is a Named Executive of the Company at the time of
the Option grant, the per share Exercise Price shall be no less than 100% of the
Fair Market Value on the grant date if the Option is intended to qualify as
performance-based compensation under Section 162(m) of the Code.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) Permissible Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate (subject to the provisions of Section 153 of the
Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other
Shares that have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option is exercised,
provided that in the case of Shares acquired, directly or indirectly, from the
Company, such Shares must have been owned by the Optionee for more than six
months on the date of surrender (or such other period as may be required to
avoid the Company's incurring an adverse accounting charge); (6) delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and a securities broker approved by the Company shall require to
effect exercise of the Option and prompt delivery to the Company of the sale or
loan proceeds required to pay the exercise price and any applicable
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<PAGE>
withholding taxes; (7) any combination of the foregoing methods of payment; or
(8) such other consideration and method of payment for the issuance of Shares to
the extent permitted under the Applicable Laws. In making its determination as
to the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company and the Administrator may, in its sole discretion, refuse to accept a
particular form of consideration at the time of any Option exercise.
10. Exercise of Option.
(a) General.
(i) Exercisability. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator, consistent with the term of the Plan and reflected in the Option
Agreement, including vesting requirements and/or performance criteria with
respect to the Company and/or the Optionee.
(ii) Minimum Exercise Requirements. An Option may not be
exercised for a fraction of a Share. The Administrator may require that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent an Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(iii) Procedures for and Results of Exercise. An Option shall be
deemed exercised when written notice of such exercise has been given to the
Company in accordance with the terms of the Option by the person entitled to
exercise the Option and the Company has received full payment for the Shares
with respect to which the Option is exercised. Full payment may, as authorized
by the Administrator, consist of any consideration and method of payment
allowable under Section 9(b) of the Plan, provided that the Administrator may,
in its sole discretion, refuse to accept any form of consideration at the time
of exercise.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(iv) Rights as Stockholder. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 14 of the
Plan.
(b) Termination of Employment or Consulting Relationship. Except as
otherwise set forth in this Section 10(b), the Administrator shall establish and
set forth in the applicable Option Agreement the terms and conditions upon which
an Option shall remain exercisable, if at all, following termination of an
Optionee's Continuous Service Status, which provisions may be waived or modified
by the Administrator at any time. To the extent that the Optionee is not
entitled to exercise an Option at the date of his or her termination of
Continuous Service Status, or if the Optionee (or other person entitled to
exercise the Option) does not
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exercise the Option to the extent so entitled within the time specified in the
Option Agreement or below (as applicable), the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan. In no event may any Option be exercised after the expiration of the
Option term as set forth in the Option Agreement (and subject to Section 7).
The following provisions shall apply to the extent an Option Agreement does
not specify the terms and conditions upon which an Option shall terminate upon
termination of an Optionee's Continuous Service Status:
(i) Termination other than Upon Disability or Death or for
Cause. In the event of termination of an Optionee's Continuous Service Status,
such Optionee may exercise an Option for three months following such termination
to the extent the Optionee was entitled to exercise it at the date of such
termination. No termination shall be deemed to occur and this Section 10(b)(i)
shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or
(ii) the Optionee is an Employee who becomes a Consultant.
(ii) Disability of Optionee. In the event of termination of an
Optionee's Continuous Service Status as a result of his or her disability
(including a disability within the meaning of Section 22(e)(3) of the Code),
such Optionee may exercise an Option at any time within 12 months following such
termination to the extent the Optionee was entitled to exercise it at the date
of such termination.
(iii) Death of Optionee. In the event of the death of an
Optionee during the period of Continuous Service Status since the date of grant
of the Option, or within 30 days following termination of Optionee's Continuous
Service Status, the Option may be exercised by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance at any
time within 12 months following the date of death, but only to the extent of the
right to exercise that had accrued at the date of death or, if earlier, the date
the Optionee's Continuous Service Status terminated.
(iv) Termination for Cause. In the event of termination of an
Optionee's Continuous Service Status for Cause, any Option (including any
exercisable portion thereof) held by such Optionee shall immediately terminate
in its entirety upon first notification to the Optionee of termination of the
Optionee's Continuous Service Status. If an Optionee's employment or consulting
relationship with the Company is suspended pending an investigation of whether
the Optionee shall be terminated for Cause, all the Optionee's rights under any
Option likewise shall be suspended during the investigation period and the
Optionee shall have no right to exercise any Option. This Section 10(b)(iv)
shall apply with equal effect to vested Shares acquired upon exercise of an
Option, in that the Company shall have the right to repurchase such Shares from
the Participant at the Participant's original cost for the Shares within 90 days
following termination of Optionee's Continuous Service Status for Cause. Nothing
in this Section 10(b)(iv) shall in any way limit the Company's right to purchase
unvested Shares issued upon exercise of an Option as set forth in the applicable
Option Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted under the
Plan based on such terms
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and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. When the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing of the terms, conditions and restrictions related to the offer,
including the number of Shares that such person shall be entitled to purchase,
the price to be paid, and the time within which such person must accept such
offer. The purchase price of Shares subject to Stock Purchase Rights shall be as
determined by the Administrator. The offer to purchase Shares subject to Stock
Purchase Rights shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option.
(i) General. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original purchase price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at such rate as the Administrator may determine.
(ii) Termination for Cause. In the event of termination of a
Participant's Continuous Service Status for Cause, the Company shall have the
right to repurchase from the Participant vested Shares issued upon exercise of a
Stock Purchase Right at the Participant's original cost for the Shares within 90
days of termination of the Optionee's Continuous Service Status for Cause.
Nothing in this Section 11(b)(ii) shall in any way limit the Company's right to
purchase unvested Shares as set forth in the applicable Restricted Stock
Purchase Agreement.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Taxes.
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person
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exercising the Option or Stock Purchase Right) shall make such arrangements as
the Administrator may require for the satisfaction of any applicable federal,
state, local or foreign withholding tax obligations that may arise in connection
with the exercise of the Option or Stock Purchase Right and the issuance of
Shares. The Company shall not be required to issue any Shares under the Plan
until such obligations are satisfied. If the Administrator allows the
withholding or surrender of Shares to satisfy a Participant's tax withholding
obligations under this Section 12 (whether pursuant to Section 12(c), (d) or
(f), or otherwise), the Administrator shall not allow Shares to be withheld in
an amount that exceeds the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of shares previously acquired from
the Company that are surrendered under this Section 12(d), such Shares must have
been owned by the Participant for more than six (6) months on the date of
surrender (or such other period of time as is required for the Company to avoid
adverse accounting charges).
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
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<PAGE>
13. Non-Transferability of Options and Stock Purchase Rights. Except as
set forth in this Section 13, Options and Stock Purchase Rights may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution; provided that the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying the manner in which such
Nonstatutory Stock Options are transferable. The designation of a beneficiary by
an Optionee will not constitute a transfer. An Option or Stock Purchase Right
may be exercised, during the lifetime of the holder of Option or Stock Purchase
Right, only by such holder or a transferee permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the numbers of Shares set forth
in Sections 3(a)(i) and 8 above, and the number of Shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares of Common Stock effected without
receipt of consideration by the Company; provided that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, the Board shall notify each Optionee or holder of
Stock Purchase Rights at least fifteen (15) days prior to such proposed action.
To the extent it has not been previously exercised, each outstanding award will
terminate immediately prior to consummation of the transaction.
(c) Corporate Transaction.
(i) Corporate Transaction. In the event of a Corporate
Transaction, each outstanding Option or Stock Purchase Right shall be assumed or
an equivalent option or right shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation (the "Successor
Corporation"), unless the Successor Corporation does not agree to assume the
award or to substitute an equivalent option or right, in which case such Option
or Stock Purchase Right shall terminate upon the consummation of the
transaction.
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(ii) Control Transaction. Notwithstanding Section 14(c)(i)
above, the following shall apply under the circumstances described below:
(A) In the event of a Control Transaction in which the
Successor Corporation does not agree to assume or substitute outstanding awards,
the vesting and exercisability of each outstanding Option and Stock Purchase
Right, and the lapsing of any repurchase right in favor of the Company
applicable to Shares issued upon exercise of an award, shall accelerate as to
the number of Shares that would otherwise have vested and been exercisable, or
as to which the Company repurchase right would have lapsed, as of the date 12
months, in the case of a Participant who has been in a service relationship with
the Company for less than 2 years as of the date of consummation of the
transaction, or 24 months, in the case of a Participant who has been in a
service relationship with the Company for at least 2 years as of such date, in
each case assuming the Participant had remained in Continuous Service Status for
such 12 or 24 month period. Such acceleration shall be effective as of
immediately prior to consummation of the transaction. To the extent that an
award is not exercised prior to consummation of a transaction in which the award
is not being assumed or substituted, such award shall terminate upon such
consummation and the Administrator shall notify the Optionee or holder of such
fact at least five (5) days prior to the date on which the Option or Stock
Purchase Right terminates.
(B) Following a Control Transaction in which outstanding
awards were assumed or substituted with equivalent awards by the Successor
Corporation, in the event a Participant's service relationship with the Company
and/or the Successor Corporation is involuntarily terminated without Cause in
connection with, or within 6 months following consummation of, the transaction,
then the vesting and exercisability (or lapse of a repurchase right) applicable
to any assumed or substituted Option or Stock Purchase Right held by the
terminated Participant at the time of termination shall accelerate as to the
number of Shares that would otherwise have vested and been exercisable (or as to
which the repurchase right would have lapsed) as of the date 12 months, in the
case of a Participant who has been in a service relationship with the Company
and/or the Successor Company for less than 2 years from the date of termination
of that relationship, or 24 months, in the case of a Participant who has been in
a service relationship with the Company and/or the Successor Company for at
least 2 years as of such date, in each case assuming the Participant had
remained in Continuous Service Status for such 12 or 24 month period; provided
that the vesting and exercisability (or lapse of any repurchase right) of
assumed or substituted awards held by a person who was a Reporting Person
immediately prior to consummation of the Control Transaction shall accelerate in
full without regard to the length of such person's service relationship with the
Company and/or the Successor Corporation if that relationship is Involuntarily
Terminated in connection with, or within 6 months following consummation of, the
Control Transaction. The acceleration of vesting and lapse of repurchase rights
provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant's termination.
(iii) For purposes of this Section 14(c), an award shall be
considered assumed, without limitation, if, at the time of issuance of the stock
or other consideration upon a Corporate Transaction or a Control Transaction, as
the case may be, each holder of an award would be entitled to receive upon
exercise of the award the same number and kind of shares of stock or the same
amount of property, cash or securities as such holder would have been entitled
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<PAGE>
to receive upon the occurrence of the transaction if the holder had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the award at such time (after giving effect to any
adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 14); provided that if such consideration
received in the transaction is not solely common stock of the Successor
Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
award to be solely common stock of the Successor Corporation equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(d) Certain Distributions. In the event of any distribution to the
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator,
provided that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation (other than an adjustment pursuant to Section 14
above) shall be made that would materially and adversely affect the rights of
any Optionee or holder of Stock Purchase Rights under any outstanding grant,
without his or her consent. In addition, to the extent necessary and desirable
to comply with the Applicable Laws, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
of the Plan shall materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Optionee or
holder of the Stock Purchase Rights and the Administrator, which agreement must
be in writing and signed by the Optionee or holder and the Company.
(c) Accounting Issues. Notwithstanding anything else to the contrary
in this Section 16, the Administrator may at any time amend or adjust the Plan
or an outstanding award issued under the Plan without the consent of the
affected Participant if such amendment or adjustment is necessary to avoid the
Company's incurring adverse accounting charges.
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17. Conditions Upon Issuance of Shares. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising the award to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated February 11,
2000, except for Note 14 as to which the date is April 6, 2000, in the
Registration Statement (Form S-1 No. 333-30568) and related Prospectus of
Metawave Communications Corporation.
ERNST & YOUNG LLP
Seattle, Washington
April 6, 2000
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the two for three stock split described in Note 14 to the financial
statements.
ERNST & YOUNG LLP
Seattle, Washington
April 6, 2000
